By Tom Winnifrith, The Sheriff of AIM | Sunday 5 March 2017
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
AIM listed Eden Research (EDEN) has been engaging on fraudulent deals with related party company Terpenetech for six years now. The first deal was a sale which Eden booked but Terpenetech never paid for. Who cares, Eden kept that debt as a current asset for 5 years. Sure the auditors should have kicked up a fuss, the Nomad should have objected but this is AIM who cares about fraud! Of course the far bigger £600,000 fraud waited until August 2015. It was a panama pump classic as you can see here - but this is AIM and Nomad & broker ShoreCap wanted to earn big commission do a placing so everyone again turned a blind eye. But now the cover up is falling apart.
Papering over the cracks started on January 17 2017 when Tepenetech Europe Ltd was struck off. It appears to have been a dormant company established on 11 August 2015 but which never felt the need to file any accounts. Its sole director Alexander Abrey is a director of Eden. Why did this company exist? Did it never trade? Anyhow, that mess has now been tidied up with no accounts filed.
But the real issue is Terpenetech Ltd whose accounts for the year to July 31 2016 must be out by April 30. They will, I put it to you show sod all sales and thus it is clear that:
a) the £600,000 it "paid" to buy marketing rights from Eden was money down the toilet. It should thus be writing down the value of that license.
b) The carrying value of Eden's 29% stake in Terpenetech ( c£932,000) is a total joke. Eden's auditors must thus write it down big time in the Eden 2016 accounts.
Eden has a calendar year end. Its 2015 accounts pitched up at Companies House on 28 June 2016 so its 2016 accounts will be due out in under four months. But in 2016 it announced its full year numbers in late May so that RNS cannot be that far away. We know that the headline numbers will be dire. In late December at no-one is watching because it is Christmas time it stated:
Revenue for the year ended 31 December 2016 is currently expected to be in the region of £0.4m with an EBITDA loss for the year of approximately £1.1m. Eden's cash position is expected to be approximately £1.4m at the end of 2016.
So that asset write-down will be a non cash item but it will be material will it not and that will expose the Terpenetech deal for what it was, a panama pump fraud.
Now turning to the balance sheet. Trade payables exceeded trade payables by c£350,000 at the half year so ceteris paribus net current assets at the year end were £1.05 million. Cashburn at Eden is fairly consistent given how trivial revenues are so I would suggest that by the time results are announced in late May net current assets will be c £500,000 and that means that the auditors will have to raise an emphasis of matter concern.
But will the auditors also flag up the Terpenetech fraud and the consequent writedown. And given they must have had access to Tepenetech management accounts for 2015 why did they not raise this matter then?
Questions questions. Meanwhile the fraud Eden remains a sell at 12.5p - target 0p
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