SOURCE: Metal Storm Limited

September 04, 2007 20:59 ET

Metal Storm Announces Half Yearly Report

BRISBANE, AUSTRALIA--(Marketwire - September 4, 2007) - Metal Storm Limited (ASX: MST) and (NASDAQ: MTSX).

Metal Storm Limited
A.C.N. 064 270 006

APPENDIX AD
Pursuant to Listing Rule 4.2.A.3

Half-year financial report for the six months ended 30 June 2007 (previous corresponding period 30 June 2006)

Results announcement to the market

                                                                 Current
                                                                 period

Revenues from ordinary activities (item 2.1)  Up    %  62.8%  to $1,658,487

Loss from ordinary activities after tax      (Down) %   5.9%  to $4,888,101
attributable to members (item 2.2)
Net loss for the period attributable to      (Down) %   5.9%  to $4,888,101
members (item 2.3)

Dividend s (distribution)              Amount per security   Franked amount
                                                             per security

Final dividend (item 2.4)                        Nil cents        Nil cents

Interim dividend (item 2.4)                      Nil cents        Nil cents

The Company does not propose to pay dividends at this time (item 2.4).

Record date for determining entitlements to the       Not Applicable
Dividend (item 2.5)


Brief explanation of the figures in 2.1 to 2.4 necessary to enable the
figures to be understood (item 2.6).


NTA backing                       Current period     Previous corresponding
                                                     period

  Net tangible asset backing          0.24 cents                 0.99 cents
  per ordinary security

Directors' report

Your directors present their report on the consolidated entity consisting of Metal Storm Limited and the entities it controlled at the end of, or during, the half-year ended 30 June 2007.

Directors

The names of the company's directors in office during the half-year and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated:

Mr T J O'Dwyer (Chairman)
Mr J M Crunk
Mr P D Jonson
Mr J R Nicholls
Dr L J Finniear (Managing Director appointed 24 May 2007)
Mr B S McComish (resigned 8 March 2007)

Review of operations

Metal Storm has made a tremendous step towards commercialisation of its technology over the past six months. The restructuring of its staffing and relocation of its offices has enabled the company to develop the technology at a much faster pace.

This culminated in the testing of two prototype weapons systems in Singapore during June 2007 where the Company was able to successfully demonstrate the 3GL and Redback™ systems in front of an independent expert.

The Company is now continuing to refine the products and is seeking appropriate collaboration partners for production engineering and manufacturing. These products are:

--  3GL -- three shot grenade launcher that can be mounted to an existing
    assault rifle or fired from its own shoulder stock.
    
--  Redback™ -- a Remotely Operated Weapons System (ROWS) -- consisting
    of a 4 Barrel Metal Storm weapons pod on a fast gymbal and mount, together
    with an electronic fire control system.
    
    
--  40mm Metal Storm Munitions -- 40mm high explosive, enhanced blast and
    airburst munitions using existing warheads with Metal Storm tailpieces.
    

The 3GL is the only 40mm grenade launcher that can be mounted to a range of conventional assault rifles, whilst being capable of firing 3 rounds rapidly without reloading. It has the potential to triple the grenade firepower of any military unit. Competing 40mm under-barrel grenade launchers are only single shot.

The Redback™ ROWS is a rapid reaction remotely operated weapons system suitable for mounting on top of a vehicle or at a fixed location. The 4 barrel 40mm Metal Storm weapons pod containing 16 40mm grenades is mounted on a gymbal capable of a 180 degree rotation in 0.25 seconds. A protected remote operator uses the electronic fire control system, video and thermal cameras and other sensors to target, track and fire the weapon. A version of Redback™ is being developed for vehicle use which is intended to be capable of targeting and disabling an incoming rocket propelled grenade.

3GL and the 40mm Metal Storm munitions have been developed in collaboration with Singapore Technology Kinetics Ltd.

In the USA, the Company has continued to pursue the acquisition of defense contracts for R&D, and for the supply of configured weapons systems for various arms of the military and for law enforcement agencies. It has been successful in securing a number of these contracts, which have addressed among other things the following applications:

-- Providing a 4 barrel remotely operated weapons system mounted to an
   unmanned ground vehicle (UGV)

-- Providing a 4 barrel remotely operated weapons system with Metal
   Storm modified less-than-lethal munitions for crowd control purposes

-- R&D and design for a UGV mounted Metal Storm stacked round weapon for
   explosive ordnance disposal

-- R&D and provision of a bench mounted prototype of a Metal Storm 18mm
   stacked round underslung grenade launcher

-- Provision for law enforcement purposes of a vehicle grille mounted
   2 barrel launcher plus GPS Wireless projectiles to target, hit
   and track fugitive vehicles involved in high speed chases

The company also continues to pursue supply contracts in other international markets outside the USA.

Consolidated results

Revenue from continuing operations to 30 June 2007 was $1,658,487 ($555,818 to 30 June 2006). The consolidated loss attributable to members of the parent for the half year to 30 June 2007 was $4,888,101 ($5,193,273 to 30 June 2006).

Net cash outflows from operating activities increased from $3,957,354 in the previous corresponding period to $5,550,444 in the current half-year. The increase in cash used from operating activities is largely due to the interest paid to the convertible note holders. The company confirms that its minimum cash levels have at all times been above those required by the convertible notes trust deed.

This report is made in accordance with a resolution of directors.

Mr T J O'Dwyer        31 August 2007
Chairman              Brisbane

Auditor's Independence Declaration

As lead auditor for the review of Metal Storm Ltd for the half year ended 30 June 2007, I declare that to the best of my knowledge and belief, there have been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

b) no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Metal Storm Limited and the entities it controlled during the period.

Robert Roach
Partner                       31 August 2007
PricewaterhouseCoopers        Brisbane


                                                          Half-year
                                                       2007        2006
                                              Notes     $           $

Revenue from continuing operations                   1,658,487     555,818

Fair value movement in conversion derivative         1,686,370           -
Consumables used                                      (178,456)    (12,826)
Employee expenses                                   (2,208,591) (2,407,173)
Professional fees                                     (686,484)   (893,639)
Research and development                            (1,333,386)   (847,176)
Administrative expenditure                            (295,430)   (442,658)
Facilities and equipment                              (421,255)   (355,059)
Travel & entertainment                                (273,469)   (324,820)
Communication and technology                          (192,913)   (153,854)
Public relations and compliance                       (241,326)   (213,265)
Net foreign exchange differences                       (39,060)     (5,053)
                                                    ----------  ----------
Loss before finance costs and income tax            (2,525,513) (5,099,705)

Finance costs                                  3    (2,362,588)    (93,568)

                                                    ----------  ----------
Loss before income tax                              (4,888,101) (5,193,273)

Income tax                                                   -           -

                                                    ----------  ----------
Loss attributable to members of the parent          (4,888,101) (5,193,273)
                                                    ----------  ----------


                                                       Cents         Cents
Earnings per share for profit from continuing
operations attributable to the ordinary
equity holders of the company:
Basic and diluted earnings per share                    (0.8)        (1.0)


                                                       Cents         Cents
Earnings per share for profit attributable
to the ordinary equity holders of the
company
Basic and diluted earnings per share                    (0.8)        (1.0)

The above consolidated income statement should be read in conjunction with
the accompanying notes.



                                                    30 June    31 December
                                                      2007         2006
                                             Notes     $            $

ASSETS
Current assets
Cash and cash equivalents                          19,687,483   23,830,267
Available-for-sale financial investments            1,000,840    2,002,080
Trade and other receivables                           555,961      773,130

                                                  -----------  -----------
Total current assets                               21,244,284   26,605,477

Non-current assets
Trade and other receivables                           951,719      510,795
Property, plant and equipment                         671,609      627,985
Intangible assets                                     103,565      111,824
                                                  -----------  -----------
Total non-current assets                            1,726,893    1,250,604

Total assets                                       22,971,177   27,856,081
                                                  -----------  -----------

LIABILITIES
Current Liabilities
Trade and other payables                            2,665,611    1,942,525
Conversion derivative                               6,777,438   10,811,057
Interest-bearing loans and borrowings              11,415,649   13,234,880
Provisions                                            331,111      441,997
                                                  -----------  -----------
Total current liabilities                          21,189,809   26,430,459

Non-current liabilities
Interest-bearing loans and borrowings                 225,648      255,845
Other                                                  74,593       77,949
                                                  -----------  -----------
Total non-current liabilities                         300,241      333,794

Total liabilities                                  21,490,050   26,764,253
                                                  -----------  -----------

Net assets                                          1,481,127    1,091,828
                                                  -----------  -----------

EQUITY
Contributed equity                           4     65,161,936   59,980,065
Options reserves                                    9,063,816    8,978,434
Other reserves                                        (72,345)     (82,492)
Accumulated losses                                (72,672,280) (67,784,179)
                                                  -----------  -----------

Total equity                                        1,481,127    1,091,828
                                                  -----------  -----------

The above consolidated balance sheet should be read in conjunction with
the accompanying notes.

                      Issued    Options    Other     Retained     Total
Consolidated          capital   reserves  Reserves    losses      equity
                        $           $        $          $           $
At 1 January 2006   56,559,039  1,726,182 (58,125) (52,447,234)  5,779,862
Currency translation
 differences                 -          -  (3,074)           -      (3,074)
Net (gains)/losses
 on available-for-sale
 financial assets            -          - (36,435)           -     (36,435)
Share issue costs     (268,696)         -       -            -    (268,696)
                    ----------  --------- -------  -----------  ----------
Total income/(expense)
 for the period
 recognised directly
 in equity            (268,696)         - (39,509)           -    (308,205)
Loss for the period          -          -       -   (5,193,273) (5,193,273)
                    ----------  --------- -------  -----------  ----------
Total income/(expense)
 for the period       (268,696)         - (39,509)  (5,193,273) (5,501,478)
                    ----------  --------- -------  -----------  ----------
Exercise of options          -          -       -            -           -
Net increase in
 options reserves            -    607,668       -            -     607,668
Issue of share
 capital             3,010,000          -       -            -   3,010,000
Fair value of
 services paid for
 via issue of
 shares                 25,031          -       -            -      25,031
                    ----------  --------- -------  -----------  ----------
At 30 June 2006     59,325,374  2,333,850 (97,634) (57,640,507)  3,921,083
                    ==========  ========= =======  ===========  ==========


At 1 January 2007   59,980,065  8,978,434 (82,492) (67,784,179)  1,091,828
Currency translation
 differences                 -          -  11,387            -      11,387
Net (gains)/losses
 on available-for-sale
 financial assets            -          -  (1,240)           -      (1,240)
                    ----------  --------- -------  -----------  ----------
Total income/(expense)
 for the period
 recognised directly
 in equity                   -          -  10,147            -      10,147
Loss for the period          -          -       -   (4,888,101) (4,888,101)
                    ----------  --------- -------  -----------  ----------
Total
 income/(expense)
 for the period              -          -  10,147   (4,888,101) (4,877,954)
                    ----------  --------- -------  -----------  ----------
Exercise of options      6,624          -       -            -       6,624
Net increase in
 options reserves            -     85,382       -            -      85,382
Issue of share
 capital             5,175,247          -       -            -   5,175,247
                    ----------  --------- -------  -----------  ----------
At 30 June 2007     65,161,936  9,063,816 (72,345) (72,672,280)  1,481,127
                    ==========  ========= =======  ===========  ==========

The above consolidated statement of changes in equity should be read in
conjunction with the accompanying notes.

                                                          Half-year
                                                       2007        2006
                                             Notes      $           $
Cash flows from operating activities
Receipts from customers                                859,074     600,586
Payments to suppliers and employees                 (5,292,440) (4,877,617)
Interest and other costs of finance paid            (1,117,078)    (17,888)
Government grant - research and development                  -     337,565
                                                    ----------  ----------
Net cash inflow (outflow) from operating
 activities                                         (5,550,444) (3,957,354)
                                                    ----------  ----------

Cash flows from investing activities
Purchase of property, plant and equipment             (121,169)     (5,175)
Proceeds from disposal of property plant and
 equipment                                                   -      12,743
Purchase of intangible assets                          (33,360)    (73,145)
Interest received                                      822,502     165,216
Purchase of available-for-sale financial
 assets                                                      -  (2,985,440)
Proceeds from sale of available-for-sale
 financial assets                                    1,000,000   5,504,920
                                                    ----------  ----------
Net cash inflow (outflow) from investing
 activities                                          1,667,973   2,619,119
                                                    ----------  ----------

Cash flows from financing activities
Proceeds from issue of shares                            6,624   3,010,000
Share issue costs                                            -    (268,696)
Proceeds from borrowings                                     -           -
Repayment of borrowings                               (266,937)   (353,674)
                                                    ----------  ----------
Net cash inflows (outflow) from financing
 activities                                           (260,313)  2,387,630
                                                    ----------  ----------

Net increase (decrease) in cash and cash
 equivalents                                        (4,142,784)  1,049,395
Cash and cash equivalents at beginning of the
 half-year                                          23,830,267     635,861
Effect of exchange rate changes on cash and
 cash equivalents                                            -        (705)
                                                    ----------  ----------
Cash and cash equivalents at end of the
 half-year                                          19,687,483   1,684,551
                                                    ----------  ----------

The above consolidated cash flow statement should be read in conjunction
with the accompanying notes.

1 Basis of preparation of half-year report

This general purpose financial report for the interim half-year reporting period ended 30 June 2007 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001.

This interim financial report does not include all the notes of the type normally included in the annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2006 and any public announcements made by Metal Storm Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

2 Segment information

(a) Primary reporting format - geographic segments

              Half-year
                 2007                                North
                                      Australia     America       Total
                                          $            $            $
                                      ----------   ----------   ----------
Total segment revenue                      1,103      936,152      937,255
                                      ----------   ----------
Unallocated revenue / interest income                              721,232

                                                                ----------
Consolidated revenue                                             1,658,487
                                                                ----------


Segment result                        (5,633,942)    (664,682)  (6,298,624)
                                      ----------   ----------
Intersegment elimination                                           828,110
Unallocated revenue less unallocated
 expenses                                                          582,413
                                                                ----------
Loss before income tax                                          (4,888,101)
                                                                ----------


               Half-year
                 2006                                North
                                      Australia     America       Total
                                          $            $            $
                                      ----------   ----------   ----------
Total segment revenue                          -      404,741      404,741
                                      ----------   ----------
Unallocated revenue / interest income                              151,077
                                                                ----------
Consolidated revenue                                               555,818
                                                                ----------


Segment result                        (5,177,279)  (1,928,516)  (7,105,795)
                                      ----------   ----------
Intersegment elimination                                         1,887,576
Unallocated revenue less unallocated
 expenses                                                           24,946
                                                                ----------
Loss before income tax                                          (5,193,273)
                                                                ----------

3 Loss for the half-year

Loss for the half-year includes the following items that are unusual because of their nature, size or incidence:

                                                           Half-year
                                                        2007         2006
                                                         $            $
Finance costs
Accretion expense                                    1,245,510            -
Interest expense                                     1,117,078       75,680
Other finance charges                                        -       17,888
                                                   -----------  -----------
                                                     2,362,588       93,568
                                                   -----------  -----------

Accretion expense relates to the accretion of convertible notes using an effective interest rate.

Interest expense predominately relates to interest payments to convertible note holders at a rate of 10%pa in accordance with terms and conditions of the convertible notes trust deed.

4 Equity securities issued

Issues of ordinary shares during the half year.

                              2007         2006         2007        2006
                             Shares       Shares         $           $

At 1 January               552,641,394  521,970,978  59,980,065  56,559,039
Exercise of listed options      44,126            -       6,624           -
Exercise of convertible
 notes                      43,808,394            -   5,175,247           -
Issued via Share Purchase
 Plan                                -   22,648,691           -   2,741,304
Other issues                         -       89,396           -      25,031
                           -----------  -----------  ----------  ----------
At 30 June                 596,493,914  544,709,065  65,161,936  59,325,374
                           -----------  -----------  ----------  ----------

5 Contingencies

(a) Contingent liabilities

There are no known contingent liabilities at 30 June 2007.

6 Events occurring after the balance sheet date

There has not been any other matter or circumstance, other than that referred to in the financial statements or notes thereto, 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.

7 Correction of error

On September 1, 2006, the company issued convertible notes for a face value of $27.5 million. The transaction costs incurred in relation to this capital raising were $4.6 million. In accordance with AASB 132 -- "Financial Instruments: Presentation," the transaction costs are required to be allocated to each component of the financial instrument in proportion to the allocation of proceeds. As a result, the company should have allocated $1.4 million to the conversion derivative on initial recognition. The conversion derivative is subsequently measured at fair value through the profit and loss in accordance with AASB 139 -- "Financial Instruments: Recognition and Measurement," and as such, this should have resulted in the transaction costs being expensed through the profit and loss in the year ended 31 December 2006.

The effect of the error has been corrected in this interim report by restating the affected financial statement line items for the comparative year.

The effect on the financial statements for the year ended 31 December 2006 is set out below:

Fair value movement in conversion derivative increased by $1,140,493
Interest bearing loans and borrowings increased by $1,331,728
Accumulated losses increased by $1,111,813
Contributed equity decreased by $219,915

The effect of this restatement on basic and diluted earnings per share is below:

Previously reported     (2.65) cents per share
Restated                (2.85) cents per share

In the directors' opinion:

(a) the financial statements and notes set out on pages 10 to 12 are in
    accordance with the Corporations Act 2001, including:
   (i) complying with Accounting Standards, the Corporations Regulations
       2001 and other mandatory professional reporting requirements; and
  (ii) giving a true and fair view of the consolidated entity's
       financial position as at 30 June 2007 and of its performance for
       the half-year ended on that date; and

(b) there are reasonable grounds to believe that Metal Storm Limited will
    be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the directors.

Mr T J O'Dwyer        31 August 2007
Chairman              Brisbane

INDEPENDENT AUDITOR'S REVIEW REPORT
to the members of Metal Storm Ltd
Report on the Half-Year Financial Report


We have reviewed the accompanying half-year financial report of Metal Storm Ltd, which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the half-year ended on that date, other selected explanatory notes and the directors' declaration for the Metal Storm Ltd Group (the consolidated entity). The consolidated entity comprises both Metal Storm Ltd (the company) and the entities it controlled during that half-year.

Directors' Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity's financial position as at 30 June 2007 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Metal Storm Ltd, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. It also includes reading the other information included with the financial report to determine whether it contains any material inconsistencies with the financial report. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

For further explanation of a review, visit our website: http://www.pwc.com/au/financialstatementaudit.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our review was not designed to provide assurance on internal controls.

Our review did not involve an analysis of the prudence of business decisions made by directors or management.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Metal Storm Ltd is not in accordance with the Corporations Act 2001 including:

(a) giving a true and fair view of the consolidated entity's financial position as at 30 June 2007 and of its performance for the half-year ended on that date; and

(b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001.

Robert Roach
Partner                 31 August 2007
PricewaterhouseCoopers  Brisbane

Notes:
Metal Storm's Australian Stock Exchange trading code: MST
Metal Storm's NASDAQ Small Cap ticker symbol: MTSX

Company Contact:
Australia & USA
Dr Lee Finniear - Chief Executive Officer, Metal Storm Limited - Ph: +61 7
3123 4700

About Metal Storm

Metal Storm Limited is a multi-national defence technology company engaged in the development of electronically initiated ballistics systems using its unique "stacked projectile" technology. The company is headquartered in Brisbane, Australia and incorporated in Australia. Metal Storm Limited technology and products are represented in the USA by Metal Storm Inc., which has offices in Arlington Virginia.

Metal Storm is working with government agencies and departments, as well as industry, to develop a variety of systems utilising the Metal Storm non-mechanical, electronically fired stacked ammunition system.

Metal Storm's weapon technology uses computer-controlled electronic ignition and a system of stacked projectiles, to achieve a completely non-mechanical gun that is very lightweight and compact, providing a very high firepower to weight ratio. The Metal Storm weapons system utilizes multiple barrels mounted together on one platform which allows varying munitions types to be deployed in a single, low cost, lightweight weapon system. Firing the weapons by electronic ignition requires no moving parts, allowing reliable long term unattended weapon operation.

Safe Harbour

Certain statements made herein that use the words "estimate," "project," "intend," "expect," "believe" and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks and uncertainties which could cause the actual results, performance or achievements of the company to be materially different from those which may be expressed or implied by such statements, including, among others, risks or uncertainties associated with the development of the company's technology, the ability of the company to meet its financial requirements, the ability of the company to protect its proprietary technology, potential limitations on the company's technology, the market for the company's products, government regulation in Australia and the US, changes in tax and other laws, changes in competition and the loss of key personnel. For additional information regarding these and other risks and uncertainties associated with the company's business, reference is made to the company's reports filed from time to time with the Securities and Exchange Commission, including the company's Form 20-F.

Contact Information

  • Company Contact:
    Australia & USA
    Dr Lee Finniear
    Chief Executive Officer,
    Metal Storm Limited
    Ph: +61 7 3123 4700