Ann: Business Activity Statement & Appendix 4C - Dec-22 Qtr, page-7

The new CFO has produced a detailed and comprehensive Business Activities Report (BAR). He, the CEO and Board appears to be across the entire business portfolio/operations. No doubt this report would have been closely checked by In-House Counsel.

The organisational refocusing process is underway and appears to being managed efficiently.

100 roles they didn't need? Possibly the wash up of ceasing investment in SpaceLink?

Some Keytake-aways

"EOS has received approaches from several parties in relation to potential strategic growth partnerships and/or capital transactions."

- discussions/negotiations appear to be progressing."

"A confidential process is ongoing to develop and assess potential strategic partners having particular regard to their ability to support diversification into new geographic markets and/or to complement our existing products in existing markets. [Typically, EOS operates in an industry where it can take an extended period of time (including up to, and beyond, twelve months) for new market opportunities to be converted into signed sales contracts."]

- generally, procurement takes time and scope of works may be amended. This is normal.

"In Australia, the Commonwealth of Australia is continuing work on the Defence Strategic Review. This review is expected to clarify the Australian Defence Force’s (ADF) future plans on key projects, including some that may benefit EOS. The completion of this review is currently expected to be announced in H1 2023. As part of this review, the ADF’s plans for some projects that may benefit EOS are now expected to be announced later than previously expected."

- expect PM/Defence Ministers' announcements prior to the Federal Budget.

"In January 2023 Defence Systems secured an initial order for the new ultra-light R150 RWS product. An order for fourteen R150 gimbals was as received as part of the L3Harris Vampire program, under which the US is providing support to Ukraine. This order represents a significant validation of a new EOS product and may lead to substantial follow-on opportunities in future. The order is for less than $10m and is expected to be completed in 2023."

"In addition, following supply in previous years, a follow-on order was secured for fourteen new heavyweight R600 systems, plus spares, for a customer in South East Asia. The R600 order is being manufactured in EOS US facilities in Huntsville, Alabama. The total order is for up to $15m and is expected to be completed in 2023."

"Both EM Solutions and Space Systems continued to pursue significant sales opportunities in Australia and internationally. These may lead to significant customer contracts being signed during 2023."

"In the US, the EOS facility in Huntsville, Alabama has secured a Facility Clearance from the US Defence Counterintelligence Security Agency. Having obtained this clearance, the EOS Huntsville facility is now eligible to compete for classified contracts and to work with other cleared defence contractors on classified efforts to supply the US military."

- this is a major achievement signifying EOS technology, capacity to deliver and meet US needs, among other things eg compatibility and value add.

"At the end of the quarter, EOS had a contract asset recorded totalling approximately $161m, representing work completed for existing contracts but not yet invoiced to the customer. This balance relates almost entirely to a large customer contract in the Middle East, which is expected to be invoiced and realised in cash in future periods."

- once parties are satisfied with terms expect progressive payments. New "allied" customers may eventuate.

"In addition, at 31 December 2022, EOS had received payments in advance from customers totalling approximately $23m.The net contract asset (after deducting payments received in advance) of $138m at 31 December 2022 was $23m higher than it was at 30 September 2022. This increase was a key cause of the negative operating cash flow during the quarter ended 31 December 2022."

"Some opportunities that were previously expected to be signed and commence delivering revenue in H2 2022 have been delayed by customers. This is due to arange of political, economic and global geopolitical factors, including the impact of Ukraine and ongoing global supply chain issues. These opportunities are now expected to deliver revenue in 2023 and beyond."

- this doesn’t mean no contracts but rather delivery has been pushed out.

Overall the BAR is very optimistic with obligations achievable, new markets & repeat orders possible; and EOS has an exceptional defence pipe-line that is in demand.

More detail to follow in the Preliminary Final Report on or before 28 February 2023.

The share market should react positively to the BAR this week once the detail has been absorbed and potential risks analysed.