If nothing changes then nothing will change, page-5

The AFR raised concerns back in June. It was quite a long article but below is some of it.

short-sellers are increasingly questioning the company’s unusual accounting methods, its lack of cash generation and its governance arrangements.

The company’s auditor has raised concerns about the ongoing viability of the company, given EOS made a loss of almost $30 million over the 2020 calendar year, with net cash outflows from operations totalling $110 million.

According to EOS’ auditor, Deloitte’s David Salmon, there is a “material uncertainty ... on the consolidated entity’s ability to continue as a going concern”.

But EOS is not like most manufacturers. While many companies do not book revenue until their product is delivered to the end customer, EOS accounts for revenue as it manufactures the weapons.

Revenue differences
According to footnotes in its accounts, it can do this because weapons “manufactured under this contract do not have an alternative use” and the company “has an enforceable right to payment for performance completed to date under the contract”.

EOS also factors in no chance the customer payment – which has so far failed to materialise – will not arrive, due to the UAE’s prior “known” payment history and given it is a “government customer secured by a letter of credit”.

Due to EOS’ habit of accounting for revenue on manufacture, cash receipts have lagged booked revenue by $153 million since the start of 2018.

As actual money has not yet arrived, EOS has had to tap the market frequently to top up its working capital to fund its manufacturing operations.

Although EOS hosed down a September 2019 report by The Australian Financial Review that the company was about to raise capital, saying “This speculation is unfounded and incorrect”, the company raised $220 million in three instances over the next six months.

While the board’s history of service to Australia cannot be doubted, fund managers have questioned the level of business acumen among the group of directors.

https://www.copyright link/companies/manufacturing/short-sellers-bring-space-defence-company-back-to-earth-20210614-p580y4