ferrets stock to watch: electro optic systems ltd

Ferrets Stock to Watch: ELECTRO OPTIC SYSTEMS LTD
08:48, Monday, 16 October 2006

A COMPANY THAT IS NEVER LOST IN SPACE COMMUNICATIONS

Sydney - Monday - October 16: (RWE Aust Business News)
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Electro Optic Systems Holdings Ltd (ASX:EOS) shot up 23c to as
high as $1.42 on Friday for no apparent reason.

Ferret expects the company to be the target of an ASX please
explain in the light of the shares climbing from 81c to the current in
just over a week.

Electro Optic last made an announcement to the market on October
3, noting that the US Air Force (USAF) had reported a budget for a space
fence with $A780 million to be spent over six years.

In the last report, Electro Optic Systems said it had invested
more than $55 million over the past decade developing the next generation
of space sensors.

The USAF, for the first time, announced a budget estimate for
what's known as a Space Fence - a program to upgrade the quantity and
quality of information on objects in space.

This information is the basis for all military and commercial
activities in space and the USAF is the agency responsible for providing
all the US Government requirements.

The USA and its allies are now highly dependent on space for
communication, surveillance, intelligence, navigation, weapons delivery
and weapon placement.

The space environment presents both environmental and
adversarial threats to defence assets, and these threats must be
monitored.

The quality and quantity of space information available to the
US and its allies does not meet emerging needs to maintain and protect
key defence assets, and an upgrade of the capability of the USA and its
allies is now underway.

EOS has recently completed a 10-year program for the development
of space sensors that meet or exceed Space Fence requirements and which,
additionally, embody a range of desirable operational features.

For example, the new EOS sensors are at least 10 times more
sensitive and accurate than those presently in use.

In addition to EOS investment, US and Australian government
agencies have funded programs for testing and qualifying EOS space
surveillance sensors.

Demonstration programs such as Razor View and NEOT were
conducted since 2004 by USAF in Australia with the co-operation of the
Australian Department of Defence.

All of these programs have been successful.

Although the need for improved space information has been known
for some time and the Space Fence program launched 15 months ago, the
USAF has only recently released the first budget estimates for the Space
Fence.

These USAF estimates provide $A780 million over six years from
2007. This initial funding estimate is for general purpose, ground-based
sensors only, and includes neither airborne or space-based sensors, nor
sensor requirements for missile defence and asset protection.

EOS estimates that total program requirements for all space
sensors will exceed $3.5 billion over the next seven years.

In January of 2005 EOS entered into a strategic agreement with
Northrop Grumman Space Technologies, an operating entity of
Northrop Grumman Corporation, specifically focused on Space Fence and
related applications.

Activity under this agreement continues to intensify with a
focus on near-term operational deployments of EOS sensors.

Trials and demonstrations of the sensors and their
inter-operability with existing space infrastructure continue at this
time, and are meeting with success.

EOS believes that it is well-placed to participate in future
procurements for the Space Fence and related programs.

In parallel developments, EOS is also negotiating directly with
major commercial users of space for their access to space information
obtained by the new EOS sensors.

These negotiations are moving towards completion in 2007, says
chief executive Dr Ben Greene.

SHARE PRICE MOVEMENTS
*********************

Shares of EOS closed 6c higher at $1.25 on Friday. Rolling high
for the year has been $4 and low 60c. The company has 51.3 million shares
on issue with a market cap of $64.1 million.

On August 31 the company reported a loss of $16.4 million for the
half year to June, from revenue of of $21.8 million

Directors said a loss of $2.1 million from the space systems
sector was extremely disappointing, and overshadowed improving
performance in the military sector and stable results from space
surveillance.

The military sector produced a loss of $6.1 million on the
revenue of $17.8 million.

This sector now has strong contracts in hand for the second
half, will show an improvement in both revenue and results.

But its long-term future lies in the military and space
surveillance sectors performing satisfactorily.

These sectors have the potential to generate significant revenue
in future periods.

BACKGROUND
**********

EOS develops and produces products incorporating advanced
electro-optic technologies for the aerospace market.

EOS products are developed through internal research and
development programs based on EOS core technologies in software, lasers,
electronics, optics, gimbals, telescopes and beam directors, optical
coatings and precision mechanisms.

The company focuses on the space surveillance and control, and
the military force protection sectors of the aerospace market.

In space surveillance and control, EOS specialises in space
information based on the use of EOS-developed instruments and sensors to
detect, track, classify and characterise objects in space. This
information is required for both military and commercial space
applications.

To support its space business, EOS develops and produces a wide
range of space-related infrastructure in the form of sub-systems, such
as telescopes and beam directors.

Some of these are sold commercially. An example is optical
telescopes, where EOS is widely known as the largest producer of major
optical telescopes in the world.

In 2005 EOS formed a strategic alliance with Northrop Grumman
(USA) for the development and exploitation of certain segments of the
space sector.

In the force protection sector, EOS develops and produces
complete robotic or remotely-controlled weapon systems, based on
existing weapons in customer inventory.

This market is addressed by EOS through a range of activities,
as both prime and sub-contractor, and in partnership with other entities
active in the sector.

The US Army CROWS program is a major program where EOS
participates as a sub-contractor to Recon Optical Inc.

EOS operates research centres in Australia, the US and Germany,
and has significant production facilities in Australia and the US.

New production facilities are expected to come online in
Germany in 2007 to meet demand from both space and weapons sectors.

The EOS group of companies was founded in 1983 and became a
publicly-listed company on the Australian Stock Exchange in 2002.

ENDS