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Eden Research – The art of value creation. How a licence worth only £20,000 in June 2013 became worth £600,000 in August 2015.

By Tom Winnifrith, The Sheriff of AIM | Tuesday 7 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.

On 24 August 2015, Eden Research (EDEN) announced its now infamous deal (aka massive panama pump fraud) with TerpeneTech. That fraud is now unravelling big time as explained here. But let us revert to the RNS of 2015 which stated :

In consideration for this Agreement, TerpeneTech has paid Eden an up-front fee of £0.6m for the licensed rights and will pay royalties on the sale of products.”

The announcement also included the following statement:

As part of the plan to enter into this agreement with TerpeneTech, the existing agreement with Neo-Pharma Innovations Limited, who held the rights to Eden's patented, unencapsulated head lice product formulations, has been terminated.”

Interestingly the 20 year exclusivity license was granted to Neo-Pharma was only previously announced in a RNS on 5 June 2013. The RNS doesn’t state the proceeds received. However, the accounts for the year ended 31 December 2013 include in note 2 which analyses the revenue received includes the following statement:

Revenues of £nil (2012: £20,000) are derived from a single external customer, Neo-Pharma, from within the Data Sharing segment.”

No revenue was stated as being due from Neo-Pharma in the same note in 2014. The format for note 2 was restated for 2015 and unhelpfully the names of customers were no longer given. As an aside, Eden has restated note 2 in 2015, 2014 and 2013 accounts which is unusual to say the least and gives impression that it might be trying to make it hard to construct a track record of the revenues generated by sources,

Looking up Neo-Pharma Innovations accounts at Companies House for the period ended 30 November 2013 shows an addition of £20,000 to intangible assets which correlates with revenue stated above. So how has Neo Pharma fared with this valuable license? Based on its last published accounts for the year ended 30 November 2015 these now show a retained deficit of £118,840. It gets better.

In terms of assets we see intangible assets which are amortized over their useful life. They stand at £20,000 ( the Eden deal) the same as in 2014. So no amortization then. Other assets (like cash, trade receivables, stock) were all nil as in 2014. So I guess trading was er..completely non existent.

So in a period of just over 2 years the value of the license Eden sold increased over 30 times but Eden didn’t have to pay anything to Neo-Pharma to terminate its 20 year existing licence. Given that Eden stated in its press release of 5 June 2013 that Neo-Pharma would bear the burden of the commercialization cost this seems rather unlikely.

I put it to you that the Neo-Pharma deal was a spoof to ramp the shares ahead of a placing. But that is better than the Terpenetech deal which was just a slam dunk fraud. Keep selling, target price 0p

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