money constraints, or just poor performance?

I'm a long term Shareholder. The following is my opinion only. Potential investors and traders should seek independent professional advice.

A read of the Annual report (20 April 2010) shows that the Chairman and CEO both agree that it has been a difficult year for the company. There is no doubt that is true. But has the pain been largely self-inflicted?

We are belatedly advised by the Chairman (20 April 2010) that the NOW/NEXT/AFTER NEXT objectives were delayed "by money constraints"; but is that the case, or was it more a consequence of failure by the company to deliver its own strategic objectives? In that regard the CEO puts the view that 'the market attaches credibility to those organisations that do what they say they will do'. (17 August 2007) I believe he's absolutely correct in this.

If we then compare published objectives to actual outcomes 2007 to 2010, we will find though that the company has NOT done what it said it would do, and that the CEO has abandoned his own much-vaunted strategic plan without explanation to the market, and that he has made no published reference to it for nearly 2 years.

In a Bulletin (5 March 2007) the CEO presented a "strategic framework" that "defines the next three phases of the life of the company". The 'NOW' objective was " up to June 30 2007 Meet the performance and financial requirements of the agreement with the Convertible Note Holders" This was achieved.

The 'NEXT' objective included the attainment of "volume sales", and was commenced with a solid $20.7 million in the bank (CEO 17 Aug 2007). The objective was "July 1 2007 to June 30 2008 commercialise 3GL and RedbackTM systems for delivery. Make first volume product sales and substantially increase the scale of US Government contract business"

Achieving those objectives would have pretty much been the making of the company, right then and there. The success of even one of them may well have been sufficient to hold market support and credibility. Not one of them were achieved though, and the most spectacular failure was arguably "make first volume sales" before June 30 2008. The company did not do what it said it would do. We were advised that progress had slowed, but now, nearly 2 years beyond the set target date, all 4 objectives still remain outstanding. As a result, the company has lost credibility and market support.

The 'AFTER NEXT' objective was "July 1 2008 to June 30 2010 Rapidly expand product sales, move additional weapons systems to commercialisation, significantly improve revenue and net income." Nothing of this was achieved. Nothing at all. Nothing even close. In fact, 3 years after they were set, I cannot see that a single objective in the NEXT or AFTER NEXT area has been achieved. Indeed, the whole strategic plan of NOW/NEXT/AFTER NEXT has collapsed to such an extent that the CEO has excluded any reference to it in his most recent Annual Address (20 April 2010), leaving it instead to the Chairman to do little more than touch on it. Further, I can't find where the CEO has even referred to his NOW/NEXT/AFTER NEXT strategy since 23 May 2008, not long after he declared on the 22nd April 2008 that "I was a little optimistic on my NEXT timing". This is not acceptable.

Also in the (5 March 2007) Bulletin, "During my tenure I will keep our focus on increasing shareholder value through the refinement and commercialisation of the technology breakthroughs that the Company has invested so heavily to achieve." On the day that was published Metal Storm shares were trading at 17 cents. Today below 1.5 cents. A drop of approximately 90%.

And, "Our future relies on getting reliable products to market quickly, so focus is critical. For the time being I have put other R&D initiatives on hold. We need to get RedbackTM and 3GL to market rapidly and our product development team needs to focus on making sure that happens." "The Richlands team now consists of 14 staff who hold degrees in Electronic, Electrical, Software, Mechanical and Mechantronic Engineering. Metal Storm now has the complete suite of in-house skills required to develop and refine the technology to product readiness."

Strong words. Clear strategy and objectives, and clear time lines. Lots of engineers. Lots of degrees. And $20.7m in the bank, to get the job done!. The "complete suite". How then has the team failed to achieve ANY of the NEXT/AFTER NEXT strategic objectives? Yes, they have made some progress, but they have missed EVERY key target, and 3 years on, as far as I can see it remains the case that 40mm HE ammo has not been certified, that the 3GL has not been certified for HE, and that the 3GL has yet to fire 40mm HE from the shoulder.

I do not believe that these failures and delays have been because of 'financial constraints'. It's actually the other way round!. The failure to deliver the strategic objectives came first. The engineers did not deliver on the objectives. Management did not deliver on the objectives. These failures then caused the financial problems that followed, which were then made worse by the GFC.

The company also failed to deliver other emphatically-stated objectives. The Chairman published on 27 April 2007, that "The 3GL and Redback orders will deliver sufficient cash flow to enable the company to begin to develop other applications of the technology from 2009/10 onwards." An incredibly definite and success-defining forecast, implying orders, sales, production and revenue. Such success could also have precluded the need for additional operating capital. So, how did the company measure up against this? As far as I can make out, it delivered a 100% failure.

Yet another statement of definite certainty was presented to shareholders just 12 months ago in last year's AGM address by the Chairman (14/05/2009), when he advised referring this time to the 3GL and the MAUL, "We will see orders for those products across this next 12 months". Awesomely good if achieved, but as far as I can tell, only a trial order for the MAUL, and absolutely nothing for the 3GL.

If completed, the NEXT and AFTER NEXT objectives promised Product, Orders, Growth, Manufacturing, Revenue, Profit, Stability and a healthy share price. But with none of these objectives achieved, the company has been reduced to penny stock status, and left scrambling for yet more operating capital that it should not need, and from a position of visible under-achievement.

Now we learn from the recent Annual Report (20 April 2010) that "there remains much to be done to reach product commercialization". Unbelievable!. What exactly? Why exactly? How can this be so? And we now hear from the Chairman that the company is seeking "a major equity injection". And from the CEO, that 40mm HE ammunition will now not even enter the formal qualification phase until more cash is secured (Annual Report 20 April 2010). We also learn from the Chairman (24/03/2010) that the company is now even "considering its product development priorities". Not again? Why? To come up with yet another new set of new product priorities, and yet another strategy, requiring yet more funding?

In the 2008 Annual report, we are advised by the CEO that he could not over-emphasize the importance of the agreement with STK. In the 2009 report though, STK rated more muted inclusion, and in the 2010 report they are missing entirely. Why?. What has happened?. What's the problem?

From this mire, the company somehow finds justification for a $186,000 success payment to the CEO. I have no problem with success payments. I would wish the CEO was eligible to receive even more. But such bonuses must be based on genuine success measured against objectives.

For now, we need our CEO to stand up and provide straight talk about the present situation. Even more so, and by far, we need him to deliver REAL results. No delays. No excuses.

The Chairman holds the prime responsibility for the collective performance of the team of managers and engineers. During his six years, shareholders have seen the share price fall by an incredible 95% or more, while the company has failed to deliver on its (ever changing) core strategy.

We need a Chairman who will ensure the exact opposite. We need a Chairman with the resolve and capability to see that the team delivers on its existing strategic objectives, and one who can deliver up the potential this technology holds. We need a new Chairman.