BRISBANE, AUSTRALIA (NASDAQ: MTSX)
Record of interview:
corporatefile.com.au:
"Metal Storm Limited (ASX: MST) (NASDAQ: MTSX) recently
announced that its US listing will be moved to the OTC Bulletin
Board from the NASDAQ. How will the move in listing impact your
ability to fund your current development program?"
CEO Dr. Lee Finniear:
"Naturally we were disappointed NASDAQ would not count all of
our listed securities in its assessment of our market
capitalisation. We have over $40 million in listed securities on
global markets, but NASDAQ would only count those that are visible
to a US national exchange.
"The NASDAQ listing in itself does not provide access to the US
capital markets. We remain registered with SEC which is the
regulatory requirement that allows us access to US markets for
capital raising should we need it. Our business operations and
development program are unaffected by the proposed change to our
listing.
"In the near future, when we are delivering qualified weapons
and ammunition to the market, we expect this success to be suitably
reflected in our share price. At that stage I believe we would not
see any significant obstacle to re-listing on NASDAQ or the NYSE
should we desire a listing at that time.
"In the meantime the OTC market will be a secure and effective
way to trade our ADSs in the US market. We are joining companies
such as Telstra, National Australia Bank and ANZ, plus a host of
other well respected ASX listed companies who prefer to trade on
the OTC market."
corporatefile.com.au:
"In February you signed a Joint Collaboration Agreement with
Singapore Technologies Kinetics (STK) and at your AGM in May you
said you couldn't over-emphasise the importance of this agreement
to Metal Storm. What is the strategic rationale behind the
agreement and why is it so important to the company?"
CEO Dr. Lee Finniear:
"Our overall objective is to deliver commercial quantities of
qualified weapons and ammunition to armed forces in markets around
the world. STK is the largest 40 mm calibre manufacturer in the
world. It's able to take our weapons and ammunition through
qualification, set up volume production lines, and use its
marketing and distribution network to sell our products in its
established international markets. STK sees our technology as
having significant potential in the market, while we see STK as a
partner that will enable us to deliver our technology's
potential."
corporatefile.com.au:
"The current focus of your work with STK is getting
qualification for your three-shot grenade launcher (3GL) and
ammunition system. What are the steps involved in achieving
qualification and what's your strategy once qualification is
obtained?"
CEO Dr. Lee Finniear:
"We have two parallel projects running with STK. We're
finalising the design and qualification of our 40 mm ammunition and
we are making final touches to the design of the 3GL before it
enters the qualification testing process. For both ammunition and
weapons, the qualification process is a comprehensive and rigorous
series of tests that takes several months to complete. The tests
include environmental tests relating to heat, cold, water proofing,
sand, dust, vibration, and drop tests, electromagnetic interference
testing, performance tests for muzzle velocity, flight ballistics
and in-barrel pressures, plus a range of safety tests for the
entire system. We plan to go through that process in the second
half of this year.
"As qualified ammunition is needed for the weapons qualification
process, our plan is to complete ammunition qualification for
transportation and safe man-firing by the end of this year, and
then complete the 3GL qualification shortly after. Our 40 mm
ammunition can be fired in other Metal Storm 40 mm systems, such as
FireStorm and Redback, so we would also be able to supply these
weapons to the market complete with qualified ammunition while we
are bringing 3GL to full production.
"As soon as qualification is complete, we'll be running a series
of demonstrations to pre-qualified prospects and military forces
who express an interest. We'll then complete an initial production
run of 3GL weapons that will be made available for military trials.
Meanwhile we also intend to sell our multi-barrel weapons systems
in quantities that can be fulfilled without the need for a
full-time production line."
corporatefile.com.au:
"Metal Storm's core technology is an electronically initiated,
stacked projectile launching system for use in the defence,
homeland security, law enforcement and industrial markets. What are
the strengths and weaknesses of the technology compared with those
currently available?"
CEO Dr. Lee Finniear:
"Metal Storm weapons are extremely light. They have no moving
parts other than the projectile itself, so they won't jam or
require maintenance. Barrels can be clustered together so you can
select different responses to different threats instantly (for
example, lethal or non-lethal). You can choose your burst fire rate
instantly and accurately, from one round to 1 million rounds per
minute, so, for example, you could deliver one, two or even 16 high
explosive grenades to a spot on a target instantaneously -- meaning
a Metal Storm weapon can punch a lot harder than the same calibre
and weight in a conventional weapon.
"These strengths make our weapons uniquely suited to many
applications including: use on unmanned aerial vehicles (UAV) or
unmanned ground vehicles (UGV), where light weight and no jamming
are paramount; remote unattended weapon systems, where high
reliability and 'going hot' instantly must be coupled with near
zero maintenance; complex urban combat and policing situations,
where instantly selectable response is needed; and
force-multiplying infantry systems, where trebling firepower for
minimal weight penalty is a real benefit.
"Our main current weakness is that the technology is not yet in
combat operations with military forces. We are focusing our
business development on specific military and law enforcement
applications that uniquely benefit from our system's strengths and
where the technology benefits are truly compelling for the
user."
corporatefile.com.au:
"Where are the largest potential markets for your products?"
CEO Dr. Lee Finniear:
"The US market represents our largest potential market, and it
goes beyond the military. For example we have had enquiries from
civilian organisations needing 40 mm weapon systems to defend
critical assets. Non-lethal applications of our weapons are also
becoming important in the US market for law enforcement and
security deployments. Beyond the US, the markets in Europe, the
Middle East and Asia, are together potentially an even greater
opportunity for sales. We intend to target several of these markets
by working with STK, which has established sales and distribution
networks in many of these areas."
corporatefile.com.au:
"You've chosen the 40 mm weapons system category as your primary
focus as you believe it provides the quickest path to your
technology's initial commercialisation. Why did you choose this
category and will the 40 mm weapons qualifications have relevance
for other weapons sizes? Can you comment on the scale of the 40 mm
weapons market compared with other weapons sizes?"
CEO Dr. Lee Finniear:
"We chose this category because we can offer some valuable
capabilities that can't be offered by conventional 40 mm systems.
Our 3GL is the only 40 mm multi-shot automatic grenade launcher
that can be attached under an assault rifle as a component weapon.
Also, our multi-barrel 40 mm systems can apply a scalable effect,
for example our four-barrel systems can effectively deliver about 9
pounds of high explosive projectile in 16 pieces simultaneously
onto a target.
"We're designing the qualification process so that many
components can be re-used with other weapon calibres. For example,
significant parts of the qualification case and test results from
the fire control systems for our 3GL can be applied to our 18 mm
multi-shot accessory under-barrel launcher system (MAUL).
"The 40 mm market is large, in part because of its versatility
for combat, peacekeeping and non-lethal roles. And 40 mm systems
can deliver payloads from tear gas to air-bursting thermobaric
warheads, flares, non-lethal impact rounds and even small,
parachute-carried surveillance cameras for situation awareness.
This, combined with the essential stopping power of the 40 mm
calibre, makes it a popular choice for military forces around the
world."
corporatefile.com.au:
"In September 2006, you raised A$25.6 million, net of
transaction costs, under a fully underwritten renounceable rights
offer of convertible notes, whose maturity date you recently
extended to 1 September 2010. Why did you decide to extend the
maturity date of the convertible notes?"
CEO Dr. Lee Finniear:
"By extending the notes, we allow our convertible note holders
and shareholders an additional year in which to gain an
appreciation of the commercial potential of our technology before
the note holders have to decide whether or not to convert their
notes to shares. During 2009 we intend to deliver qualified weapons
and ammunition and engage in targeted business development activity
aimed at obtaining significant orders for those weapons. I believe
that these initiatives should trigger a marked improvement in the
share price, enhancing the outcome for shareholders and encouraging
note holders to become shareholders through conversion."
corporatefile.com.au:
"For the December 2007 year, Metal Storm's cash outflow from
operations was $11.25 million, up from $7.95 million in the
previous year. Cash on hand was $15.73 million as at 31 December.
What is your expected cash burn in 2008?"
CEO Dr. Lee Finniear:
"First, let me make it clear that the cash spent on normal
operations in 2007 was almost the same as in 2006. In relation to
the cash outflow numbers you've mentioned, in 2007 we paid a full
year of convertible note interest, which was $2.5 million more than
in the prior year. Also, in 2006 we received tax rebates of
$679,000, whereas in 2007 we didn't receive any rebates before the
year-end accounts closed.
"So operationally our net cash outflow was only $200,000
different between 2007 and 2006. However, while we haven't
dramatically increased our spending we have dramatically increased
our output. For example, in 2007 we did 56 days of firing in
Australia, whereas in 2006 we did only eight days. We now have a
much more efficient process of working through the iterative cycle
of getting our products fine tuned for production.
"This year we expect our cash outflow from operations to be
similar to 2007. However, unlike 2007 we expect cash inflows from
investing and financing activities to cover a significant
proportion of the operating cash outflow."
corporatefile.com.au:
"What are the potential milestones for Metal Storm for the
remainder of 2008?"
CEO Dr. Lee Finniear:
"The most important milestone for us is completing qualification
of our 40 mm ammunition for transportation and man-firing. This
will allow us to transport assembled ammunition to military ranges
and to be able to man-fire for demonstrations and trials. We can
then much more easily demonstrate our range of 40 mm weapons to
prospective customers. We will also complete the 3GL weapon
qualification as soon as the ammunition is qualified.
"Aside from the 3GL, we are rapidly maturing our 40 mm light
weight multi-barrel systems such as FireStorm. In September, we
will be demonstrating a multi-barrel system with less lethal
munitions under a contract with the United States Marine Corps
Systems Command to demonstrate a Mission Payload Module -
Non-Lethal Weapons System. Following this demonstration the US
government plans to initiate a new full and open contracting effort
for a System Development and Demonstration phase contract.
Following these phases, the government anticipates releasing
proposals for production contracts. Clearly for us these kinds of
opportunities are of paramount importance in our strategy towards
commercialisation."
corporatefile.com.au:
"Thank you Lee."
For more information about Metal Storm, visit www.metalstorm.com
or call Lee Finniear on +61 7 3123 4700.
To receive future Open Briefings by email, visit
www.corporatefile.com.au
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Metal Storm Lee Finniear +61 7 3123 4700 www.metalstorm.com
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