ceo bulletin out now, page-2

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CEO Bulletin February 2010
Brisbane, Australia 16 February, 2010:
Metal Storm Limited (ASX trading code: MST, OTC Symbol: MTSXY).
Dear Shareholders,
Although capital funding has been a necessary focus for Metal Storm over the last 10 months, I am
pleased to say that we have continued to move forward with our weapons and ammunition
commercialisation programme. In the following update I will cover:
Financing
Weapons Development
Contracts
Sales & Marketing progress & opportunities
Firstly, however, I would like to thank you, our shareholders and note holders, for your support and
loyalty as we endeavoured to ensure that your Company lived to fulfil its purpose. It has been an
extraordinarily challenging period, but one that has shown the true support the Company has from its
shareholder base.
Financing
The Global Financial Crisis (GFC) has challenged most businesses across the globe. We have not
been an exception. We were ramping up our search for additional finance when the GFC suddenly hit
home in late 2008. Throughout 2009 the Board and executive team worked tirelessly, meeting
potential strategic and financial investor groups in the US, Europe, Asia and in Australia with the aim
of acquiring finance to complete our weapons commercialisation. While there was often promising
dialogue, for the most part however, the GFC meant that investors were consolidating and avoiding
further investment risk.
The agreement signed in October with Assure Fast Holdings Limited and that investors failure to
deliver the first tranche has already been well documented by the Company and the Press, so I will
not waste more on it here. Suffice to say that the Board was most disappointed at the outcome, and
the Company has reserved all of its rights in relation to the breach of contract.
In December we considered three equity line of credit (ELOC) options to provide immediate funding
for the Company. After considerable negotiation, we chose the Global Equity Markets Ltd (GEM)
ELOC as it provided the largest cash investment potential, the least dilutive share price calculations,
and the opportunity for the Company to reduce or eliminate its reliance on the ELOC funding over time
at our option and without penalty.
In addition we secured a number of small private equity placements at crucial points for the Company
to remain solvent and continue as a going concern. We are grateful to those new investors who
provided instant funds when the Company was under great financial stress.
On 4th March the Company is holding a Shareholder Meeting to approve the GEM Agreement and the
recent private placements. I look forward to seeing you there if you are able to attend.
The Company has recently been advised by Mike ODwyer, the inventor of the technology and who
previously was CEO and a director that he intends to sell down his equity until his holding is under 5%,
for family reasons. He presently holds approximate 9.82% of Metal Storm ordinary shares.
Looking forward, the Company continues to seek additional investment on favourable terms in order to
accelerate its development and commercialisation work. The potential of Metal Storms technology
and weapon systems has grown during this difficult period and we believe its future remains
compelling.
Weapons & Munitions Development
Over the last 9 months the Company has had to significantly reduce its overall expenditure, and this
has had, among other things, an impact on the resources available to the Engineering teams in
Australia and the at Metal Storm Inc. (MSI) in the USA. Development during this period continued but
more slowly than the Company would have achieved with funding.
MSI has cut more than 10% in operating expenses while still maintaining its core staff and the ability to
fully execute its contractual obligations. We have been careful to only eliminate costs that will not
degrade the ability to continue advancing the MAUL and FireStorm product lines.
Over the past two quarters, the FireStorm remotely operated weapons station design has
undergone a number of enhancements to improve the volume of fire. A 36 shot 12 barrel weapons
pod has been developed as a drop in replacement for the current four barrel design for those
customers that are either looking for an overwhelming and instantaneous volley of fire or would like to
extend the number of engagements before reloading. 45, 48 and 60 shot designs are in the works as
well, giving FireStorm a sustained fire capability before reload that is equivalent to or even greater
than the belt-fed MK-19 Grenade Machine Gun.
MSI has also been working on a number of munition designs for the MAUL and FireStorm,
including several types of door breaching rounds for MAUL and additional less-lethal rounds for
FireStorm.
3GL development continued with further design advances in the Bullpup version, as well as
improvements to the fire control package to cater for a broader range of weapons with up to 6 shots
per barrel. In particular an endurance firing was completed with over 200 rounds fired without
cleaning the weapon, without degradation in performance. The lead 3GL has now fired in excess of
300 rounds and continues to demonstrate good reliability and accuracy.
The STORM40 40mm ammunition has been continuing towards formal certification. In late October
STK completed all testing on the HEDP munition to enable it to progress to its Critical Design Review,
which precedes formal qualification. During this testing in Singapore, sample batches of rounds were
fired after being subjected to a series of rigorous environmental conditions, including heating and
cooling at temperatures from -54C up to 71C, and water immersion to 1 metre prior to use. The
successful result validates all the testing carried out in Australia using the non-explosive TP rounds
and gives the Company and its prospective customers greater confidence that the ammunition design
will meet the required military standards.
During 2009 the Company fired approximately 1300 rounds of STORM40 ammunition with an overall
reliability of over 98%. This is an outstanding result, particularly given the wide range of extreme test
conditions under which the munitions were fired.
Contracts
MSI continues to win and successfully execute US Military contracts. The contract with the National
Small Arms Center is progressing on schedule and within the initial allocated budget. The contract is
expected to finish in May 2010, with a product demonstration of an Optically Fused Air-Burst High
Explosive projectile. Work is also progressing well on a subcontract for munitions for Physical Optics
Corporation.
MSI has also completed the manufacturing and testing of the MAUL weapons for Defence Research
Canada and is awaiting export approval to complete the transaction. Follow on opportunities exist for
this project and may be realised yet this year.
Sales & Marketing
Significant progress has been made over the past 6 months in expanding Metal Storms International
market presence.
The 3rd into 4th quarter timeframe was extremely busy with three trade shows occurring over just two
weeks. Metal Storm displayed its products at the Association of the United States Army show, the
Modern Day Marine Expo and the International Association of Chiefs of Police show (IACP). We also
attended the Shooting, Hunting, Outdoor Trade (SHOT) Show and Conference in January. These
conferences are an excellent venue for increasing Metal Storm brand awareness, exposing our most
recent product offerings, meeting with current and potential industry partners, obtaining sales leads
and gathering valuable customer feedback.
Metal Storm participated in the US DOD 2009 Empire Challenge with iRobot at the China Lake test
facility. During the Challenge, FireStorm was put through its paces integrated to the next generation
iRobot Warrior UGV, providing a compelling demonstration of manoeuvrability and firepower to a wide
audience of US and International military personnel.
We are seeing the direct result of the U.S. marketing efforts with increased inquiries from military
customers and a steep rise in interest from the law enforcement community as a result of the IACP
show. To capitalize on this interest, MSI will be focusing a portion of its development funding on
MAUL safety certification.
In early February Metal Storm exhibited at the Singapore Air Show at the invitation of Singapore
Technologies Kinetics. MAUL and 3GL were exhibited directly at the main entrance to the
exhibition, so all who entered the show were exposed immediately to Metal Storm weapon systems.
This positioning again demonstrated the level of commitment and support we are receiving from the
STK relationship.
Despite limitations in funding, the Company has continued to advance Metal Storms technology,
heighten market awareness and move closer to product sales, while at the same time minimising the
cost of operations.
The outlook is promising with a decision by the United States Marine Corps for the Mission Payload
Module program tender expected in Q2, the prospect of an expansion of the relationship with Defence
Research Canada, and the potential for a delivery of the first MAULTM weapons for use by
peacekeeping forces in theatre