ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED
ACN 092 708 364
www.eos‑aus.com
2014
ANNUAL
REPORT
CONTENTS
Review of Operations
Directors’ Report
Auditors’ Report
Directors’ Declaration
Consolidated Statement of Profi t or Loss and Other
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to and forming part of the Financial Statements
ASX Additional Information
Twenty Largest Shareholders
Corporate Governance Statement
1
4
14
17
18
19
20
21
22
65
67
68
COMPANY DIRECTORY
Directors
Mr Fred Bart (Chairman)
Dr Ben Greene (Chief Executive Offi cer)
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Company Secretary
Mr Ian Dennis
Registered Offi ce
Suite 2, Level 12
75 Elizabeth Street
Sydney NSW 2000
Australia
Telephone +61 2 9233 3915
Facsimile +61 2 9232 3411
Web site www.eos‑aus.com
Share Registry
Sydney NSW 2000
GPO Box 7045
Sydney NSW 1115
Australia
Facsimile 1300 137 341
Auditors
Deloitte Touche Tohmatsu
Chartered Accountants
Eclipse Tower
Level 19, 60 Station Street
Parramatta NSW 2150
Australia
Computershare Investor Services Pty Limited
Level 3, 60 Carrington Street
Telephone 1300 855 080 or +61 3 9611 5711 outside Australia
4766 Designed and Produced by RDA Creative www.rda.com.au
REVIEW OF OPERATIONS
1. RESULTS FOR FULL‑YEAR
ENDING 31 DECEMBER 2014
The consolidated entity incurred a net loss during the
year of $3,017,546 (2013: $1,562,746 profit) on revenues
of $23,476,433 (2013: $29,882,393).
Net cash provided by operating activities was $1,721,216
(2013 ‑ $2,646,482 used by). As at 31 December 2014,
the consolidated entity had cash of $5,803,264 (2013
‑ $4,048,005) of which $254,146 (2013 ‑ $97,000) is
restricted as it secures bank guarantees on existing
contracts with local and overseas customers. The cash
will become unrestricted when the contract is concluded
or renegotiated.
The operating loss for the 12 months ended at
31 December 2014 was within management
expectations. As expected, a small profit in the second
half of 2014 was not sufficient to overcome the first
half loss of $3,186,439, leading to a full year loss
of $3,017,546.
2. EOS DEFENCE SYSTEMS
This sector develops, markets, manufactures and
supports remote weapon systems [RWS] and related
products in global markets.
New Products
There is escalation globally of conflicts where EOS
products could make a strong contribution provided
EOS can meet market expectations for reduced weight,
improved performance and reduced prices. This requires
new technology and new products.
Markets
The growth markets for EOS defence exports
are currently Asia and the Middle East. In both
these markets EOS is well positioned to capture
several programs.
EOS is in the latter stages of competition for three
international contracts. In each case EOS, participating
through a local partner, was shortlisted from a broad
competition and has led the competition in performance
and reliability trials over the past 18 months.
The final stage of competition will involve updated
pricing proposals. These three programs are expected
to proceed to contract award in late 2015 subject to the
availability of funds to each customer.
Australia is expected to procure turrets for hundreds of
armoured vehicles under its LAND 400 program, which
will be awarded in 2017, and tenders were called by the
Commonwealth on 19 February 2015. EOS intends to
participate in this procurement.
The deployed base of EOS weapon systems world‑wide
is now generating increasing revenue for maintenance,
upgrades and spare parts. This market is expected to
grow into the future.
3. EOS SPACE SYSTEMS
This sector builds telescopes and dome enclosures and
develops long‑range space sensors to acquire data to
support the provision by EOS of data and/or services in
global space markets. EOS sensors are deployed and
operated by EOS or its strategic partners to obtain data
for commercial sale.
During the period EOS achieved all its planned objectives
for its two new RWS products:
Space Data
A. R‑400S Weapon System
The R‑400S is a significantly upgraded version of the
R‑400 weapon system which was developed for the US
Army and produced in quantity. The R‑400S provides
double the firepower at half the weight of any weapon
system available previously.
B. Remote Turret System
The EOS turret has completed development, and met all
customer performance requirements. The product has
now successfully completed reliability testing and will be
ready for production from late 2015.
During 2013 EOS completed all developments
required for commercialisation of its space
tracking technology. These developments included
customer‑funded efforts to achieve the sensitivity,
accuracy and cost‑effectiveness required for achieving
sustainable operations.
During 2014 the EOS space tracking sensor which had
been under development for 10 years was accepted as
a contributing sensor for the USAF Space Surveillance
Network [SSN]. This is the first time a non‑US sensor
has been qualified to contribute data to the SSN.
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Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 REVIEW OF OPERATIONS (CONT)
At this point EOS committed its own funds to the
construction of a new space tracking site in Western
Australia to be equipped with the new EOS sensors to
expand significantly the volume of space data available
to EOS. This was announced on 5 August 2014.
EOS then entered into a strategic cooperation agreement
with Lockheed Martin Corporation for the expansion of
this new site in Western Australia with even more EOS
sensors to be funded by Lockheed Martin. This was
announced on 26 August 2014.
The new site is scheduled to be operational in early 2016.
It will combine with other assets available to EOS
and Lockheed Martin to significantly contribute to the
space tracking capacity available to the commercial
space industry globally, and with higher accuracy and
responsiveness than other available data.
With current and proposed deployments of its
proprietary sensors in EOS sites, EOS is well
placed to become a significant provider of space
data going forward. Further expansion of tracking
infrastructure at other sites is likely.
EOS Space Systems has a backlog of funded orders of
over $20 million. This backlog will convert to revenue
over the next 18 months.
There is now substantial momentum towards
achievement of sufficient sensors and data under
control of EOS and Lockheed Martin, acting
in cooperation, for that team to provide risk reduction
in space operations for space assets facing the highest
risk from space debris. The value of protected assets will
increase in future as more sites and sensors are added.
Partnerships
EOS space sensors will be deployed to obtain data which
will provide the basis for information‑based services
to be marketed to the space community. The core
technologies which underpin the EOS space sensors can
also be applied to future solutions for the removal of
space debris.
Although development of the sensor technology was
undertaken principally by EOS with some customer
funding support, EOS plans to undertake the next
development phases in collaboration with other
space entities.
On 1 September 2014 EOS executed an agreement
with the Commonwealth of Australia relating to
the establishment of an international research
collaboration in space technology. Under the
agreement the Commonwealth will provide around
$20 million towards a 5‑year research budget of
$60 million for developing technologies for mitigating
and ultimately eliminating the threat from space debris.
Joining the Commonwealth and EOS in this
collaboration are the Australian National University,
the Royal Melbourne Institute of Technology, Optus,
Lockheed Martin [USA] and the National Institute for
Communications Technology [Japan]. The collaboration
will be performed through an incorporated not‑for‑profit
entity called the Space Environment Research Centre.
Commercial benefits issuing from the research will
be distributed amongst the collaboration participants
according to their respective contributions.
EOS also collaborates with a diverse group of
aerospace entities globally to facilitate customer
access to EOS space data in those markets.
4. FORECAST AND OUTLOOK
Demand for advanced defence products is growing
globally due to emerging threats and escalating conflict.
This demand is limited by current constraints on
government spending in most countries, combined with
some restrictions on access to EOS products imposed by
the Australian government. The net effect is generally
positive growth but with demand emerging and
subsiding as the cycles of threat and funding compete
for influence.
New weapon system orders typically take 6 months
to impact revenue and the current order backlog for
defence systems products is below its long‑term
average, suggesting that revenue for 2015 will contract.
This contraction will be offset by a reduction in costs
for product development because key new products are
now market‑ready. EOS expects defence sector financial
performance in 2015 to be comparable with 2014 with
the outlook improving through 2015 as new products
win sales. The reduction in value of the Australian dollar
will support new sales.
The outlook for space sector is positive. EOS expects
its space sector to break even in 2015 after expensing
substantial costs relating to the establishment of a new
tracking site in Western Australia.
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Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 REVIEW OF OPERATIONS (CONT)
Financial uncertainties can adversely impact the
governments which are EOS customers. The company
cannot be certain that future customer procurements
will continue as usual or that business conditions will
not deteriorate from current expectations.
The financial statements have been prepared on the
basis of a going concern as detailed in Note 1(a),
however due to uncertainties related to future cash
flows beyond a twelve month period, the auditors have
included an emphasis of matter in their audit report in
relation to going concern. The same emphasis of matter
has been included in previous audit reports.
Ben Greene
Chief Executive Officer
26 March 2015
3
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT
The directors of Electro Optic Systems Holdings Limited submit herewith the annual financial report of the company
for the year ended 31 December 2014. In order to comply with the provisions of the Corporations Act 2001, the directors
report as follows:
Directors
The names and particulars of the directors of the company during or since the end of the financial year are:
Name
Fred Bart
Particulars
Chairman (Age 60). He has been Chairman and Director of numerous public and private companies
since 1980, specialising in manufacturing, property, technology and marketable securities. Mr Bart
is Chairman of Immunovative Therapies Limited, an Israeli company involved in the manufacture
of cancer vaccines for the treatment of most forms of cancer. He is a member of the Australian
Institute of Company Directors and is a member of the Remuneration Committee. Appointed to the
Board on 8 May 2000.
Dr Ben Greene BE (Hons), Phd in Applied Physics (Age 64) is the Chief Executive Officer of Electro Optic Systems.
Ian Dennis
Mark Ureda
Lt Gen
Peter Leahy AC
Kevin Scully
Dr Greene was involved in the formation of Electro Optic Systems. He is published in the subject
areas of weapon system design, laser tracking, space geodesy, quantum physics, satellite design,
laser remote sensing, and the metrology of time. Dr Greene is a member of Australia’s Prime
Ministers Science, Engineering and Innovation Council (PMSEIC), CEO of the Cooperative Research
Centre for Space Environment Management and Deputy Chair of the Western Pacific Laser
Tracking Network (WPLTN). Appointed to the Board on 11 April 2002.
BA, C.A. (Age 57) is a Chartered Accountant with experience as director and secretary in various
public listed companies and unlisted technology companies in Australia and overseas. He has been
involved in the investment banking industry and stockbroking industry for the past twenty five years.
Prior to that, he was with KPMG, Chartered Accountants in Sydney. Appointed to the Board on
8 May 2000. He is a member of the Australian Institute of Company Directors and is a member of
the Audit Committee and Remuneration Committee. He is also company secretary of Electro Optic
Systems Holdings Limited.
Non‑executive director (Age 60). Appointed to the Board on 28 April 2005. Mark was vice president,
Strategy and Technology for Northrop Grumman Corporation, a global defence company until
August 2010. Mark is now Vice President and General Manager of the Harman Professional
Loudspeaker Group. Mark received a bachelor’s degree in Engineering from the University of
California at Los Angeles, a master’s degree in Acoustics from the Pennsylvania State University
and a master’s degree in Finance from the UCLA Graduate School of Management.
Non‑executive director (Age 62). Appointed to the Board on 4 May 2009. Peter Leahy AC retired
from the Australian Army in July 2008 as a Lieutenant General in the position of Chief of Army.
Among his qualification he holds a BA (Military Studies), a Master of Military Arts and Science
and is a member of the Australian Institute of Company Directors. He is a Professor and the
foundation Director of the National Security Institute at the University of Canberra. He is a director
of Codan Limited, Citadel Group Limited, a member of the Defence South Australia Advisory Board,
Chairman of the Red Shield Appeal in the ACT and the charity Soldier On and a Trustee of the
Prince’s Charities Australia. He is Chairman of the Audit Committee.
Non‑executive director (Age 57). Appointed to the Board on 19 September 2011. Kevin Scully
has more than 30 years of experience in equities research and analysis, corporate advisory and
related matters. He has worked in various positions such as the head of research and director
of Schroders, HSBC and the Netresearch group (which he founded). Kevin is an advisor to two
regulatory authorities of the Singaporean Government (Commercial Affairs Department and the
Monetary Authority of Singapore) since 1999. In March 2014 he was appointed Adjunct Professor
in the School of Human Development and Social Services at SIM University. Kevin is also a director
of PNE Micron Limited and NTUC Income Insurance Co‑Operative Limited. He is a member of the
Audit Committee.
The above named directors held office during and since the end of the financial year.
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Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT (CONT)
Directorships of Other Listed Companies
Directorships of other listed companies held by directors in the three years immediately before the end of the financial
year were as follows:
Name
Fred Bart
Ian Dennis
Lt Gen Peter Leahy AC
Company
Period of directorship
Audio Pixels Holdings Limited
5 September 2000 to date
Audio Pixels Holdings Limited
5 September 2000 to date
Codan Limited
Citadel Group Limited
19 September 2008 to date
27 June 2014 to date
Kevin Scully
PNE Micron Holding Limited
11 April 2011 to date
Principal Activities
The principal activities of the consolidated entity are in the space and defence systems business.
The company is listed on the Australian Securities Exchange.
Review of Operations
A detailed review of operations is included on pages 1 to 3 of this financial report.
Changes to the State of Affairs
There was no significant changes in the state of affairs of the consolidated entity that occurred during the financial period.
Subsequent Events
There has not been any matter or circumstance that has arisen since the end of the financial year, that has significantly
affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state
of affairs of the consolidated entity in future financial years.
Future developments
The company will continue to operate in the space and defence systems business.
Please see the review of operations for further details.
Environmental Regulations
In the opinion of the directors the consolidated entity is in compliance with all applicable environmental legislation
and regulations.
5
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT (CONT)
Dividends
The directors recommend that no dividend be paid and no amount has been paid or declared by way of dividend since
the end of the previous financial year and up to the date of this report.
Share Options
Share options granted to directors and executives
During and since the end of the financial year no share options were granted to any directors of the company or
consolidated entity as part of their remuneration. No options have been issued to executives since the end of the
financial year.
Share options on issue at year end or exercised during the year
There were no unissued shares or interests under option at year end and no options were exercised during the year.
There were no shares or interests issued during the financial year as a result of exercise of an option.
Indemnification and Insurance of Officers and Auditors
During the financial year, the company paid a premium in respect of a contract insuring the Directors and Officers of the
Company and any related body corporate against a liability incurred as such a Director or Officer to the extent permitted
by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the coverage provided
and the amount of the premium. The Company has agreed to indemnify the current Directors, Company Secretary and
Executive Officers against all liabilities to other persons that may arise from their position as Directors or Officers of the
Company and its controlled entities, except where to do so would be prohibited by law. The agreement stipulates that
the Company will meet the full amount of any such liabilities, including costs and expenses.
The Company has not, during or since the financial year indemnified or agreed to indemnify an auditor of the company
or of any related body corporate against any liability incurred as such an auditor.
Directors’ Meetings
The following table sets out the number of directors’ meetings (including meetings of committees of directors)
held during the financial year and the number of meetings attended by each director (while they were a director or
committee member). During the financial year, 14 Board meetings, 2 audit committee meetings and no Remuneration
committee meetings were held.
Directors
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Board of directors
Audit committee
Remuneration committee
Held
Attended
Held
Attended
Held
Attended
14
14
14
14
14
14
14
14
14
14
13
12
‑
‑
2
‑
2
2
‑
‑
2
‑
2
2
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
6
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT (CONT)
Directors’ Shareholdings
The following table sets out each Director’s relevant interest in shares and options of the company or a related body
corporate as at the date of this report.
Directors
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Fully paid ordinary shares
Options
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
‑
‑
‑
‑
‑
There has been no movement in Director shareholdings during the 2014 year.
Remuneration Report (Audited)
The key management personnel of Electro Optic Systems Holdings Limited during the year were:
Mr Fred Bart (Chairman, Non executive director)
Dr Ben Greene (Chief Executive Officer and director)
Mr Ian Dennis (Non‑executive director)
Mr Mark Ureda (Non‑executive director)
Lt Gen Peter Leahy AC (Non‑executive director)
Mr Kevin Scully (Non‑executive director)
Mr Mark Bornholt (Chief Executive Officer of Defence Systems) (resigned 12 August 2014)
Dr Craig Smith (Chief Executive Officer of EOS Space Systems Pty Limited)
Mr Scott Lamond (Chief Financial Officer ‑ Electro Optic Systems Pty Limited)
This report outlines the remuneration arrangements in place for Directors and Executives of the Group.
The Directors are responsible for remuneration policies and packages applicable to the Board members and executives
of the Group. The Group has a separate Remuneration Committee. The broad remuneration policy is to ensure the
remuneration package properly reflects the persons duties and responsibilities.
Remuneration structure
In accordance with best practice corporate governance, the structure of Non‑Executive Director and senior manager
remuneration is separate and distinct.
Non‑Executive Director remuneration
Objective
The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and
retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.
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Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
Structure
The Company’s Constitution and the Australian Securities Exchange Listing Rules specify the aggregate remuneration
of Non‑Executive Directors shall be determined from time to time by a General Meeting of shareholders. An amount
not exceeding the amount determined is then divided between the Directors as agreed. The latest determination was at
the Annual General Meeting held on 31 May 2012, when shareholders approved a maximum aggregate remuneration of
$350,000 per year excluding options.
The amount of aggregate remuneration approved by shareholders, the manner in which it is apportioned amongst
Directors, and the policy of granting options to Directors, are reviewed by directors at least every two years.
Each Non‑Executive Director receives a fee for serving as a Director of the Company. No additional fees are paid to any
Director for serving on a committee of the Board. A company associated with Mr Ian Dennis receives a fee in recognition
of additional services provided to the Group.
Executive Director and Senior Management remuneration
Objective
The Group aims to award Executives with a level and mix of remuneration commensurate with their position and
responsibilities within the Group and so as to:
■ reward Executives for Group and individual performance against targets set by reference to suitable benchmarks;
■ align the interests of Executives with those of shareholders; and
■ ensure that the total remuneration paid is competitive by market standards.
Structure
The remuneration paid to Executives is set with reference to prevailing market levels and typically comprises a fixed
salary and option component. Options are granted to Executives in line with their respective levels of experience and
responsibility. Details of the amounts paid and the number of options granted to Executives are disclosed elsewhere in
the Directors’ Report.
Employment contracts
There are no employment contracts in place with any Non‑Executive Director of the Group. Executive Directors
and Senior Management are employed under standard employment contracts which contain no unusual terms.
Beyond accrued leave benefits, there are no other termination payments or golden parachutes for any directors
or senior executives.
8
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
Director remuneration
The following tables disclose the remuneration of the directors of the Company:
2014
Mr Fred Bart
Dr Ben Greene*
Mr Ian Dennis#
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Short term
Post Employment
Equity
Salary &
Fees
$
Non‑
monetary
$
Superannuation
$
Options
$
Other
Long Term
Benefits
$
61,000
432,283
157,500
40,875
37,500
40,875
770,033
‑
‑
‑
‑
‑
‑
‑
5,719
18,957
3,516
‑
3,516
‑
31,708
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
* Executive Director during the financial year
# Includes fees for additional services provided of $120,000 (2013: $120,000)
2013
Short term
Post Employment
Equity
Salary &
Fees
$
Non‑
monetary
$
Superannuation
$
Options
$
Mr Fred Bart
Dr Ben Greene*
Mr Ian Dennis#
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
61,000
370,032
157,500
40,875
37,500
40,875
‑
20,054
‑
‑
‑
‑
707,782
20,054
5,566
33,476
3,422
‑
3,422
‑
45,886
‑
‑
‑
‑
‑
‑
‑
Other
Long Term
Benefits
$
‑
‑
‑
‑
‑
‑
‑
* Executive Director during the financial year
# Includes fees for additional services provided of $120,000 (2013: $120,000)
Total
$
66,719
451,240
161,016
40,875
41,016
40,875
801,741
Total
$
66,566
423,562
160,922
40,875
40,922
40,875
773,722
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Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014
DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
Executive remuneration
No executives are employed by the holding company. The following table discloses the remuneration of the executives of
the consolidated entity:
2014
Short term Post Employment
Equity
Dr Craig Smith
Mr Mark Bornholt**
Mr Scott Lamond
Salary &
Fees
$
210,000
136,286
193,365
539,651
Non‑
monetary
$
Superannuation
$
Options
$
‑
‑
‑
‑
19,012
13,181
17,856
50,049
‑
‑
‑
‑
Other
Long Term
Benefits
$
‑
‑
‑
‑
Total
$
229,012
149,467
211,221
589,700
** Mark Bornholt was a full time executive until he resigned on 12 August 2014. Since 12 August 2014, a company associated with Mark
Bornholt has received consulting fees for services rendered of $20,067.
2013
Short term Post Employment
Equity
Dr Craig Smith
Mr Mark Bornholt
Mr Scott Lamond
Salary &
Fees
$
210,000
210,000
185,000
605,000
Non‑
monetary
$
Superannuation
$
Options
$
‑
‑
‑
‑
19,163
18,575
16,881
54,619
‑
‑
‑
‑
Other
Long Term
Benefits
$
‑
‑
‑
‑
Total
$
229,163
228,575
201,881
659,619
Non‑monetary includes the provision for motor vehicles and health benefits.
No options were granted to, or exercised by any director or executive during 2013 or 2014 or since the end of the
financial year.
The following table sets out each key management personnel’s equity holdings (represented by holdings of fully paid
ordinary shares in Electro Optic Systems Holdings Limited).
2014
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
10
Balance at
1/1/14
Granted as
remuneration
Received on
exercise of
options
Net other
change
Balance at
31/12/14
No.
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
89,450
‑
No.
No.
No.
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
No.
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
89,450
‑
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
Elements of remuneration related to performance
There are no performance conditions other than service attached to the above remuneration to directors and executives.
Directors and senior executives receive options as disclosed in the below tables which are not subject to specific
performance conditions other than service. The overall performance of the company as measured by the share price
will determine whether the options are exercised and whether the director or executive receives any benefit from
these options. The time service condition has been chosen by the Board as an appropriate condition as it helps in the
retention and motivation of staff. Options issued to certain directors and executives are also subject to vesting provisions
as disclosed below.
Key management personnel option holdings
On 10 December 2009, The Directors’ issued 1,800,000 unlisted options to executives and staff. The options issued
to executives and staff had an exercise price of $1.30 and expired on 8 December 2013. These options vested
20% after 12 months, 30% after 2 years and the balance after 3 years.
Balance at
1/1/14
Granted as
remuneration
(Lapsed)
Balance at
31/12/13
Balance
vested at
31/12/13
Options
vested
during year
No.
No.
No.
No.
No.
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Balance at
1/1/13
Granted as
remuneration
(Lapsed)
Balance at
31/12/13
Balance
vested at
31/12/13
Options
vested
during year
No.
No.
No.
No.
No.
‑
‑
‑
‑
‑
‑
‑
160,000
32,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
(160,000)
(32,000)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
2014
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
2013
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
11
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT (CONT)
Remuneration Report (cont)
The Board policy is not to allow any person to hedge their exposure to risk in relation to the options granted. This policy
may be reviewed should the options become in the money.
Other transactions with key management personnel
During the year, the Company paid a total of $66,719 (2013: $66,566) to 4F Investments Pty Limited, a company
associated with Mr Fred Bart in respect of directors fees and superannuation for Fred Bart.
During the year, the Company received Nil (2013: $9,822) from 4F Investments Pty Limited, a company associated with
Mr Fred Bart in respect of shared Sydney office facilities.
During the year, the Company paid $41,016 (2013: $40,922) to Dennis Corporate Services Pty Limited, a company
associated with Mr Ian Dennis in respect of directors fees and superannuation for Ian Dennis.
During the year, the Company paid $120,000 (2013: $120,000) to Dennis Corporate Services Pty Limited, a company
associated with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services.
During the year, the Company paid $13,559 (2013: 11,927) to Audio Pixels Holdings Limited, a company of which
Fred Bart and Ian Dennis are directors and shareholders in respect of shared Sydney office facilities.
The table below sets out summary information about the company’s earnings and movements in shareholder wealth for
the last 5 financial years.
31 December 2014
$
31 December 2013
$
31 December 2012
$
31 December 2011
$
31 December 2010
$
Revenue
23,777,387
29,882,393
21,919,748
32,775,391
33,828,658
Net profit /
(loss) before tax
Net profit/(loss)
after tax
Share price at
start of year
Share price at
end of year
Dividends paid
(3,017,546)
1,562,746
(10,181,971)
180,188
3,175,142
(3,017,546)
1,562,746
(10,181,971)
180,188
3,175,142
31 December 2014
$
31 December 2013
$
31 December 2012
$
31 December 2011
$
31 December 2010
$
0.42
0.815
‑
0.30
0.42
‑
0.55
0.30
‑
1.35
0.55
‑
1.05
1.35
‑
Audit Committee
The Board appointed three non‑executive directors to form the committee, with a majority of independent directors and
the Chairman being an independent person. The current members of the committee are Lt Gen Peter Leahy AC (Chairman),
Mr Ian Dennis and Mr Kevin Scully.
12
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 DIRECTORS’ REPORT (CONT)
Non‑audit Services
The Directors are satisfied that the provision of non‑audit services, during the year, by the auditor (or by another person
or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001. The Directors have formed this view based on the fact that the nature and scope of each type of
non‑audit service provided means that the audit independence was not compromised.
Details of amounts paid or payable to the auditor for non‑audit services provided during the year by the auditor are
contained in Note 9 to the financial statements.
Auditor’s Independence Declaration
The auditor’s independence declaration is included on page 14 of the annual report.
Signed in accordance with a resolution of directors made pursuant to s.298(2) of the Corporations Act 2001.
On behalf of the Directors
I A Dennis
Director
Dated at Sydney this 26 day of March 2015
13
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 4
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14
DIRECTORS’ REPORT (CONT)
17 to 64.
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16
DIRECTORS’ DECLARATION
The directors declare that:
(a) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as
and when they become due and payable;
(b) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the
Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the
financial position and performance of the company and the consolidated entity;
(c) the directors have been given the declarations required by s.295A of the Corporations Act 2001; and
(d) the attached financial statements are in compliance with International Financial Reporting Standards,
as stated in note 1 to the financial statements.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
I A Dennis
Director
Dated at Sydney this 26 day of March 2015
17
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Note
Revenue
2
23,476,433
29,882,393
16,862
77,845
Changes in inventories of finished goods and
work in progress
1,383,876
(1,031,378)
Raw materials and consumables used
(15,009,775)
(13,366,167)
Employee benefits expense
2(b)
(9,932,634)
(10,705,460)
Administration expenses
Amortisation of intangibles
Finance costs
Depreciation and amortisation of property,
plant and equipment
Gain/(loss) on disposal of fixed assets
Foreign exchange gains
Occupancy costs
Provision for non‑recovery of loan
Other expenses
(Loss)/ Profit before income tax benefit
Income tax benefit
2(b)
2(b)
2(b)
2(b)
2(b)
2(b)
2
4
(2,286,565)
(2,420,883)
‑
‑
(23,454)
(82,464)
(295,658)
(211,807)
(668)
693,815
43,891
507,604
‑
‑
‑
‑
(360,843)
(308,900)
(360,467)
(343,404)
‑
‑
‑
‑
936
‑
‑
(197)
(788)
5,617
‑
(755,881)
(786,814)
(13,559)
‑
‑
(596,709)
(1,161,923)
(267,035)
(266,169)
‑
‑
(3,017,546)
1,562,746
(1,262,213)
(1,783,317)
‑
‑
‑
‑
(Loss)/ Profit for the period
19
(3,017,546)
1,562,746
(1,262,213)
(1,783,317)
Other comprehensive income
Items that may be reclassified
subsequently to profit and loss
Exchange differences arising on translation
of foreign operations
(284,267)
20,222
‑
‑
Total comprehensive (Loss)/ income for the
period
(3,301,813)
1,582,968
(1,262,213)
(1,783,317)
(Loss)/Earnings per share
Basic (cents per share)
Diluted (cents per share)
3
3
(5.3)
(5.3)
2.7
2.7
Notes to the financial statements are included on pages 22 to 64.
18
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Other
Consolidated
Company
December
2014
$
December
2013
$
December
2014
$
December
2013
$
5,803,264
4,048,005
488,109
1,739,217
7,484,235
3,069,803
3,318
5,979
1,477,427
5,320,861
438,441
332,811
‑
‑
‑
‑
Note
19
6
7
8
TOTAL CURRENT ASSETS
15,203,367
12,771,480
491,427
1,745,196
NON‑CURRENT ASSETS
Property, plant and equipment
10
233,833
461,305
TOTAL NON‑CURRENT ASSETS
233,833
461,305
‑
‑
‑
‑
TOTAL ASSETS
15,437,200
13,232,785
491,427
1,745,196
CURRENT LIABILITIES
Trade and other payables
Provisions
TOTAL CURRENT LIABILITIES
NON‑CURRENT LIABILITIES
Provisions
TOTAL NON‑CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Accumulated losses
TOTAL EQUITY
11
12
12
15
17
18
8,860,476
3,882,221
103,879
95,435
5,058,587
4,535,627
‑
‑
13,919,063
8,417,848
103,879
95,435
483,058
483,058
478,045
478,045
‑
‑
‑
‑
14,402,121
8,895,893
1,035,079
4,336,892
103,879
387,548
95,435
1,649,761
75,383,567
75,383,567
75,383,567
75,383,567
7,513,711
7,797,978
7,727,803
7,727,803
(81,862,199)
(78,844,653)
(82,723,822)
(81,461,609)
1,035,079
4,336,892
387,548
1,649,761
Notes to the financial statements are included on pages 22 to 64.
19
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014
Accumulated
losses
$
Total
$
Issued
capital
$
Foreign
currency
translation
reserve
$
Employee
equity settled
benefits
reserve
$
Consolidated
2014
Balance at 1 January 2014
4,336,892
(78,844,653)
75,383,567
70,175
7,727,803
(Loss) for the year
(3,017,546)
(3,017,546)
Exchange differences arising on
translation of foreign operations
Total comprehensive (loss) for
the year
(284,267)
‑
(3,301,813)
(3,017,546)
‑
‑
‑
‑
(284,267)
(284,267)
‑
‑
‑
Balance at 31 December 2014
1,035,079
(81,862,199)
75,383,567
(214,092)
7,727,803
2013
Balance at 1 January 2013
2,753,924
(80,407,399)
75,383,567
49,953
7,727,803
Profit for the year
1,562,746
1,562,746
Exchange differences arising on
translation of foreign operations
Total comprehensive income for
the year
20,222
‑
1,582,968
1,562,746
‑
‑
‑
Balance at 31 December 2013
4,336,892
(78,844,653)
75,383,567
‑
20,222
20,222
70,175
Company
2014
Balance at 1 January 2014
1,649,761
(81,461,609)
75,383,567
(Loss) for the year
(1,262,213)
(1,262,213)
Total comprehensive income for
the year
(1,262,213)
(1,262,213)
‑
‑
Balance at 31 December 2014
387,548
(82,723,822)
75,383,567
2013
Balance at 1 January 2013
3,433,078
(79,678,292)
75,383,567
(Loss) for the year
(1,783,317)
(1,783,317)
Total comprehensive income for
the year
(1,783,317)
(1,783,317)
‑
‑
Balance at 31 December 2013
1,649,761
(81,461,609)
75,383,567
Notes to the financial statements are included on pages 22 to 64.
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
7,727,803
7,727,803
‑
‑
7,727,803
7,727,803
‑
‑
7,727,803
20
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Note
Cash flows from operating activities
Receipts from customers
25,281,338
25,626,116
‑
9,822
Payments to suppliers and employees
(23,555,726)
(28,264,414)
(671,081)
(679,305)
Interest received
Interest and other costs of finance paid
Net cash inflows/(outflows) from
operating activities
Cash flows from investing activities
Advances (to) from wholly‑owned
controlled entities
Proceeds from sale of property, plant
and equipment
Payment for property, plant and equipment
Net cash (outflows) from investing activities
Cash flows from financing activities
Repayment of borrowings
Net cash (outflows) from financing activities
19,058
(23,454)
74,280
(82,464)
16,682
68,023
‑
‑
19(b)
1,721,216
(2,646,482)
(654,399)
(601,460)
‑
455
(77,139)
(76,684)
‑
(596,709)
(1,161,923)
65,466
(143,264)
‑
‑
‑
‑
(77,798)
(596,709)
(1,161,923)
‑
‑
(117,223)
(117,223)
‑
‑
‑
‑
Net increase/(decrease) in cash and
cash equivalents
1,644,532
(2,841,503)
(1,251,108)
(1,763,383)
Cash and cash equivalents at the beginning
of the financial year
4,048,005
6,686,194
1,739,217
3,502,600
Effects of exchange rate fluctuations on the
balances of cash held in foreign currencies
110,727
203,314
‑
‑
Cash and cash equivalents at the end of the
financial year
19(a)
5,803,264
4,048,005
488,109
1,739,217
Notes to the financial statements are included on pages 22 to 64.
21
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
1. Summary of Accounting Policies
Statement of compliance
The financial statements are general purpose
financial statements which have been prepared
in accordance with the Corporations Act 2001 and
Accounting Standards and complies with other
requirements of the law. The financial statements
comprise the consolidated financial statements
of the Group. For the purposes of preparing the
consolidated financial statements, the Company
is a for‑profit entity. Accounting Standards include
Australian equivalents to International Financial
Reporting Standards (“A‑IFRS”). The financial report
includes the separate financial statements of the
company and the consolidated financial statements
of the group. Compliance with A‑IFRS ensures that
the financial statements and notes of the company
and the consolidated entity comply with International
Financial Reporting Standards (“IFRS”).
The financial statements were authorised for issue
by the Directors on 26 March 2015.
Basis of preparation
The financial report has been prepared on the basis
of historical cost. Cost is based on the fair values of
the consideration given in exchange for assets. All
amounts are presented in Australian dollars, unless
otherwise stated.
In the application of A‑IFRS management is required
to make judgments, estimates and assumptions
about carrying values of assets and liabilities that
are not readily apparent from other sources. The
estimates and associated assumptions are based
on historical experience and various other factors
that are believed to be reasonable under the
circumstance, the results of which form the basis
of making the judgments. Actual results may differ
from these estimates.
The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in
which the estimate is revised if the revision affects
only that period, or in the period of the revision and
future periods if the revision affects both current and
future periods.
Judgments made by management in the application
of A‑IFRS that have significant effects on the
financial statements and estimates with a significant
risk of material adjustments in the next year are
disclosed, where applicable, in the relevant notes
to the financial statements. The areas of judgement
made by management are in the areas of asset
impairment of property, plant and equipment,
recoverability of deferred tax assets, inventory
obsolescence, warranty and percentage completion
of construction contracts.
Accounting policies are selected and applied in a
manner which ensures that the resulting financial
information satisfies the concepts of relevance and
reliability, thereby ensuring that the substance of the
underlying transactions or other events is reported.
The following significant accounting policies have
been adopted in the preparation and presentation of
the financial report:
(a) Going concern
The financial report has been prepared on the going
concern basis which assumes continuity of normal
business activities and the realisation of assets and
the settlement of liabilities in the ordinary course
of business.
The consolidated entity incurred a net loss during
the year of $3,017,546 (2013: $1,562,746 profit).
Net cash provided by operating activities was
$1,721,216 (2013 ‑ $2,646,482 used by). As at
31 December 2014, the consolidated entity had
cash of $5,803,264 (2013 ‑ $4,048,005) of which
$254,146 (2013 ‑ $97,000) is restricted as it secures
bank guarantees on existing contracts with local
and overseas customers. The cash will become
unrestricted if the contracts are concluded or
renegotiated.
In the opinion of the directors, the ability of the
company and consolidated entity to continue as
going concerns and pay their debts as and when they
become due and payable is dependent upon:
■ the ability of the consolidated entity to deliver
contracts on hand on time, to the required
specification and within budgeted costs;
■ the willingness of key military and government
customers to make timely payments for goods
supplied in accordance with contractual terms;
■ the future trading prospects of the group; and
■ the ability to raise capital from existing or new
shareholders should the need arise
22
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
Where the outcome of a construction contract
cannot be estimated reliably, contract revenue is
recognised to the extent of contract costs incurred
that it is probable will be recoverable. Contract
costs are recognised as expenses in the period
in which they are incurred. When it is probable
that total contract costs will exceed total contract
revenue, the expected loss is recognised as an
expense immediately.
Deferred revenue is represented by advance billings
on contracts and the basis of recognition is the
percentage of completion basis.
(e) Embedded derivatives
Derivatives embedded in other financial instruments
or other host contracts are treated as separate
derivatives when their risks and characteristics are
not closely related to those of host contracts and the
host contracts are not measured at fair value with
changes in fair value recognised in profit or loss.
(f) Employee benefits
Provision is made for benefits accruing to employees
in respect of wages and salaries, annual leave,
and long service leave when it is probable that
settlement will be required and they are capable of
being measured reliably.
Provisions made in respect of short term employee
benefits are measured at their nominal values using
the remuneration rate expected to apply at the time
of settlement.
Provisions made in respect of long term employee
benefits are measured as the present value of the
estimated future cash outflows to be made by the
consolidated entity in respect of services provided by
employees up to the reporting date.
Defined contribution plans ‑ Contributions to defined
benefit contribution superannuation plans are
expensed when incurred.
1. Summary of Accounting Policies (cont)
(a) Going concern (cont)
If the company and consolidated entity are unable to
achieve successful outcomes in relation to the above
matters, significant uncertainty would exist as to
the ability of the company and consolidated entity to
continue as going concerns and therefore, they may
be required to realise their assets and extinguish
their liabilities other than in the normal course of
business and at amounts different from those stated
in the financial report.
No adjustments have been made to the financial
report relating to the recoverability and classification
of recorded asset amounts or to the amounts and
classification of liabilities that might be necessary
should the company and consolidated entity not
continue as going concerns.
(b) Borrowings
Borrowings are recorded initially at fair value, net of
transaction costs. Subsequent to initial recognition,
borrowings are measured at amortised cost with any
difference between the initial recognised amount
and the redemption value being recognised in profit
or loss over the period of the borrowing using the
effective interest rate method.
(c) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand,
cash in banks and investments in money market
instruments, net of outstanding bank overdrafts.
Cash and cash equivalents includes restricted cash
to the extent it relates to operating activities.
(d) Construction contracts and work in
progress
Where the outcome of a construction contract can be
estimated reliably, revenue and costs are recognised
by reference to the stage of completion of the
contract activity at the reporting date, as measured
by the proportion that contract costs incurred for
work performed to date bear to the estimated total
contract costs, except where this would not be
representative of the stage of completion. Variations
in contract work, claims and incentive payments are
included to the extent that they have been agreed
with the customer.
23
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
1. Summary of Accounting Policies (cont)
Interest
(g) Financial assets
Subsequent to initial recognition, investments
in subsidiaries are measured at cost less any
impairment.
Other financial assets are classified into the
following specified categories: held to maturity
investments and loans and receivables. The
classification depends on the nature and purpose of
the financial assets and is determined at the time of
the initial recognition.
Held to maturity investments
Bills of exchange are recorded at amortised cost
using the effective interest method less impairment,
with revenue recognised on an effective yield
basis. The effective interest method is a method of
calculating the amortised cost of a financial asset
and of allocating interest income over the relevant
period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts
through the expected life of the financial asset,
or, where appropriate, a shorter period.
Loans and receivables
Trade receivables, loans and other receivables are
recorded at amortised cost less impairment.
(h) Financial instruments issued by
the company
Debt and equity instruments
Debt and equity instruments are classified as
either liabilities or as equity in accordance with the
substance of the contractual arrangement.
Transaction costs on the issue of
equity instruments
Transaction costs arising on the issue of equity
instruments are recognised directly in equity as a
reduction of the proceeds of the equity instruments
to which the costs relate. Transaction costs are the
costs that are incurred directly in connection with
the issue of those equity instruments and which
would not have been incurred had those instruments
not been issued.
Interest is classified as an expense consistent with
the statement of financial position classification of
the related debt.
(i) Foreign currency
Foreign currency transactions
All foreign currency transactions during the
financial year are bought to account using the
exchange rate in effect at the date of the transaction.
Foreign currency monetary items at reporting date
are translated at the exchange rate existing at
reporting date. Non‑monetary assets and liabilities
carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at
the date when the fair value was determined.
Exchange differences are recognised in profit or loss
in the period they arise.
Foreign operations
On consolidation, the assets and liabilities of the
consolidated entity’s overseas operations are
translated at exchange rates prevailing at the
reporting date. Income and expense items are
translated at the average exchange rates for the
period unless exchange rates fluctuate significantly.
Exchange differences arising, if any, are recognised
in the foreign currency translation reserve, and
recognised in profit or loss on disposal of the
foreign operation.
(j) Goods and services tax
Revenues, expenses and assets are recognised net of
the amount of goods and services tax (GST), except:
i. where the amount of GST incurred is not
recoverable from the taxation authority,
it is recognised as part of the cost of acquisition
of an asset or as part of an item of expense; or
ii. for receivables and payables which are recognised
inclusive of GST.
The net amount of GST recoverable from,
or payable to, the taxation authority is included as
part of receivables or payables.
Cash flows are included in the statement of cash
flows on a gross basis. The GST component of cash
flows arising from investing and financing activities
which is recoverable from, or payable to, the taxation
authority is classified as operating cash flows.
24
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
1. Summary of Accounting Policies (cont)
(k) Government grants
Government grants are assistance by the
government in the form of transfers of resources to
the consolidated entity in return for past or future
compliance with certain conditions relating to the
operating activities of the entity. Government grants
include government assistance where there are
no conditions specifically relating to the operating
activities of the consolidated entity other than
the requirement to operate in certain regions or
industry sectors.
Government grants relating to income are
recognised as income over the periods
necessary to match them with the related costs.
Government grants that are receivable as
compensation for expenses or losses already
incurred or for the purpose of giving immediate
financial support to the consolidated entity with
no future related costs are recognised as income
in the period in which it becomes receivable.
(l) Impairment of assets
At each reporting date, the consolidated entity
reviews the carrying amounts of its tangible and
intangible assets to determine whether there is
any indication that those assets have suffered an
impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in
order to determine the extent of the impairment
loss (if any). Where the asset does not generate
cash flows that are independent from other assets,
the consolidated entity estimates the recoverable
amount of the cash‑generating unit to which the
asset belongs.
Goodwill, intangible assets with indefinite useful
lives and intangible assets not yet available for
use are tested for impairment annually and
whenever there is an indication that the asset may
be impaired. An impairment of goodwill is not
subsequently reversed. Recoverable amount is the
higher of fair value less cost of disposal and value
in use. In assessing value in use, the estimated
future cash flows are discounted to their present
value using a pre‑tax discount rate that reflects
current market assessments of the time value
of money and the risks specific to the asset for
which the estimates of future cash flows have not
been adjusted.
If the recoverable amount of an asset
(or cash‑generating unit) is estimated to be less
than its carrying amount, the carrying amount
of the asset (cash‑generating unit) is reduced to
its recoverable amount. An impairment loss is
recognised in profit or loss immediately.
Where an impairment loss subsequently reverses,
the carrying amount of the asset (cash‑generating
unit) is increased to the revised estimate of its
recoverable amount, but only to the extent that the
increased carrying amount does not exceed the
carrying amount that would have been determined
had no impairment loss been recognised for
the asset (cash‑generating unit) in prior years.
A reversal of an impairment loss is recognised
in profit or loss immediately.
(m) Income tax
Current tax
Current tax is calculated by reference to the amount
of income taxes payable or recoverable in respect
of the taxable profit or tax loss for the period.
It is calculated using tax rates and tax laws that
have been enacted or substantively enacted by
reporting date. Current tax for current and prior
periods is recognised as a liability (or asset) to the
extent that it is unpaid (or refundable).
Deferred tax
Deferred tax is accounted for using the
comprehensive balance sheet liability method
in respect of temporary differences arising from
differences between the carrying amount of assets
and liabilities in the financial statements and the
corresponding tax base of those items.
In principle, deferred tax liabilities are recognised
for all taxable temporary differences. Deferred tax
assets are recognised to the extent that it is probable
that sufficient taxable amounts will be available
against which deductible temporary differences or
unused tax losses and tax offsets can be utilised.
However, deferred tax assets and liabilities are not
recognised if the temporary differences giving rise
to them arise from the initial recognition of assets
and liabilities (other than as a result of business
combination) which affects neither taxable income
nor accounting profit. Furthermore, a deferred
tax liability is not recognised in relation to taxable
temporary differences arising from goodwill.
25
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
the tax‑consolidated group. Tax expense/income,
deferred tax liabilities and deferred tax assets
arising from temporary differences of the members
of the tax‑consolidated group are recognised in the
separate financial statements of the members of the
tax‑consolidated group using the ‘separate taxpayer
within the group’ approach.
Current tax liabilities and assets and deferred
tax assets arising from unused tax losses and tax
credits of the members of the tax‑consolidated
group are recognised by the company (as head entity
in the tax‑consolidated group).
There are no formal tax funding arrangements
within companies within the tax‑consolidated entity.
(n) Intangible assets
Research and development costs
Expenditure on research activities is recognised
as an expense in the period in which it is incurred.
Where no internally‑generated intangible assets
can be recognised, development expenditure is
recognised as an expense in the period as incurred.
Intangible assets acquired in a
business combination
Intangible assets acquired in a business combination
are identified and recognised separately from
goodwill where they satisfy the definition of
an intangible asset and their fair value can be
measured reliably.
Subsequent to initial recognition, intangible assets
acquired in a business combination are reported
at cost less accumulated amortisation and
accumulated impairment losses, on the same
basis as intangible assets acquired separately.
(o) Inventories
Inventories are measured at the lower of cost
and net realisable value. Costs are assigned on
a first‑in first‑out basis. Net realisable value
represents the estimated selling price less all
estimated costs of completion and costs to be
incurred in marketing, selling and distribution.
1. Summary of Accounting Policies (cont)
(m) Income tax (cont)
Deferred tax liabilities are recognised for taxable
temporary differences arising on investments in
subsidiaries except where the consolidated entity
is able to control the reversal of the temporary
differences and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets arising from deductible
temporary differences associated with these
investments and interests are only recognised to the
extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of
the temporary differences and they are expected to
reverse in the foreseeable future.
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply to the
period(s) when the assets and liabilities giving
rise to them are realised or settled, based on
tax rates (and tax laws) that have been enacted
or substantively enacted by reporting date.
The measurement of deferred tax liabilities and
assets reflects the tax consequences that would
follow from the manner in which the consolidated
entity expects, at the reporting date, to recover
or settle the carrying amount of its assets
and liabilities.
Deferred tax assets and liabilities are offset when
they relate to income taxes levied by the same
taxation authority and the company/consolidated
entity intends to settles its current tax assets and
liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax is recognised as an
expense or income in the statement of profit or loss
and other comprehensive income, except when it
relates to items credited or debited directly to equity,
in which case the deferred tax is also recognised
directly in equity, or where it arises from the initial
accounting for a business combination, in which
case it is taken into account in the determination
of goodwill or excess.
Tax consolidation
The company and all its wholly‑owned Australian
resident entities are part of a tax consolidated
group under Australian taxation law. Electro Optic
Systems Holdings Limited is the head entity in
26
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
1. Summary of Accounting Policies (cont)
(r) Basis of consolidation
(p) Leased assets
Leases are classified as finance leases whenever the
terms of the lease transfer substantially all the risks
and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Consolidated entity as lessee
Assets held under finance leases are initially
recognised at their fair value or, if lower, at amounts
equal to the present value of the minimum lease
payments, each determined at the inception of
the lease. The corresponding liability to the lessor is
included in the statement of financial position as a
finance lease obligation.
Lease payments are apportioned between finance
charges and reduction of the lease obligation so
as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges
are charged directly against income.
Finance leased assets are amortised on a straight
line basis over the estimated useful life of the asset.
Operating lease payments are recognised as an
expense on a straight‑line basis over the lease term,
except where another systematic basis is more
representative of the time pattern in which economic
benefits from the leased assets are consumed.
Lease incentives
In the event that lease incentives are received to
enter into operating leases, such incentives are
recognised as a liability. The aggregate benefits of
incentives are recognised as a reduction of rental
expenses on a straight‑line basis, except where
another systematic basis is more representative of
the time pattern in which economic benefits from
the leased assets are consumed.
(q) Payables
Trade payable and other accounts payable are
recognised when the consolidated entity becomes
obliged to make future payments resulting from the
purchase of goods and services.
The consolidated financial statements incorporate
the financial statements of the Company and entities
controlled by the Company. Control is achieved when
the Company:
■ Has power over the investee;
■ Is exposed, or has rights, to variable returns from
its involvement with the investee; and
■ Has the ability to use its power to affect
its returns.
The Company reassesses whether or not it controls
an investee if facts and circumstances indicate
that there are changes to one or more of the three
elements of control listed above.
Consolidation of a subsidiary begins when the
Company obtains control over the subsidiary and
ceases when the Company loses control of the
subsidiary. Specifically, income and expenses of a
subsidiary acquired or disposed of during the year
are included in the consolidated statement of profit
or loss and other comprehensive income from the
date the Company gains control until the date when
the Company ceases to control the subsidiary.
(s) Property, plant and equipment
Plant and equipment, leasehold improvements and
equipment under finance lease are stated at cost
less accumulated depreciation and impairment.
Cost includes expenditure that is directly
attributable to the acquisition of an item. In the
event that settlement of all or part of the purchase
consideration is deferred, cost is determined by
discounting the amounts payable in the future to
their present value as at the date of acquisition.
Depreciation is provided on property,
plant and equipment. Depreciation is calculated so
as to write off the net cost or other revalued amount
of each asset over its expected useful life to its
estimated residual value. Leasehold improvements
are depreciated over the period of the lease or
estimated useful life, whichever is the shorter, using
the straight line method. The estimated useful lives,
residual values and depreciation method is reviewed
at the end of each annual accounting period.
All intra group assets and liabilities, equity,
income, expenses, and cash flows relating to
transactions between members of the group are
eliminated in full on consolidation.
27
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits
expected to be received under it.
Decommissioning cost‑ a provision for
decommissioning cost is recognised when there is
a present obligation, it is probable that an outflow
of economic benefits will be required to settle the
obligation, and the amount of the provision can be
measured reliably. The estimated future obligations
include the costs of removing the facilities and
restoring the premises.
(u) Revenue recognition
Construction revenue is recognised on the basis of
the terms of the contract adjusted for any variations
or claims allowable under the contract.
Revenue from contracts to provide services is
recognised on a monthly basis in accordance with
the services contracts.
Interest income is recognised as it accrues.
Revenue from the sale of goods is recognised when
the consolidated entity has transferred to the buyer
the significant risks and rewards of ownership of
the goods.
(v) Share based payments to employees
Equity‑settled share‑based payments are measured
at fair value at the date of the grant. Fair value is
measured by use of a modified Cox‑Rubenstein
binomial model. The expected life used in the
model has been adjusted, based on management
best estimates, for the effects of non‑transferability,
exercise restrictions and behavioural considerations.
The fair value determined at the grant date of the
equity‑settled share based payments is expensed on
a straight‑line basis over the vesting period, based
on the consolidated entity’s estimate of shares that
will eventually vest.
1. Summary of Accounting Policies (cont)
(s) Property, plant and equipment (cont)
The following estimated useful lives are used in the
calculation of depreciation:
Plant and equipment
5 to 15 years
Leasehold improvements
3 to 5 years
Equipment under
finance lease
Office equipment
3 to 5 years
5 to 15 years
Furniture, fixture and fittings
5 to 15 years
Motor vehicles
3 to 5 years
(t) Provisions
Provisions are recognised when the consolidated
entity has a present obligation, the future sacrifice
of economic benefits is probable, and the amount of
the provision can be measured reliably.
When some or all of the economic benefits required
to settle a provision are expected to be recovered
from a third party, the receivable is recognised
as an asset if it is probable that recovery will be
received and the amount of the receivable can be
measured reliably.
The amount recognised as a provision is the best
estimate of the consideration required to settle
the present obligation, taking into account the
risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash
flows estimated to settle the present obligation,
its carrying amount is the present value of those
cash flows.
Warranties ‑ Provisions for warranty costs are
recognised as agreed in individual sales contracts,
at the directors best estimate of the expenditure
required to settle the consolidated entity’s liability.
During the period the directors determined to review
the adequacy of the warranty provision. Following
the review the warranty provision for military
contracts was reviewed. The impact of this change
was to reduce the loss for the year by $136,082.
Contract losses ‑ Present obligations arising under
onerous contracts are recognised and measured as
a provision. An onerous contract is considered to
exist where the Group has a contract under which
28
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
1. Summary of Accounting Policies (cont)
Impact of the application of AASB 2013‑3
Narrow‑scope amendments to AASB 136
Impairment of Assets addressing the disclosure
of information about the recoverable amount of
impaired assets if that amount is based on fair value
less costs of disposal.
The application of AASB 2013‑3 has not had any
material impact on the amounts recognised in the
consolidated financial statements.
Impact of the application of AASB 2013‑9
Part B makes amendments to particular Australian
Accounting Standards to delete references to
AASB 1031 and minor editorial amendments to
various standards.
The application of AASB 2013‑9 has not had any
material impact on the amounts recognised in the
consolidated financial statements.
Impact of the application of AASB 2011‑4
Amends AASB 124 Related Party Disclosures to
remove the individual key management personnel
(KMP) disclosures required by Australian
specific paragraphs. As a result the Group
only discloses the key management personnel
compensation in total for each of the categories
required by AASB 124.
Such disclosures are more in the nature of
governance disclosures that are better dealt
with as part of the Corporations Act 2001.
The application of AASB 2011‑4 has not had any
material impact on the amounts recognised in the
consolidated financial statements, but has resulted
in adjusted disclosures.
(w) Application of New and Revised
Accounting Standards
The Group has adopted all of the new and revised
Standards and Interpretations issued by the
Australian Accounting Standards Board (the AASB)
that are relevant to their operations and effective for
the current year.
New and revised Standards and amendments
thereof and Interpretations effective for the current
year that are relevant to the Group include:
■ AASB 1031 Materiality (2013)
■ AASB 2012‑3 Amendments to AASB
132 ‑ Offsetting Financial Assets and
Financial Liabilities
■ AASB 2013‑3 Amendments to AASB 136 ‑
Recoverable Amount Disclosures
■ AASB 2013‑9 Amendments to Conceptual
Framework and Materiality ‑ Part B
■ AASB 2011‑4 Amendments to Australian
Accounting Standards to Remove Individual Key
Management Personnel Disclosure Requirements
Impact of the application of AASB 1031
Revised AASB 1031 is an interim standard that
cross‑references to other Standards and the
Framework for the Preparation and Presentation
of Financial Statements (issued December 2013)
that contain guidance on materiality.
The application of AASB 1031 has not had any
material impact on the amounts recognised in the
consolidated financial statements.
(w) Application of New and Revised
Accounting Standards (cont)
Impact of the application of AASB 2012‑3
Addresses inconsistencies in current practice
when applying the offsetting criteria in AASB 132
Financial Instruments: Presentation. Clarifies the
meaning of “currently has a legally enforceable
right of set‑off” and” simultaneous realisation
and settlement”. This did not result in any changes
to the consolidated financial statements.
29
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
1. Summary of Accounting Policies (cont)
(w) Application of New and Revised Accounting Standards (cont)
Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in
issue but not yet effective.
Standard/Interpretation
AASB 2014‑1 Amendments to Australian Accounting Standards
‑Part A: Annual Improvements 2010‑2012 and 2011‑2013 Cycles
‑Part B: Defined Benefit Plans: Employee Contributions
‑Part C: Materiality
AASB 2014‑1 Amendments to Australian Accounting Standards
‑Part D Consequential amendments arising from AASB 14
‑Part E: Financial Instruments
AASB 15 Revenue from Contracts with Customers and relevant
amending standards
AASB 9 Financial Instruments and relevant amending standards
Effective for
annual reporting
periods beginning
on or after
Expected to be
initially applied in
the financial year
ending
1 July 2014
31 Dec 2015
1 Jan 2018
31 Dec 2018
1 Jan 2017
1 Jan 2018
31 Dec 2017
31 Dec 2018
AASB 2014‑4 Amendments to Australian Accounting Standards ‑
Clarification of Acceptable Methods of Depreciation and Amortisation
1 Jan 2016
31 Dec 2016
Other than in relation to AASB 15, the directors anticipate that the adoption of these Standards and Interpretations
in future periods will have no material financial impact on the financial statements of the company or the
consolidated entity but may change disclosures made.
In relation to AASB 15 the directors are currently assessing the impact, if any, of adopting the Standard.
(x) Comparative amounts
Where the Group changes the presentation or classification of items in its financial statements, it reclassifies the
comparative amounts for consistency and comparability between financial years.
30
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
2. (Loss)/Profit from Operations
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
(a) Revenue
Revenue from operations consisted of the
following items:
Revenue from the sale of goods
18,876,061
23,296,205
Revenue from the rendering of services
1,107,082
1,947,178
Construction contract revenue
3,472,580
4,543,313
23,455,723
29,786,696
‑
‑
‑
‑
‑
‑
‑
‑
Interest revenue:
Bank deposits
Other
Other
19,058
74,280
16,862
68,023
1,652
21,417
‑
23,476,433
29,882,393
16,862
9,822
77,845
31
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
2. (Loss)/Profit from Operations (cont)
(b) (Loss)/ profit before income tax has been
arrived at after charging the following expenses:
Borrowing costs
Finance lease finance charges
Interest paid ‑ Other entities
Depreciation and amortisation ‑ property,
plant and equipment
(Provision for non‑recovery of loan ‑
wholly‑owned controlled entity
Loss/(Profit) on sale of property, plant
and equipment
Foreign exchange (gain)
Operating lease rental expenses:
Minimum lease payments
Employee benefit expense:
Contributions to defined contribution
superannuation plans
Other employee benefits
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
23,454
82,464
‑
‑
23,454
82,464
295,658
211,807
‑
‑
‑
‑
‑
‑
‑
197
‑
‑
596,709
1,161,923
668
(43,891)
(693,815)
(507,604)
‑
(936)
788
(5,617)
438,931
501,730
‑
‑
814,829
896,508
9,117,805
9,808,952
9,932,634
10,705,460
12,751
348,092
360,843
12,410
348,057
360,467
32
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
3. Earnings/(Loss) per Share
Basic earnings/(loss) per share
Basic Earnings/(Loss) per Share
Earnings/(loss) (a)
Weighted average number of ordinary shares (b)
Consolidated
31 December
2014
$
31 December
2013
$
(5.3 cents)
2.7 cents
(3,017,546)
1,562,746
56,845,926
56,845,926
(a) Earnings/(loss) used in the calculation of basic earnings per share are the same as the net profit/(loss) in the
statement of profit or loss and other comprehensive income.
(b) There are no potential ordinary shares and hence diluted earnings per share is the same as basic earnings
per share.
4. Income Tax
(a) The prima facie income tax benefit on pre‑tax accounting profit/(loss) from operations reconciles to the income
tax benefit in the financial statements as follows:
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
(Loss)/ Profit from operations
(3,017,546)
1,562,746
(1,262,213)
(1,783,317)
Income tax (benefit)/expense calculated at 30%
(905,264)
468,824
(378,664)
(534,995)
(142,495)
(50,380)
‑
‑
Effect of different tax rates of subsidiaries
operating in other jurisdictions
Non‑deductible (assessable) provision for
non‑recovery of loan
Other non‑deductible/ non assessable items
194,589
(133,706)
‑
‑
179,013
7,403
348,577
(2,488)
Unused tax losses and tax offsets not
recognised as deferred tax assets
Income tax attributable to operating
(Loss)/profit
(853,170)
284,738
(192,248)
(188,906)
853,170
(284,738)
192,248
188,906
‑
‑
‑
‑
The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities
on taxable profits under Australian tax law, 25% in Germany, 17% in Singapore and the federal tax rate applicable in
the USA and the State of Arizona has been assumed to approximate a combined rate 40% as their tax rates apply on a
sliding scale. There has been no change in the corporate tax rate when compared with the previous reporting period.
33
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
4. Income Tax (cont)
(b) Unrecognised deferred tax balances
The following deferred tax assets have not been
bought to account as assets
Tax losses ‑ revenue
Temporary differences
Tax consolidation
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
21,827,098
20,973,928
6,957,677
6,765,429
1,662,494
1,504,102
‑
‑
23,489,592
22,478,030
6,957,677
6,765,429
Relevance of tax consolidation to the consolidated entity
The company and its wholly‑owned Australian resident entities have formed a tax‑consolidated group with
effect from 1 January 2003 and are therefore taxed as a single entity from that date. The head entity within the
tax‑consolidated group is Electro Optic Systems Holdings Limited. The members of the tax‑consolidated entity
group are identified in Note 21.
Nature of tax funding arrangements and tax sharing agreements
There are no formal tax funding or tax sharing arrangements within the tax‑consolidated group.
5. Other financial assets
Non‑Current ‑ at cost
Unlisted shares in controlled entities
at cost
provision for non recovery
Carrying value at start of financial year
share options provided at no cost
provision for non recovery
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
4,016,132
4,016,132
(4,016,132)
(4,016,132)
‑
‑
‑
‑
‑
‑
‑
204,209
(204,209)
‑
The directors have assessed the carrying value of the unlisted shares held in controlled entities and have
determined that, as at 31 December 2014, based upon the net asset position of the controlled entities, the current
and historic trading results and the foreseeable future results from signed contracts on hand the investments are
fully impaired.
34
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
6. Trade and other receivables
Current
Trade receivables
GST receivable
Amounts due from customers under
construction contracts (Note 27)
Other debtors
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
6,412,992
1,849,340
72,837
60,339
996,217
1,153,498
2,189
6,626
‑
3,318
‑
‑
‑
5,979
‑
‑
7,484,235
3,069,803
3,318
5,979
The average credit period on sales of goods is 30 days. No interest is charged on late payments and no general
allowance for doubtful debts has been made as most contracts are with governments and government agencies.
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Ageing of past due not impaired
31‑60 days
61‑90 days
120 days +
Ageing of past due and impaired
120 days +
Total
7. Current Inventories
803,583
‑
‑
803,583
‑
‑
851,463
17,954
48,302
917,719
‑
‑
Raw materials ‑ at net realisable value
Work in progress ‑ at cost
515,247
962,180
2,974,805
2,346,056
1,477,427
5,320,861
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
35
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
8. Other Assets
Current
Prepayments
Non‑current
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
438,441
332,811
‑
‑
Amounts due from wholly‑owned
controlled entity
Less Allowance for uncollectible amounts
Movement in allowance for uncollectible amounts
Balance at the beginning of the financial year
Provision recognised in profit and loss
Reversal of provision recognised in profit or loss
Balance at the end of the financial year
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
67,016,633
66,419,924
(67,016,633)
(66,419,924)
‑
‑
66,419,924
65,258,001
596,709
1,161,923
‑
‑
67,016,633
66,419,924
9. Auditors Remuneration
(a) Auditor of the Parent Entity
Audit or review of the financial report
Taxation services
(c) Other Auditor
Audit or review of the financial report
Taxation services
154,700
5,000
159,700
2,478
833
3,311
174,450
25,200
199,650
3,996
2,664
6,660
154,700
5,000
159,700
162,450
25,200
187,650
‑
‑
‑
‑
‑
‑
The auditor of Electro Optic Systems Holdings Limited is Deloitte Touche Tohmatsu.
36
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
10. Property, Plant and Equipment
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
(a) Plant and equipment ‑ at cost
6,686,766
6,623,866
Less accumulated depreciation and impairment
(6,656,016)
(6,497,766)
(b) Leased assets ‑ at cost
Less accumulated amortisation and impairment
30,750
126,100
13,550
(13,550)
‑
10,863
(10,863)
‑
(c) Office equipment ‑ at cost
3,704,190
3,343,929
Less accumulated depreciation and impairment
(3,506,164)
(3,013,886)
198,026
330,043
(d) Furniture, fixtures and fittings ‑ at cost
386,868
316,896
Less accumulated depreciation and impairment
(381,811)
(311,734)
5,057
5,162
(e) Leasehold improvements ‑ at cost
1,398,969
1,220,701
Less accumulated depreciation and impairment
(1,398,969)
(1,220,701)
(f) Motor vehicle ‑at cost
Less accumulated depreciation and impairment
(g) Satellite ‑ at cost
Less impairment
Total net book value of Property, Plant
and Equipment
‑
‑
25,369
(25,369)
‑
20,338
(20,338)
‑
7,000,000
7,000,000
(7,000,000)
(7,000,000)
‑
‑
233,833
461,305
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
37
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
10. Property, Plant and Equipment (cont)
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Cost
Plant and equipment
Balance at beginning of year
Additions
Disposals
6,623,866
5,905,447
63,738
(115,594)
60,541
‑
Net foreign currency exchange differences
114,756
657,878
Balance at end of year
6,686,766
6,623,866
Leased assets
Balance at beginning of year
Asset transfer
Disposals
Net foreign currency exchange differences
Balance at end of year
10,863
‑
‑
2,687
13,550
361,997
(324,074)
(28,450)
1,390
10,863
Office equipment
Balance at beginning of year
3,343,929
2,755,422
Additions
Asset transfers
Disposals
Net foreign currency exchange differences
13,401
‑
(9,440)
356,300
82,723
324,074
(38,189)
219,899
Balance at end of year
3,704,190
3,343,929
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
15,048
‑
‑
(15,048)
‑
‑
38
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
10. Property, Plant and Equipment (cont)
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Furniture, fixtures and fittings
Balance at beginning of year
Net foreign currency exchange differences
Balance at end of year
Leasehold improvements
Balance at beginning of year
316,896
69,972
386,868
280,703
36,193
316,896
1,220,701
1,128,493
Net foreign currency exchange differences
178,268
92,208
Balance at end of year
1,398,969
1,220,701
Motor vehicle
Balance at beginning of year
Net foreign currency exchange differences
Balance at end of year
Satellite
Balance at beginning of year
Balance at end of year
20,338
5,031
25,369
17,736
2,602
20,338
7,000,000
7,000,000
7,000,000
7,000,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
39
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
10. Property, Plant and Equipment (cont)
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Accumulated Depreciation/
Amortisation/Impairment
Plant and equipment
Balance at beginning of year
(6,497,766)
(5,755,546)
Depreciation
Disposals
(150,395)
(95,835)
114,486
‑
Net foreign currency exchange differences
(122,341)
(646,385)
Balance at end of year
(6,656,016)
(6,497,766)
Leased plant and equipment
Balance at beginning of year
Amortisation expense
Transfers
Disposals
Net foreign currency exchange differences
Balance at end of year
(10,863)
(144,845)
‑
‑
‑
(2,687)
(13,550)
(2,678)
129,788
8,263
(1,391)
(10,863)
Office equipment
Balance at beginning of year
(3,013,886)
(2,589,636)
Depreciation
Transfers
Disposals
(145,158)
‑
9,425
(113,189)
(129,788)
36,802
Net foreign currency exchange differences
(356,545)
(218,075)
Balance at end of year
(3,506,164)
3,013,886
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
(14,063)
(197)
‑
14,260
‑
‑
40
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
10. Property, Plant and Equipment (cont)
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Furniture, fixtures and fittings
Balance at beginning of year
Depreciation
(311,734)
(275,436)
(105)
(105)
Net foreign currency exchange differences
(69,972)
(36,193)
Balance at end of year
(381,811)
(311,734)
Leasehold improvements
Balance at beginning of year
(1,220,701)
(1,128,493)
Net foreign currency exchange differences
(178,268)
(92,208)
Balance at end of year
(1,398,969)
(1,220,701)
Motor vehicle
Balance at beginning of year
Net foreign currency exchange differences
Balance at end of year
Satellite
Balance at beginning of year
Balance at end of year
(20,338)
(5,031)
(25,369)
(17,736)
(2,602)
(20,338)
(7,000,000)
(7,000,000)
(7,000,000)
(7,000,000)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Aggregate depreciation, impairment and amortisation allocated during the period is recognised as an expense and
disclosed in Note 2 to the financial statements.
Impairment of property, plant and equipment
The consolidated entity has assessed the carrying amount of plant and equipment and determined an
impairment (reversal) charge for the year of Nil (2013: Nil). The basis to assess for any potential impairment
was fair value less cost for disposal and fair value determined by reference to an active market for second hand
manufacturing equipment.
41
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
11. Current trade and other payables
Trade payables
Accruals
Amounts due to customers under construction
contracts (Note 27)
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
1,978,851
2,358,432
743,894
1,084,797
5,017
98,862
18,976
76,459
6,137,731
438,992
‑
‑
8,860,476
3,882,221
103,879
95,435
The average credit period on purchases of goods is 30 days and no interest is payable on goods purchased within
agreed credit terms. The consolidated entity has financial risk management policies in place to ensure that all
payables are paid within the credit timeframe.
12. Provisions
Current
Employee benefits (Note 14)
Contract losses
Decommissioning costs
Warranty (Note 13)
Non‑current
2,364,350
2,135,760
311,193
250,000
286,084
250,000
2,133,044
1,863,783
5,058,587
4,535,627
Employee Benefits (Note 14)
483,058
478,045
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
42
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
12. Provisions (cont)
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Movement in contract loss provision
Balance at 1 January
Additional provision recognised
Reductions resulting from re‑measurement
286,084
25,109
‑
222,191
63,893
‑
Balance as at 31 December
311,193
286,084
‑
‑
‑
‑
The provision for contract losses is based on assessment by management of the additional costs to complete
existing contracts not recoverable from the customer.
Movement in contract credit provision
Balance at 1 January
Additional provision recognised
Balance as at 31 December
‑
‑
‑
308,776
(308,776)
‑
The provision is for an agreed credit to be provided to a customer.
Movement on decommissioning costs
Balance at 1 January
Balance as at 31 December
250,000
250,000
250,000
250,000
‑
‑
‑
‑
‑
The provision for decommissioning costs relate to an obligation to dismantle and refurbish a telescope at a
future date.
13. Warranty Provisions
Movement in warranty provision
Balance at 1 January
1,863,783
1,507,027
Reductions resulting from re‑measurement
(526,842)
(356,539)
Additional provisions recognised
Balance as at 31 December
796,103
713,295
2,133,044
1,863,783
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
The provision for warranty claims represents the present value of the directors’ best estimate of the future sacrifice
of economic benefits that will be required under the consolidated entity’s 12‑month warranty program for military
products and telescopes. The estimate has been made on the basis of historical industry accepted warranty trends
and may vary as a result of new materials, altered manufacturing processes or other events affecting product quality.
43
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
14. Employee Benefits
The aggregate employee benefits liability recognised in the financial statements is as follows:
Provision for employee entitlements
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
2,364,350
2,135,760
483,058
478,045
‑
‑
‑
‑
Current (Note 12)
Non‑Current (Note 12)
15. Issued capital
Balance at the beginning of the
financial year ‑ Ordinary shares
75,383,567
75,383,567
75,383,567
75,383,567
Balance at the end of the financial year
75,383,567
75,383,567
75,383,567
75,383,567
Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share
capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued
shares do not have a par value.
Fully Paid Ordinary Shares
Number
Number
Number
Number
Balance at the beginning of financial year
56,845,926
56,845,926
56,845,926
56,845,926
Balance at end of financial year
56,845,926
56,845,926
56,845,926
56,845,926
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
44
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
16. Directors and Employee Share Option Plan
(a) Unlisted Options issued under the Employee Share Option Plan
The consolidated entity has an ownership‑based compensation scheme for employees (including directors)
of the company. In accordance with the provisions of the scheme, as approved by shareholders at a previous annual
general meeting, employees with more than three months service with the company may be granted options to
purchase ordinary shares at exercise prices determined by the directors based on market prices at the time the
issue of options were made.
Each share option converts to one ordinary share in Electro Optic Systems Holdings Limited. No amounts are paid
or payable by the recipient on receipt of the options. The options carry neither rights to dividends nor voting rights.
Options may be exercised at any time from the date of vesting to the date of expiry.
The number of options granted is determined by the directors and takes into account the company’s and individual
achievements against both qualitative and quantitive criteria.
On 28 June 2002, shareholders approved the adoption of an Employee Share Option Plan.
On 10 December 2009 Directors approved the issue of 1,800,000 unlisted options to staff at an exercise price
of $1.30 exercisable on or before 8 December 2013.
(b) Unlisted Options issued under the Employee Share Option Plan
Balance at the beginning of the financial year (i)
Granted during the year (ii)
Exercised during the year (iii)
Lapsed during the year (iv)
Balance at the end of the financial year (v)
Exercisable at end of the year
2014
2013
Weighted
average
exercise price
$
Number
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Weighted
average
exercise price
$
1.30
1.30
‑
Number
1,025,000
‑
‑
(1,025,000)
‑
‑
45
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
16. Directors and Employee Share Option Plan (cont)
(b) Unlisted Options issued under the Employee Share Option Plan (cont)
(i) Balance at the beginning of the year
Number
Grant date
Expiry date
Exercise Price
Fair value at
grant date
‑
‑
‑
‑
$‑
2014
Staff options
2013
Staff options
1,025,000
10/12/09
8/12/13
$1.30
$987,075
Staff and Director options carry no rights to dividends and no voting rights.
(ii) Granted during the year
There were no options issued during 2014 or 2013.
(iii) Exercised during the year
There were no options exercised during 2014 or 2013.
(iv) Lapsed during the year
Number
of Options
Lapsed
Grant
Date
Exercise
Date
Expiry
Date
Exercise
Price
No. of
Shares
Issued
Fair Value
Received
Fair Value
of Shares
at Date of
Issue
2014
Staff
2013
‑
‑
Staff
1,025,000
10/12/09
(v) Balance at the end of the financial year
2014
Staff options
2013
Staff options
‑
‑
‑
‑
8/12/13
$1.30
‑
‑
‑
‑
‑
‑
Number
Grant date
Expiry date
Exercise
Price
Fair value at
grant date
‑
‑
‑
‑
‑
‑
10/12/09
8/12/13
$1.30
$Nil
Staff and Director options carry no rights to dividends and no voting rights.
All the options granted to staff during 2009 vested over a three year period with 20% vesting after 12 months,
a further 30% after 2 years and the balance after 3 years. No options have been issued subsequently.
The difference between the total market value of the options issued during the financial year, at the date of issue,
and the total amount received from employees (nil) is recognised in the financial statements over the vesting period
as disclosed in Note 16 to the financial statements.
46
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
17. Reserves
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Foreign currency translation
(214,092)
70,175
‑
‑
Employee equity‑settled benefits
7,727,803
7,727,803
7,727,803
7,727,803
7,513,711
7,797,978
7,727,803
7,727,803
Foreign currency translation
Balance at beginning of financial year
Translation of foreign operations
Balance at end of financial year
70,175
(284,267)
(214,092)
49,953
20,222
70,175
‑
‑
‑
‑
‑
‑
Exchange differences relating to the translation from US dollars, being the functional currency of the
consolidated entity’s foreign controlled entities in the USA, Euros, being the functional currency of the
consolidated entity’s foreign controlled entity in Germany and Singaporean dollars, being the functional
currency of the consolidated entity’s foreign controlled entity in Singapore, into Australian dollars are brought
to account by entries made directly to the foreign currency translation reserve. Exchange differences previously
accumulated in the foreign currency translation reserve (in respect to translating the net assets of foreign
operations) are reclassified to profit or loss on disposal of the foreign operation.
Employee equity‑settled benefits
Balance at beginning of financial year
7,727,803
7,727,803
7,727,803
7,727,803
Share based payment
‑
‑
‑
‑
Balance at end of financial year
7,727,803
7,727,803
7,727,803
7,727,803
The employee equity‑settled benefits reserve arises on the grant of share options to directors and executives
under the Employee Share Option plan. Further information about share‑based payments to employees is made
in note 16 to the financial statements. Items included in employee equity‑settled benefits reserve will not be
reclassified subsequently to profit or loss.
18. Accumulated Losses
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Balance at beginning of financial year
(78,844,653)
(80,407,399)
(81,461,609)
(79,678,292)
Net profit/ (loss) attributable to members of the
parent entity
(3,017,546)
1,562,746
(1,262,213)
(1,783,317)
Balance at end of financial year
(81,862,199)
(78,844,653)
(82,723,822)
(81,461,609)
47
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
19. Notes to the Cash Flow Statement
(a) Reconciliation of Cash and cash equivalents
For the purposes of the cash flow statement, cash includes cash on hand and at call deposits with banks or
financial institutions, investments in money market instruments maturing within less than two months and net of
bank overdrafts. Cash at the end of the financial year as shown in the statements of cash flows is reconciled to the
related items in the statement of financial position as follows:
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Cash and cash equivalents
5,803,264
4,048,005
488,109
1,739,217
(b) Reconciliation of (Loss)/profit for the year to net cash flows from operating activities
Profit/ (Loss) for the period
(3,017,546)
1,562,746
(1,262,213)
(1,783,317)
Loss/(profit) on disposal of fixed assets
Depreciation of fixed assets
Foreign exchange movements
668
295,658
(43,891)
211,807
(387,164)
(196,409)
‑
‑
‑
788
197
‑
Provision for non‑recovery of loan
‑
‑
596,709
1,161,923
(Increase)/decrease in assets
Current receivables
Inventories
Other current assets
Increase/(decrease) in liabilities
Provisions
Current trade and other payables
Other
(4,414,432)
(1,194,907)
2,661
21,004
3,843,434
(1,465,011)
(105,630)
256,128
527,973
(379,581)
(340,903)
114,919
884,739
572,823
‑
‑
‑
‑
‑
‑
8,444
(2,055)
‑
‑
‑
‑
Deferred income and amounts due to customers
under construction contracts
5,698,739
(3,349,426)
Net cash (outflows)/ inflows from
operating activities
1,721,216
(2,646,482)
(654,399)
(601,460)
48
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
20. Related party disclosures
(a) Equity interests in related parties
Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 24.
(b) Key management personnel compensation
The aggregate compensation of the key management personnel of the company is set out below:
Short term benefits
Post employment benefits
31 December
2014
$
31 December
2013
$
1,309,684
1,332,836
81,757
100,505
1,391,441
1,433,341
(c) Key management personnel equity holdings (represented by holdings of fully paid ordinary shares in
Electro Optic Systems Holdings Limited)
2014
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
2013
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
Balance at
1/1/14
Granted as
remuneration
Received on
exercise of
options
Net other
change
Balance at
31/12/14
No.
No.
No.
No.
No.
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
89,450
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
89,450
‑
Balance at
1/1/13
Granted as
remuneration
Received on
exercise of
options
Net other
change
Balance at
31/12/13
No.
No.
No.
No.
No.
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
89,450
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
5,309,075
3,954,185
170,050
‑
15,000
‑
‑
89,450
‑
49
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
20. Related party disclosures (cont)
(d) Key management personnel option holdings
Balance at
1/1/14
Granted as
remuneration
Exercised
(Lapsed)
Balance at
31/12/14
Balance
vested and
exercisable
at 31/12/14
Options
vested
during year
No.
No.
No.
No.
No.
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Balance at
1/1/13
Granted as
remuneration
Exercised
(Lapsed)
Balance at
31/12/13
Balance
vested and
exercisable
at 31/12/13
Options
vested
during year
No.
No.
No.
No.
No.
‑
‑
‑
‑
‑
‑
‑
160,000
32,000
160,000
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
(160,000)
(32,000)
(160,000)
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
2014
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
2013
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Mr Mark Bornholt
Dr Craig Smith
Mr Scott Lamond
Mr Hugo Keyner
The Company did not issue any options during the year ended 31 December 2010, 2011, 2012, 2013 and 2014
to Key management personnel. Refer to Note 16 for further details of options outstanding.
50
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
20. Related party disclosures (cont)
(e) Transactions with other related parties
Other related parties includes:
■ the parent entity;
■ entities with significant influence over the consolidated entity; and
■ subsidiaries.
Amounts receivable from entities in the wholly‑owned group are disclosed in note 8 to the financial statements.
Certain entities within the group have lent money to other entities within the wholly‑owned group on an interest
free basis. The amounts receivable by the ultimate parent entity in the wholly‑owned group are disclosed in note
8 to the financial statements. The ultimate parent entity in the wholly‑owned group has provided for this amount
based upon the net asset position of the controlled entities.
(f) Other transactions with key management personnel
During the year, the Company paid a total of $66,719 (2013: $66,566) to 4F Investments Pty Limited, a company
associated with Mr Fred Bart in respect of directors fees and superannuation for Fred Bart.
During the year, the Company received Nil (2013: $9,822) from 4F Investments Pty Limited, a company associated
with Mr Fred Bart in respect of shared Sydney office facilities.
During the year, the Company paid $41,016 (2013: $40,922) to Dennis Corporate Services Pty Limited, a company
associated with Mr Ian Dennis in respect of directors fees and superannuation for Ian Dennis.
During the year, the Company paid $120,000 (2013: $120,000) to Dennis Corporate Services Pty Limited, a company
associated with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services.
During the year, the Company paid $13,559 (2013: 11,927) to Audio Pixels Holdings Limited, a company of which
Fred Bart and Ian Dennis are directors and shareholders in respect of shared Sydney office facilities.
(g) Parent entity
The parent entity in the consolidated group is Electro Optic Systems Holdings Limited.
51
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
21. Controlled Entities
Name of Entity
Parent Entity
Country of
Incorporation
December 2014
%
December 2013
%
Electro Optic Systems Holdings Limited
Australia #
Controlled Entities
Electro Optic Systems Pty Limited
Fire Control Systems Pty Limited
FCS Technology Holdings Pty Limited
EOS Space Systems Pty Limited
EOS Optronics GmbH
EOS Defense Systems Pte Limited
EOS USA, Inc. (Inc in Nevada)
EOS Technologies, Inc. (Inc in Arizona)
EOS Defense Systems, Inc (Inc in Arizona)
Australia #
Australia #
Australia #
Australia #
Germany
Singapore
USA
USA
USA
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
# These companies form part of the Australian consolidated tax entity.
All entities are audited by Deloitte Touche Tohmatsu apart from EOS Defense Systems Pte Limited.
22. Contingent Liabilities
Entities within the consolidated entity are involved in contractual disputes in the normal course of
contracting operations. The directors believe that the entities within the consolidated entity can settle any
contractual disputes with customers and should any customers commence legal proceedings against the
company, the directors believe that any actions can be successfully defended. As at the date of this report
no legal proceedings have been commenced against any entity within the group.
52
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
23. Commitments
(a) Capital commitments
An entity within the group has committed to spend up to $5 million under an agreement on capital infrastructure.
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
(b) Operating lease commitments
Non‑cancellable operating leases contracted for
but not recognised in the financial statements:
Payable:
not later than one year
later than one year and not later than five years
later than five years
Operating Leases
Leasing arrangements
Operating leases relate to:
247,219
279,490
‑
‑
‑
247,219
279,490
‑
‑
‑
‑
‑
‑
‑
‑
Premises at 2500 N. Tucson Boulevard, Suite 100, Tuscon Arizona with a lease term which expires on
30 September 2015. There is no option to renew after 30 September 2015 and future lease payments are fixed
under the contract. There is no option to purchase the property.
Premises at 2112 N. Dragoon, Units 11, 12 and 19 Tucson Arizona are subject to an expired lease. The company
occupies the property on a month to month basis and there is no make good requirement.
Premises in Queanbeyan, Australia for a 5 year period to 31 December 2008 with a 5 year option. The Company
has the first right of refusal in respect of the purchase of the property. The Company is on a month to month basis
whilst a new lease is negotiated.
Premises at EOS House at Mt Stromlo, Australia with a lease term which expires on 31 December 2015. There is an
option to renew after 31 December 2015 and future lease payments are fixed under a contract. There is no option to
purchase the property.
Premises at 34 Lowe Street, Suite 401, Level 4 Queanbeyan are the subject of an expired lease. The company
occupies the property on a month to month basis and there is no make good requirement.
Shared premises in Sydney which are on a month to month arrangement with Audio Pixels Holdings Limited,
a company associated with directors Mr Fred Bart and Mr Ian Dennis.
24. Subsequent Events
On 6 March 2015, the consolidated entity announced the award of a $6.5 million contract for the refurbishment and
upgrade of Australian Defence Force remote weapon systems.
Apart from the above, the Directors are not aware of any significant subsequent events since the end of the financial
period and up to the date of this report.
53
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
25. Financial risk management objectives and policies
The Group’s principal financial instruments comprise receivables, payables, borrowings, finance leases,
cash and short term deposits.
Due to the small size of the group significant risk management decisions are taken by the board of directors.
These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk,
liquidity risk and cash flow interest rate risk.
The Group does not use derivative financial instruments to hedge these risk exposures.
The directors consider that the carrying amount of financial assets and liabilities recognised in these financial
statements approximate their fair values.
Risk Exposures and Responses
(a) Interest rate risk
The Group’s exposure to market interest rates relates primarily to the Group’s cash holdings.
At balance date, the Group had the following mix of financial assets and liabilities exposed to Australian variable
interest rate risk that are not designated in cash flow hedges:
Consolidated
Company
2014
$
2013
$
2014
$
2013
$
Financial assets
Cash and cash equivalents
5,803,264
4,048,005
488,109
1,739,217
The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential
renewals of existing positions, alternative financing and the mix of fixed and variable interest rates.
At 31 December 2014, if interest rates had moved, as illustrated in the table below, with all other variables
held constant, post tax (loss) and equity would have been affected as follows:
Judgements of reasonably
possible movements
Consolidated
+1% (100 basis points)
‑.5% (50 basis points)
Company
+1% (100 basis points)
‑.5% (50 basis points)
Post Tax (Loss)
Higher/(Lower)
Equity
Higher/(Lower)
2014
$
2013
$
2014
$
2013
$
58,033
(29,016)
40,480
(20,240)
58,033
(29,016)
40,480
(20,240)
4,881
(2,441)
17,392
(8,696)
4,881
(2,441)
17,392
(8,696)
The movements in profits are due to lower interest rates on cash balances. The cash balances were higher in 2014
than in 2013 and accordingly the sensitivity is higher.
54
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
(b) Foreign currency risk
As a result of purchases of inventory denominated in United States Dollars, the Group’s statement of financial
position can be affected significantly by movements in the US$/A$ exchange rates. Exchange rates are managed
within approved policy parameters using natural hedges and no derivatives are used.
The Group also has transactional currency exposures. Such exposures arise from sales or purchases by an
operating entity in currencies other than the functional currency.
The policy of the Group is to convert surplus foreign currencies to Australian dollars. The group also holds cash
deposits in US dollars to secure US dollar bank guarantees to overseas customers.
At 31 December 2014, the Group had the following exposure to US$ foreign currency:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
Net exposure
Consolidated
2014
$
2013
$
Company
2014
$
4,745,674
1,252,409
18,200
4,827,713
1,811,154
‑
9,573,387
3,063,563
18,200
471,873
1,125,216
‑
9,101,514
1,938,347
18,200
2013
$
7,979
‑
7,979
‑
7,979
All US$ denominated financial instruments were translated to A$ at 31 December 2014 at the exchange rate of
0.8158 (2013: 0.8874).
At 31 December 2014, had the Australian Dollar moved, as illustrated in the table below, with all other variables
held constant, post tax profit and equity would have been affected as follows:
Judgements of reasonably possible
movements
2014
$
2013
$
2014
$
2013
$
Post Tax Profit
Higher/(Lower)
Equity
Higher/(Lower)
Consolidated
AUD/USD +10%
AUD/USD ‑5%
Company
AUD/USD +10%
AUD/USD ‑5%
(827,410)
(176,213)
(827,410)
(176,213)
479,027
102,018
479,027
102,018
(1,655)
958
(725)
420
(1,655)
958
(725)
420
55
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
25. Financial risk management objectives and policies (cont)
Management believes the balance date risk exposures are representative of risk exposure inherent in
financial instruments.
As noted, foreign currency transactions entered into during the financial year are managed within approved
policy parameters using natural hedges. The director’s do not consider that the net exposure to foreign currency
transactions is material after considering the effect of natural hedges.
(c) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial
loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties which are
continuously monitored.
The credit risk on liquid funds is limited because the counterparties are banks with high credit‑ratings assigned
by international credit agencies.
(d) Liquidity risk management
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due.
Ultimate responsibility for liquidity risk management rests with the board of directors, who has built an appropriate
risk management framework for the management of the Group’s short, medium and long term funding and liquidity
requirements. The Group manages liquidity by maintaining adequate cash reserves by continuously monitoring
forecast and actual cash flows and managing maturity profiles of financial assets. Significant uncertainties relating
to the ability of the company and the consolidated entity to continue as going concerns and pay their debts as and
when they fall due are set out in Note 1(a).
Liquidity and interest tables
The following tables detail the Company’s and the Group’s remaining contractual maturity for its non‑derivative
financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities
based on the earliest date on which the Group can be required to pay. The table includes both interest and principal
cash flows.
56
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
25. Financial risk management objectives and policies (cont)
(d) Liquidity risk management (cont)
Weighted
average
effective
interest rate
%
Less than
1 month
$
1‑3 months
$
3 months
to 1 year
$
1‑5 years
$
Consolidated
2014
Other non interest
bearing liabilities
2013
Other non interest
bearing liabilities
Company
2014
Other non interest
bearing liabilities
2013
Other non interest
bearing liabilities
‑
‑
‑
‑
2,722,745
3,443,229
103,879
95,435
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
57
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
25. Financial risk management objectives and policies (cont)
(d) Liquidity risk management (cont)
The following tables detail the Company’s and the Group’s remaining contractual maturity for its non‑derivative
financial assets. The tables have been drawn up based on the undiscounted contractual maturities of the financial
assets including interest that will be earned on these assets except where the Company/Group anticipates that the
cash flow will occur in a different period.
Weighted
average
effective
interest rate
%
Less than
1 month
$
1‑3 months
$
3 months
to 1 year
$
1‑5 years
$
Consolidated
2014
Non interest bearing
Variable interest rate instruments
Receivables
‑
‑
‑
4,804,958
‑
6,412,992
Fixed interest rate instruments
1.32
902,147
2013
Non interest bearing
Variable interest rate instruments
Receivables
12,120,097
‑
‑
‑
1,317,127
‑
1,849,340
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
97,493
97,493
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Fixed interest rate instruments
1.94
2,636,337
5,802,804
15,126
15,126
82,153
82,153
Weighted
average
effective
interest rate
%
Less than
1 month
$
1‑3 months
$
3 months
to 1 year
$
1‑5 years
$
Company
2014
Non interest bearing
Variable interest rate instruments
‑
‑
18,200
‑
Fixed interest rate instruments
2.28
455,138
2013
Non interest bearing
Variable interest rate instruments
‑
‑
7,979
‑
‑
‑
‑
‑
‑
Fixed interest rate instruments
2.74
1,717,840
15,126
‑
‑
15,229
‑
‑
‑
‑
‑
‑
‑
‑
‑
(e) Price risk
The Group’s exposure to commodity price risk is minimal. The Group does not make investments in
equity securities.
58
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
26. Segment Information
AASB 8 requires operating segments to be identified on the basis of internal reports about components of the
Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the
segment and to assess performance.
The identification of the Group’s reportable segments has not changed from those disclosed in the previous
2013 Annual Report. The Group’s reportable segments are Defence Systems and Space.
The consolidated entity operates in Australia, USA, Singapore and Germany in the development, manufacture and
sale of telescopes and dome enclosures, laser satellite tracking systems and the manufacture of electro‑optic fire
control systems.
Product and Services within each Segment
Space
EOS’s laser‑based space surveillance systems have been demonstrated in customer trials and EOS is now
well‑placed to be a major contributor to the next generation of space tracking capability. Future business is
dependent on large government contracts being awarded in the space sector.
In addition, EOS has substantial space resources in its own right, and may enter the market for space data provision
in the future.
The space sector also manufactures and sells telescopes and dome enclosures for space projects.
Defence Systems
EOS develops, manufactures and markets advanced fire control, surveillance, and weapon systems to approved
military customers. These products either replace or reduce the role of a human operator for a wide range of
existing and future weapon systems in the US, Australasia, Middle East and other markets.
59
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
26. Segment Information (cont)
Segment Revenues
Space
Defence systems
Total of all segments
Consolidated
31 December
2014
$
31 December
2013
$
3,202,771
5,592,858
20,254,604
24,215,255
23,457,375
29,808,113
Unallocated interest received
19,058
74,280
Total
Segment Results
Space
Defence systems
23,476,433
29,882,393
(236,580)
1,463,696
(2,115,462)
720,444
Total of all segments
(2,352,042)
2,184,140
Unallocated holding company costs
(665,504)
(621,394)
(Loss)/profit before income tax expense
(3,017,546)
1,562,746
Income tax expense
‑
‑
(Loss)/profit for the period
(3,017,546)
1,562,746
The revenue reported above represents revenue from external customers. There were no intersegment sales
during the period. There were no discontinued operations during the period.
The consolidated entity has one customer who provided in excess of 10% of consolidated revenue. This customer
is within the Defence segment with total revenue of $14,329,095 (2013 ‑ $17,975,010).
60
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
26. Segment Information (cont)
Segment Assets and Liabilities
Space
Defence systems
Assets
Liabilities
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
3,713,288
1,240,622
7,968,300
1,829,722
5,920,648
7,944,158
6,433,821
7,066,171
Total all segments
9,633,936
9,184,780
14,402,121
8,895,893
Unallocated cash
5,803,264
4,048,005
‑
‑
Consolidated
15,437,200
13,232,785
14,402,121
8,895,893
Assets used jointly by reportable segments are allocated on the basis of the revenue earned by the individual
reportable segments.
Depreciation, impairment
and amortisation of
segment assets
Acquisition of
segment assets
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
9,732
150,310
12,008
94,807
5,703
71,436
26,881
116,383
Other Segment Information
Space
Defence systems
Total all segments
160,042
106,815
77,139
143,264
Unallocated management
135,616
104,992
‑
‑
Consolidated
295,658
211,807
77,139
143,264
61
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
26. Segment Information (cont)
Information on Geographical Segments
31 December 2014
Geographical Segments
Australasia
North America
Germany
Total
31 December 2013
Geographical Segments
Australasia
North America
Germany
Total
Revenue from
External Customers
$
23,285,976
189,405
1,052
23,476,433
Revenue from
External Customers
$
28,513,050
1,359,718
9,625
29,882,393
Segment Assets
$
14,667,406
751,300
18,494
15,437,200
Segment Assets
$
10,510,079
2,707,757
14,949
13,232,785
Acquisition of
Segment Assets
$
12,761
61,776
2,602
77,139
Acquisition of
Segment Assets
$
84,936
56,791
1,537
143,264
62
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
27. Construction Contracts
Consolidated
Company
31 December
2014
$
31 December
2013
$
31 December
2014
$
31 December
2013
$
Construction work in progress
10,301,587
11,157,390
Less
Provision for losses
Progress billings
(311,193)
(286,084)
(15,131,908)
(10,156,800)
(5,141,514)
714,506
Recognised and included in the financial
statements as amounts due:
From customers under construction contracts:
Current (note 6)
996,217
1,153,498
To customers under construction contracts:
Current (note 11)
(6,137,731)
(438,992)
(5,141,514)
714,506
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
63
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (CONT)
28. Additional Company Information
Electro Optic Systems Holdings Limited is a listed public company in Australia, incorporated in Australia. The
company and its subsidiaries operate in Australia, North America, Singapore and Germany.
Principal Place of Business
EOS House
Mt Stromlo Observatory
Cotter Road
Weston Creek ACT 2611
Australia
Tel: 02 6222 7900
Fax: 02 6299 7687
German Operations
Ulrichsberger Str. 17 3 OG
94469 Deggendorf
Germany
Tel: +49 991 2910083
Fax: +49 991 2910399
Registered Office
Suite 2, Level 12
75 Elizabeth Street
Sydney NSW 2000
Australia
Tel: 02 9233 3915
Fax: 02 9232 3411
USA Operations
2500 N. Tucson Boulevard
Suite 100
Tucson, Arizona 85716
USA
Tel: +1 (520) 624 6399
Fax: +1 (520) 624 1906
Singapore Operations
4 Shenton Way #28‑01
SGX Centre II
Singapore 068807
Tel: +65 6224 0100
Fax: +65 6227 6002
64
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 ASX ADDITIONAL INFORMATION
Additional information required by the Australian Stock Exchange Listing Rules and not disclosed elsewhere in this report.
HOME EXCHANGE
The Company’s ordinary shares are quoted on the Australian Stock Exchange Limited under the trading symbol “EOS”.
The Home Exchange is Sydney.
SUBSTANTIAL SHAREHOLDERS
At 5 March 2015 the following substantial shareholders were registered:
Fred Bart Group
Technology Investments Pty Limited Group
Northrop Grumman Space and Mission Systems Corp.
Ordinary Shares
5,309,075
3,954,185
5,000,000
14,263,260
Percentage of total
Ordinary shares
9.34%
6.96%
8.80%
25.10%
VOTING RIGHTS
At 5 March 2015 there were 1,194 holders of fully paid ordinary shares.
Rule 74 of the Company’s Constitution stipulates the voting rights of members as follows:
“Subject to any rights or restrictions for the time being attached to any class or classes of shares and to this
Constitution:
(a) on a show of hands every person present in the capacity of a Member or a proxy, attorney or representative
(or in more than one of these capacities) has one vote; and
(b) On a poll every person present who is a Member or proxy, attorney or Representative has member present has:
(i) For each fully paid share that the person holds or represents ‑ one vote; and
(ii) For each share other than a fully paid share that the person holds or represents ‑ that proportion of one vote
that the amount paid (not credited) on the shares bears to the total amount paid and payable on the share
(excluding amounts credited).”
OTHER INFORMATION
In accordance with Listing Rule 4.10.19, the Company has used the cash and assets in a form readily convertible to cash
that it had at the time of admission in a way consistent with its business objectives.
The Company has a sponsored Level 1 American Depositary Receipt (ADR) program on the Over‑The‑Counter (OTC)
market in the USA with the ADR ticker symbol of EOPSY. The ration of ADR’s to Ordinary shares is 1:5 and the CUSIP
Number is 28520B1070. The local custodian is National Australia Bank Limited and the US Depositary Bank is BNY Mellon.
65
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 ASX ADDITIONAL INFORMATION (CONT)
DISTRIBUTION OF SHAREHOLDINGS
At 5 March 2015 the distribution of share and option holdings were:
Range
1‑1,000
1,001 ‑ 5,000
5,001 ‑ 10,000
10,001 ‑ 100,000
100,001 and over
Ordinary Shareholders
Number of Shares
223
408
222
267
74
1,194
142,429
1,217,082
1,910,929
8,913,385
44,662,101
56,845,926
There were 127 ordinary shareholders with less than a marketable parcel.
There is no current on‑market buy‑back.
66
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 TWENTY LARGEST ORDINARY SHAREHOLDERS - QUOTED
TWENTY LARGEST ORDINARY SHAREHOLDERS
At 5 March 2015 the 20 largest ordinary shareholders held 55.82% of the total issued fully paid quoted ordinary shares
of 56,845,926.
Shareholder
1. Citicorp Nominees Pty Limited
2. N & J Properties Pty Limited
3. Technology Transformations Pty Limited
4. Emichrome Pty Limited
5. Mr Justin Casey <2 A/C>
6. Capitol Enterprises Limited
7. A & D Wire Limited
8. Link Traders (Aust) Pty Limited
9. Technology Investments Pty Limited
10. Landed Investments NZ Limited
11. Emichrome Pty Limited
12. HSBC Custody Nominees (Australia)
13. DBS Vickers Securities (Singapore) Pte Ltd
14. Mr Leo Casey A/C
15. Kam Superannuation Fund Pty Limited
16. Mr Kevin Tay Hak Leong
17. Tony Peter Vucic + Diane Vucic
18. Crea8ive Nominees Pty Limited
19. Bond Street Custodians Limited
20. Landed Investments Limited
Fully Paid Ordinary Shares
Percentage of Total
6,616,007
4,090,000
2,754,185
2,516,488
2,105,000
1,550,000
1,457,276
1,239,900
1,200,000
1,010,000
997,450
902,605
877,000
868,000
693,000
671,228
575,000
560,000
550,000
500,000
11.64%
7.19%
4.84%
4.43%
3.70%
2.73%
2.56%
2.18%
2.11%
1.78%
1.75%
1.59%
1.54%
1.53%
1.22%
1.18%
1.01%
0.99%
0.97%
0.88%
31,733,139
55.82%
67
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 CORPORATE GOVERNANCE STATEMENT
The Board of Directors of Electro Optic Systems Holdings
Limited is responsible for the corporate governance of
the consolidated entity. The Board guides and monitors
the business and affairs of Electro Optic Systems
Holdings Limited on behalf of the shareholders by whom
they are elected and to whom they are accountable.
The Audit Committee was formed on 28 April 2005 and
consists of three non‑executive directors. The members
of the Audit Committee are Lt Gen Peter Leahy AC
(Chairman), Mr Ian Dennis and Mr Kevin Scully.
The majority of the Audit Committee are independent
directors and the Chairman is an independent person.
The Directors are committed to protecting stakeholders’
interests and keeping investors fully informed about
the performance of the Company, while meeting
stakeholders’ expectations of sound corporate
governance practices. To ensure the best representation
of Shareholder interests, the Board will regularly review
its corporate governance practices.
The Corporate Governance Statement follows the
Australian Stock Exchange Corporate Governance Council’s
(the “Council’s”) amendments to the ‑ edition of the
Corporate Governance Principles and Recommendations
released 27 March 2014 in relation to diversity,
remuneration, sustainability, trading policies and briefings.
In accordance with the Council’s recommendations,
the Corporate Governance Statement must now contain
certain specific information and must disclose the extent
to which the Company has followed the guidelines
during the period. Where a recommendation has not
been followed, that fact must be disclosed, together with
the reasons for the departure. Electro Optic Systems
Holdings Limited’s Corporate Governance Statement
is now structured with reference to the Corporate
Governance Council’s principles and recommendations,
which are as follows:
Principle 1. Lay solid foundations for management
and oversight
Principle 2. Structure the Board to add value
Principle 3. Promote ethical and responsible
decision making
Principle 4. Safeguard integrity in financial reporting
Principle 5. Make timely and balanced disclosure
Principle 6. Respect the rights of shareholders
Principle 7. Recognise and manage risk
Principle 8. Remunerate fairly and responsibly
Electro Optic Systems Holdings Limited’s corporate
governance practices were in place throughout the year
ended 31 December 2014 and embrace the Council’s
best practice recommendations which are being put in
place as appropriate.
The Remuneration Committee was formed on
23 March 2007. The members of the Remuneration
Committee are Lt Gen Peter Leahy AC (Chairman),
Mr Ian Dennis and Mr Kevin Scully. The majority of the
Remuneration Committee are independent directors and
the Chairman is an independent person.
The Company has documented risk management
policies and procedures in accordance with its ISO 9001
certification for its operating activities which are
regularly reviewed. During the current year the Directors
have adopted a formal risk assessment plan in order to
comply with Principle 7. The Directors and management
have considered whether the Company has any material
exposure to economic, environmental and social
sustainability risks and determined that no material
exposure exists.
Additional information regarding the Company’s
corporate governance policies, its Directors,
Insider Trading Policy, Equality and Diversity in the
Workplace Policy and other relevant information can be
found on the Company’s website: www.eos‑aus.com
Structure of the Board
The skills, experience and expertise relevant to the
position of director held by each Director in office at the
date of this Annual Report is included in the Directors’
Report on page 4. Directors of Electro Optic Systems
Holdings Limited are considered to be independent when
they are independent of management and free from
any business or other relationship that could materially
interfere with, or could reasonably be perceived to
materially interfere with, the exercise of their unfettered
and independent judgement.
In the context of director independence, “materiality”
is considered from both the Company and individual
director perspective. The determination of materiality
requires consideration of both quantitative and
qualitative elements. An item is presumed to be
quantitatively immaterial if it is equal or less than
5 percent of the appropriate base amount. It is presumed
to be material (unless there is qualitative evidence to
the contrary) if it is equal to or greater than 10 percent
of the appropriate base amount. Qualitative factors
considered include whether a relationship is strategically
68
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014
CORPORATE GOVERNANCE STATEMENT (CONT)
important, the competitive landscape, the nature of the relationship and the contractual or other arrangements
governing it and other factors which point to the actual ability of the director in question to shape the direction of the
Company’s loyalty.
In accordance with the definition of independence above, and the materiality thresholds set, the following Directors of
Electro Optic Systems Holdings Limited are considered to be independent:
Name
Position
Mr. Ian Dennis
Non‑Executive Director and Company Secretary
Lt Gen Peter Leahy AC
Non‑Executive Director
Mr Kevin Scully
Non‑Executive Director
There are procedures in place, agreed by the Board, to enable directors, in furtherance of their duties, to seek
independent professional advice at the Company’s expense.
The term in office held by each Director in office at the date of this report is as follows:
Name
Position
Mr Fred Bart
Non‑Executive Chairman
Dr Ben Greene
Executive Director
Mr. Ian Dennis
Non‑Executive Director
Mr Mark Ureda
Non‑Executive Director
Lt Gen Peter Leahy AC Non‑Executive Director
Mr Kevin Scully
Non‑Executive Director
Term in Office
13 years
11 years
13 years
9 years
4 years
2 years
For additional details regarding board appointments, please refer to the Company’s website.
Nomination Committee
The Board does not currently have a formal Nomination Committee. However, the Board continues to operate within
the established guidelines, including when necessary, selecting candidates for the position of Director and, where
appropriate, seeking the services of an independent consultant who is not a director of the Company to provide
assistance in the recruitment of potential Directors.
Performance
The performance of the Board and key executives is reviewed regularly against both measurable and qualitative
indicators. During the reporting period, an assessment of the performance of each Board member and key executive
against specific and measurable qualitative and quantitative performance criteria was undertaken. The performance
criteria against which directors and executives are assessed is aligned with the financial and non‑financial objectives
of Electro Optic Systems Holdings Limited. Directors whose performance is consistently unsatisfactory may be asked
to retire.
69
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 CORPORATE GOVERNANCE STATEMENT (CONT)
EOS Group has a publicly accessible diversity policy
which complies with the recommendations of the
Australian Stock Exchange Corporate Governance
Principles. In relation to the achievement of the diversity
policy objectives, as at 31 December 2014, EOS Group
employed 87 (2013 ‑ 94 staff). 20% (17) (2013 ‑ 19)
of these staff were female and 2% (2013 ‑ 3%) (2)(2013 ‑ 3)
of these women were employed in management roles
with management defined as staff having direct
report employees. There were no female directors.
In 2014 there were no workplace harassment complaints.
In 2013 one workplace harassment complaint was
investigated and concluded through mediation.
20% (2013 ‑ 17%) (18)(2013 ‑16%) of employees
accessed flexible workplace arrangements including
early commencement times and alternative work days.
3 (2013 ‑ 5) employees accessed company education
assistance for tertiary study.
The Equality and Diversity Policy of the Company
is available on the Company’s web site at
www.eos‑aus.com
Safeguard integrity in financial reporting
The chief executive officer and the chief financial officer
are required to state in writing to the board that the
company’s financial reports present a true and fair view,
in all material respects, of the company’s financial
condition and operational results and are in accordance
with relevant accounting standards.
Policy on Trading in Securities
Directors and employees of EOSH should not buy or
sell securities in EOSH, when EOSH is in possession of
price sensitive information that is not generally available
to the market.
The Securities Trading Policy of the Company is available
on the Company’s website at www.eos‑aus.com and has
been lodged with ASX Limited.
Remuneration
One of the Company’s key objectives is to provide
maximum stakeholder benefits from the retention
of a high quality Board and executive team by
remunerating Directors and key executives fairly and
appropriately with reference to relevant employment
market conditions. A Remuneration Committee was
formed on 23 March 2007. The nature and amount of
Executive Directors’ and Officers’ emoluments are linked
to the Company’s financial and operational performance.
The expected outcomes of the remuneration
structure are:
■ Retention and motivation of key executives;
■ Attraction of quality management to
the Company; and
■ Performance incentives which allow executives
to share the rewards of the success of
Electro Optic Systems Holdings Limited.
For details regarding the amount of remuneration
and all monetary and non‑monetary components for
Directors and executives, refer to Note 20 of the Notes
to the Financial Statements. In relation to the payment
of bonuses, options and other incentive payments,
discretion is exercised by the Board, having regard to the
overall performance of Electro Optic Systems Holdings
Limited and the performance of the individual during
the period.
There is no scheme to provide retirement
benefits, other than statutory superannuation,
to non‑executive directors.
The Board is responsible for determining and reviewing
compensation arrangements for the Directors themselves,
the Chief Executive Officer and the executive team.
Equality and Diversity Policy
The Company values diversity and recognises the
benefits it can bring to the organisation’s ability to
achieve its goals. Accordingly, the Company has issued
the Equality and Diversity Policy which outlines its
equality and diversity objectives in relation to gender,
sexual preference, transgender status, marital status,
disability, religion, cultural and racial background,
political preference, trade unionism, pregnancy and age.
It includes requirements for the Board to establish
measurable objectives for achieving diversity, and for
the Board to assess annually both the objectives,
and the Company’s progress made in achieving them.
70
Electro Optic Systems Holdings Limited and Controlled Entities | ANNUAL REPORT 2014 CONTENTS
Review of Operations
Directors’ Report
Auditors’ Report
Directors’ Declaration
1
4
14
17
18
19
20
21
22
65
67
68
Consolidated Statement of Profi t or Loss and Other
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to and forming part of the Financial Statements
ASX Additional Information
Twenty Largest Shareholders
Corporate Governance Statement
COMPANY DIRECTORY
Directors
Mr Fred Bart (Chairman)
Dr Ben Greene (Chief Executive Offi cer)
Mr Ian Dennis
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Company Secretary
Mr Ian Dennis
Registered Offi ce
Suite 2, Level 12
75 Elizabeth Street
Sydney NSW 2000
Australia
Telephone +61 2 9233 3915
Facsimile +61 2 9232 3411
Web site www.eos‑aus.com
Share Registry
Computershare Investor Services Pty Limited
Level 3, 60 Carrington Street
Sydney NSW 2000
GPO Box 7045
Sydney NSW 1115
Australia
Telephone 1300 855 080 or +61 3 9611 5711 outside Australia
Facsimile 1300 137 341
Auditors
Deloitte Touche Tohmatsu
Chartered Accountants
Eclipse Tower
Level 19, 60 Station Street
Parramatta NSW 2150
Australia
4766 Designed and Produced by RDA Creative www.rda.com.au
ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED
ACN 092 708 364
www.eos‑aus.com
2014
ANNUAL
REPORT