Chairman's Report

    ARLINGTON, Va., May 25 /PRNewswire-FirstCall/ -- Metal Storm Limited
(Nasdaq: MTSX and ASX trading code: MST)

    Fellow Shareholders,

    Thank you for your attendance today.
    In conjunction with our CEO David Smith's comments I want to ensure you
leave this meeting with a good sense of what is being built in Metal Storm and
where that will take us over the next 12 months.
    Before I go to other issues let me introduce the Team.  All the Directors
are present in person for the AGM, the first time this has happened since our
listing.  Perhaps that is due in part to us being a smaller Board.
    When I met with you at about this time last year I did not anticipate I
would still be acting as interim Chairman by the time of the 2005 annual
general meeting.  I remain in the role only because our efforts to find a
candidate who meets the high standards set by Adm Bill Owens have not yet been
successful.
    Although the Board has been active in attempting to locate a suitable
individual, the challenges posed by the Sarbanes Oxley legislation in a
multi-jurisdictional organization such as Metal Storm has made finding such a
person challenging. I can assure you that, in the absence of these issues,
every individual we approached was otherwise excited by the prospect of being
involved in Metal Storm.
    We will continue to seek a new Chairman.  In the interim I continue in the
role with the confidence of my colleagues on the Board.  You should know that
Mike O'Dwyer as our major shareholder supports the Board's efforts in its
search for a new Chairman.
    The casual vacancies on our Board have not been filled because:
    1.    the smaller team is functioning well; and
    2.    the skills spread is a neat fit with Metal Storm's current needs.

    General Wayne Downing brings deep military understanding, Dan Alspach has
experienced all the facets of the US military supply industry including the
successful sale of a substantial military supply business, and Bruce McComish
has long service at the operational level of very big business and corporate
finance.  My rather more modest experience has been in building businesses.
We augment those skills with outside experts from time to time, but as a tight
hard working team with David Smith and the executive, the company is going
forward in all areas except our share price.  We consider the share price as
our challenge but know that this aspect of business does not always respond in
line with what is actually occurring within a company.
    Some have questioned why we chose Melbourne for this meeting.
Historically, we have been a company which has taken its AGM to east coast
capital cities because our shareholder base is diverse and mainly retail
rather than Institutional.  In the past we have had 2 AGMs in Brisbane, 1 in
Melbourne and 1 in Sydney.  This year it was simply Melbourne's turn.  We
intend to continue this tradition in future, so don't expect to see us back
here for a few years.
    Now to some real issues.  Mike O'Dwyer, after 30 years on this project,
determined earlier this year that enough was enough.  The Board respected the
decision he believed he had to make, but not without the obvious concern that
the creative element of our research and development might pass out of the
Company with Mike's going. This was a concern which Mike had been organizing
to minimize for at least the previous 2 years.  He had done that deliberately.
He did so by facilitating a series of appointments to the company's
engineering and scientific units, culminating in the appointment of George
Bergeron as the Chief Technology Officer as announced in September 2004.
    As it has transpired he did his succession planning well and the company
has transitioned without difficulty.  I wish to place on the company record
our thanks to Mike for his breakthrough thinking, his commitment to seeing it
used for the right purpose, the hard slog of years of effort on R&D and in
short, making it happen.  There is much left to do but it would not be there
to be done had Mike not conceived, inspired, pushed and delivered on his
dream.
    To Mike's wife, Rhonda and his family we say thank you for allowing us to
monopolize him entirely for the past 8 years.  To Mike, our congratulations
and very best wishes as you move to further inventions and creative endeavors.
    I want to leave the nuts and bolts issue of operations to David Smith's
address since David, although only with us a short time as CEO, can provide
that for you in greater detail.  I will, however, make comment about the most
frequently and appropriately asked question "when will Metal Storm make
positive cash flow"?  I can say this: the past 12 months has confirmed our
need to do considerably more work at the company's cost than we had earlier
hoped would be the case.  As I said in the Annual Report we have discovered
through experience that we have to do more to encourage potential customers to
make a change from traditional technology.
    The demand is there for a total solution with our technology embedded.
Previously we believed other manufacturers would take that integration step.
Experience has shown we need to do that ourselves.  This path which we are now
walking down seems to be the right one because it is bearing fruit.  Part of
that fruit is improving opportunity and David will provide some good news on
that in just a moment or two.
    This past year has been about small but critical steps forward.  The
company and I owe thanks to the executive team of Ian Gillespie, George
Bergeron and Jim MacDonald, to Chuck Vehlow whose health I understand is now
improving and particularly David Smith who, as our new CEO, has been a
whirlwind of reorganization and change for the better.
    To my Board colleagues, my thanks for their courage and determination.  It
has become a small but effective team.  To you, our shareholders, my thanks
for your patience with the share price.  The Board knows the right way to
deliver the enormous value that we believe lies in this technology is to
produce real, substantiated, integrated solutions to military problems.  That
is work being done right now.  The Board and executive are working our way to
an outcome and we are taking the necessary balanced decisions.  The technology
is sound and opportunities are there which I expect, once delivered, will
greatly enhance shareholder value.  In due course we expect your faith to be
abundantly rewarded.

    Thank you.

    Terry O'Dwyer
    Chairman

    About Metal Storm
    Metal Storm Limited is a defense technology company, employing 60 staff,
headquartered in Brisbane, Australia and incorporated in the US, with offices
in Washington DC and a defense engineering capability located in Seattle,
operating as ProCam Machine LLC.  The Company has invented 100% electronic
ballistics technology that has no known conventional equivalent.  Metal Storm
is working with government agencies and departments, including the National
Institute of Justice (US), the US Navy and US Army to develop a variety of
systems utilizing the Metal Storm non-mechanical, electronically fired stacked
ammunition system.

    Safe Harbor
    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 U.S.,
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.

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