By Joseph Carbone
Defence systems manufacturer Electro Optic Systems has hit back at a “misleading, manipulatory and pejorative” short seller report that claimed it had spruiked “utterly unrealistic” contracts.
On Friday, New York-based Grizzly Research released a report claiming a $US80m contract announced by EOS was “but a smoke and mirrors show”.
EOS shares fell 16 per cent to $6.03 before the Canberra-based defence systems company entered a trading halt.
The report, ‘EOS Behind the Hype: Unmasking the Dark Reality of the Mysterious Korean Contract’, claimed the announcement of a $US80m high-energy laser contract with a South Korean company was “intentionally misleading and utterly unrealistic”.
It also claimed EOS’s “dishonest management team … will soon fail under the pressure of its own lies and worsening financials.”
In the first hour of trading on Tuesday, EOS hit back with a 15-page response.
It noted Grizzly’s short position and that it “stands to profit from a decline in EOS’ share price”.
EOS also said it understood Grizzly had been the subject of defamation proceedings on at least two other occasions “over allegations deemed false and harmful by the companies”.
“The global defence sector is highly competitive and EOS questions whether there may be other motives of the Grizzly Report,” the company said. “EOS management has worked hard to successfully turn around the company from 2022.”
EOS said Grizzly made no inquiry prior to releasing the report and “is concerned that Grizzly may have acted unlawfully”. It also said it was considering launching legal action against Grizzly in Australia and Germany.
EOS history and contracts
Founded in 1983 through a privatisation of part of the government’s satellite tracking program, EOS expanded into the defence sector in the early nineties and listed on the ASX in 2000.
It designs and manufactures defence systems, specialising in remote and laser weaponry.
EOS shares on Tuesday shed almost 14 per cent to $5.19 at market open before a huge turnaround, closing 11.3 per cent higher to $6.71.
EOS defended the Grizzly report’s key claim that the Korean deal was with a company too small to afford it by stating that it has “consistently stated” the $US80m deal was conditional on EOS receiving $US18m deposit, and that the deal was non-binding.
Grizzly in its report revealed the previously unidentified South Korean company was Goldrone, an agricultural drone company Grizzly claimed was simply too small to have awarded such a contract.
EOS admitted Goldrone is of “modest financial capability” and said it “considered the commercial risks” of the contract, but said Goldrone could potentially have “strong capability to secure market access and sales contracts with government customers in Korea”.
In a note PAC Partners senior institutional sales trader James Nicolaou said the EOS response had “some eyebrow-raising moments” and said the Goldrone deal was “like your broke friend promising to buy a Ferrari … eventually” and cautioned investors away from the frothy defence sector.
Is the EOS deal with Goldrone legitimate?
Grizzly said Goldrone revenue hit a high of $US476,000 in 2018, incurred a net loss of $US400,000, had three employees and operated from a small office above a restaurant in rural South Korea.
EOS in its response said Goldrone had since moved offices.
Grizzly also claimed Goldrone had essentially stopped doing business in 2019 and was currently trying to raise $US343,000 to continue operations.
“We find the statements that EOS made in the investor call dedicated to the new Korean contract announcements aggressively misleading, and sometimes bordering on outright lies,” Grizzly stated in the report, suggesting EOS intentionally hid the identity of the Korean company behind confidentially agreements which are standard in defence deals.
Grizzly said it found Goldrone itself had announced the deal in local media, and provided a picture of what appears to be EOS chief executive Andreas Schwer shaking hands with a Goldrone representative, seemingly celebrating an agreement.
EOS shares
On December 15 last year, when the contract was announced, EOS shares soared 29 per cent to $6.46. The $1.2bn company reached a closing peak of $11.02 in mid January after announcing the acquisition of MARSS, an almost-120 per cent rise in value since before the deal was announced and a meteoric 741 per cent rise from $1.31 in January 2025.
In its report, Grizzly also questioned the financials surrounding the January acquisition of European counter-drone systems company MARSS by EOS.
Grizzly in particular rubbished claims made by EOS that MARSS had generated more than €240m ($403m) over the past five years, claiming MARSS’ UK subsidiary “seems to be conducting all their operations”.
According to financial documents found by Grizzly, between 2021 and 2023 MARSS made around €66m, meaning MARSS would have to have generated €174m in 2024 and 2025 combined, which Grizzly suggested was unrealistic.
In response to these claims, EOS said: “The statements made by Grizzly in relation to MARSS are based on manifest errors.”
EOS said MARSS had generated revenue from companies in the UK, Monaco and Saudi Arabia and “in contrast to Grizzly’s analysis … commercial activity with customers has been undertaken by each of these companies over recent years”. EOS said from 2020 to 2025 MARSS UK had made revenue of €129m and MARSS Other had generated €114m, totalling €243m.
Responding to claims the company is weaker than its share price surge would suggest following the $158m sale of its EM Solutions business, EOS pointed to its $459m order book, which includes contracts with the Netherlands, the US and Australia for laser and remote weapons.
Top EOS shareholders include Soul Patts, which at last count held more than 9 per cent of the company. Wilson Asset Management held EOS stock in its Active portfolio, but has since sold down its position entirely.
Wilson Asset Management deputy portfolio manager Shaun Weick called out Grizzly for past misconduct, but said EOS wasn’t yet out of the woods. “(Grizzly’s) track record on short reports is patchy at best, and they have falsified some claims in the past,” he told The Australian.
“On EOS specifically, there is potentially a short-term hit to management credibility if the Korean contract does not move to unconditional, but importantly they always said this and it does not form part of the disclosed order book.”
Mr Weick said the stock had become too retail-heavy: “In the very short term we felt the catalyst had passed, but we may revisit it if we think the price is right.”
