METAL STORM Ar10
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2010 /METAL STORM Ar 10 01 CONTENTs Financial statements consolidated statement of comprehensive income consolidated statement of financial position consolidated statement of cash flow consolidated statement of changes in equity notes to the financial statements Directors’ declaration asX additional information corporate inFormation 4 chairman’s report 6 chieF eXecutive oFFicer’s report 8 proDuct page 12 Director anD eXecutive proFiles 14 corporate governance statement 19 principle 1: lay solid foundations for management and oversight 19 principle 2: structure the board to add value 19 principle 3: promote ethical and responsible decision-making 20 principle 4: safeguard integrity in financial reporting 21 principle 5: make timely and balanced disclosure 21 principle 6: respect the rights of shareholders 21 principle 7: recognise and manage risk 22 principle 8: remunerate fairly and responsibly 22 Directors’ report 23 Directors 23 review of operations 25 remuneration report 28 Directors’ meetings 35 Financial statements 37 consolidated statement of comprehensive income 37 consolidated statement of financial position 38 consolidated statement of cash flow 39 consolidated statement of changes in equity 40 notes to the financial statements 41 Directors’ declaration 75 asX additional information 78 This annual report covers the consolidated financial statements for the consolidated entity consisting of Metal Storm Limited and its subsidiaries. The financial statements are presented in Australian dollars. The financial statements were authorised for issue by the directors on 31 March 2011. The directors have the power to amend and reissue the financial statements. /METAL STORM Ar 10 03 As at 31 March 2011 Directors: T J O’Dwyer, Chairman L J Finniear, Chief Executive Officer J R Nicholls T W Tappenden W Henkel Company SeCretary: B I Farmer registereD oFFice anD principal place oF Business: australia: 29 Sudbury Street Darra QLD 4076 Australia Phone +61 7 3147 8600 Fax: +61 7 3147 8610 Email: [email protected] Web: www.metalstorm.com usa: Suite 810, 4350 N Fairfax Drive Arlington VA 22203 USA Phone +1 703 248 8218 auDitors: PricewaterhouseCoopers Bankers: Westpac Banking Corporation Wachovia Bank (USA) lawyers: Corrs Chambers Westgarth Baker McKenzie patent attorney: Davis Collison Cave share anD notes registry australia: Computershare Investor Services Pty Ltd 117 Victoria Street, West End Queensland 4101, Australia Phone: +61 7 3237 2100 Fax: +61 7 3237 2152 Web: www.computershare.com.au share registry usa: Bank of New York Depository Receipts Division 6th Floor, 620 Avenue of the Americas New York NY 10011 USA stock eXchange listings: Metal Storm Limited’s ordinary shares are quoted on the Australian Securities Exchange Limited (“ASX”) (trading code: MST), its interest bearing convertible notes are quoted on the ASX and the Port Moresby Stock Exchange Limited in Papua New Guinea (trading code: MSTG), its secured convertible notes are quoted on the ASX (trading code (MSTGA), and its ADR’s are traded on the Over the Counter (OTC) market in the United States of America (ticker symbol: MTSXY). Corporate Information /METAL STORM Ar 10 05 chairman's report in the Rights Issue has been a critical Fellow Shareholders, element of Metal Storm’s cash needs. For this continuing Shareholder support we Once again Metal Storm reports on a year are most grateful. of mixed outcomes. On a very positive note momentum for the Company’s Even with that support, the Company product has been constant. We set out at remains in a very difficult financial the beginning of the year to win the US position as I write this. On 1st September Marines Mission Payload Module – Non its Convertible Notes mature. That will Lethal Weapon System contract, and we require the repayment of a debt of circa did so. An important objective to acquire $19M. Alternative funding or fresh capital was to achieve our first volume weapons has not yet been secured. This is the and ammunition order, and we achieved immediate and particular challenge for this as well. the executive and Board. The Company is actively pursuing a number of potential These milestone successes are all the investors with a view to retiring the debt more remarkable given the financial and injecting additional equity into the circumstances under which the Company Company sufficient to deliver the first of its continues to operate. The Company weapon systems in production volumes. entered 2010 with very little capital and an However a successful outcome is not in urgent need to secure a dependable line of place and continues to be uncertain. Your funding. The initially equity line of credit Board has confidence in the fundamental arrangement proved unsuitable and was value of the Company and the ongoing it moved to a more controllable equity line positives regarding product provides a with Dutchess Capital. This has assisted basis for an appropriate solution. the company throughout 2010 and into 2011 but is not able to provide all of the I would like to bring to your attention the Company’s ongoing funding requirements. assistance and general encouragement the Company has received from our Consequently funding from private primary secured Noteholder, Harmony placements and through participation Capital, as we have sought a replacement The developmenT for The US marineS mpm-nlWS conTracT noT only markS a SaleS opporTUniTy WiTh The US marineS, bUT creaTeS an addiTional opporTUniTy To markeT a neW and more effecTive croWd conTrol SySTem. or substitute for their debt. Their has significantly advanced the design professionalism and good grace in all of this weapon and is developing new aspects of our commercial relationship is ammunition types to provide concurrent acknowledged and greatly appreciated. action alternatives for personnel faced On product strategy, the Company has set with rapidly variations in exposures such its sights firmly on non-lethal weapons as youths throwing bricks to high intensity as its initial point of penetration into both urban combat missions where extra military and law enforcement markets. firepower is suddenly needed. It is clear to us that for the most part The Company relies on the hard work non-lethal weapons are purchased as a and tenacity of its staff to continue bring new capability, rather than in the lethal about the success we all seek. The Board weapons market where most procurement expresses its continued gratitude to these is for replacing older weapons that can be dedicated individuals who all are experts deferred if budgets are tight. in their field. I also thank my fellow The development for the US Marines Board members for their experience and Mission Payload Module - None Lethal commitment in guiding the Company Weapon System (MPM-NLWS) contract through these challenging circumstances. not only marks a sales opportunity with In closing I thank all our investors for the US Marines, but creates an additional their ongoing support and patience. We opportunity to market a new and more believe Metal Storm has a valuable future. effective crowd control system. Its market Despite the capital and funding difficulty includes countries where there is the we continue to work toward the creation potential for civil unrest, and also the many of that future, so that your support is military forces that participate in coalition vindicated and translates into a worthwhile actions and UN peacekeeping missions. return on your investment. The 12 gauge MAUL™ weapon has broad appeal for both military and law Terry O’Dwyer enforcement markets. The Company Chairman /METAL STORM Ar 10 07 CEO REPORT It has been a year of inexorable progress ContraCtS for Metal Storm. In 2009 we advanced our During 2010 three key contracts stand out weapons development from bench firing to as being particularly important. These are man firing. In 2010 our focus was on using the US Marines MPM-NLWS contract, the this capability to acquire contracts with US Marines IED Training Kit production customers internationally. contract, and the Papua New Guinea Throughout 2010 we continued to Corrective Services MAUL Contract. operate within tight cash constraints The US Marines MPM-NLWS program is that limited the scale of our operations a funded program of record that has been and expenditure. Despite the financial in train for more than 5 years. Several constraints we have advanced the weapon phases in the program have already been and ammunition designs to reduce cost of completed. We are the only vendor that production and increase performance and has been selected by the US Marines to safety. participate in every phase of the program to date. The US Marines have indicated targetS for 2010 the intention to purchase over 300 MPM- At the start of 2010 we set our sights on NLWS weapon systems in a following acquiring our first volume production phase of the program. contracts, and on winning the next phase Metal Storm is currently working on the of the US Marines Mission Payload Module MPM-NLWS Technology Development – Non Lethal Weapon Systems (MPM- phase. The contract requires the NLWS) program. development of a new multi-barrelled The Company achieved these targets, 40mm weapon system capable of a high winning the technology development phase volume of non-lethal fire. The system, of the MPM-NLWS program against tough mounted to the US Marines Transparent competition, and securing the first volume Armor Gun Shield on vehicles such as weapons supply contract for MAUL. the Humvee, will provide effective, large- scale crowd control from greater standoff ranges than currently available weapon With the ratification still pending, we have systems. The contract also involves the taken advantage of the additional time development of a new airburst ammunition available to further enhance the MAUL system that incapacitates its targets using weapon and ammunition systems. This intense sound, light and pressure. enhancement has included improving Metal Storm is the prime contractor for the designs’ production effectiveness this contract.