METAL STORM LTD /ADR/ - MTSX Report of Foreign Issuer (6-K) INDEX TO EXHIBITS

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The following is an excerpt from a 6-K SEC Filing, filed by METAL STORM LTD /ADR/ on 5/11/2004.

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INDEX TO EXHIBITS

ITEM

1. Annual Report 2003 filed with ASX on 19 April 2004.

2. Metal Storm Proxy Form filed with ASX on 19 April 2004.

3. Metal Storm Notice of Annual General Meeting filed with ASX on 19 April 2004.

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ANNUAL REPORT 2003

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METAL STORM LIMITED

Metal Storm Limited is an international electronic ballistics technology company with offices in Australia and the US. The company owns the proprietary rights to revolutionary 100% electronic ballistics technology which is being developed through internal and external development programs in collaboration with US and Australian defence agencies, some of the world's leading scientific research organisations and major commercial partners. Metal Storm listed on the Australian Stock Exchange in mid-1999, and on the Nasdaq Small Cap Market in 2001.

THE TECHNOLOGY

Metal Storm's technology is the world's only known electronic ballistics system, representing a quantum leap over traditional mechanical operations which have largely remained unchanged since the mid-nineteenth century.

The technology is a 100% electronic system which removes the mechanical steps required to fire conventional weapons. Effectively, the only moving parts in Metal Storm's technology are the projectiles contained within the barrels.

The underlying principle of the technology involves multiple projectiles stacked in a barrel, each separated by a propellant load with the leading propellant used to discharge the projectile or bullet.

The technology allows each bullet to be fired sequentially from the barrel. Metal Storm's fully-loaded barrel tubes are essentially serviceable weapons, without the traditional ammunition feed or ejection system, breech opening or any other moving parts. Metal Storm barrels can be effectively grouped in multiple configurations to meet a diversity of military and commercial applications.

Metal Storm provides a new generation of 'network centric' weapons that connect with today's electronic battlefield. They are transformational weapons that are digital, lightweight, and being multi-barrelled, provide a choice of munition options. Importantly, the weapons are all capable of local or remote operation through a computerised fire control system.

Metal Storm barrels can be effectively grouped in multiple configurations to meet a diversity of military and commercial applications.

CONTENTS

1 Chairman's Review 2-3 Chief Executive Officer's Review 4-11

2 Board of Directors 12-13 Key Personal 14-15

3 Corporate Governance Statement 17-18 Director's Report 19-23 Independent Audit Report 24-25 Directors' Declaration 26 Financial Statements 27-58 Additional Stock Exchange Information 59-60

ANNUAL GENERAL MEETING

The Annual General Meeting of Metal Storm Limited will be held on Friday, 21 May 2004 at 11.00 am in the:

Plaza Terrace Room

Plaza Level

Brisbane Convention & Exhibition Centre

Cnr. Merivale & Glenelg Streets

South Bank, Brisbane.

The business of the meeting is outlined in the formal Notice of Meeting and Proxy Form which are enclosed with this report.

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OFFICES

AUSTRALIA

Metal Storm Limited

Level 34, Central Plaza One

345 Queen Street

Brisbane Qld 4000 Australia

GPO Box 1097

Brisbane Qld 4001 Australia

Telephone: +61 7 3221 9733

Facsimile: +61 7 3221 9788

Email: msau@metalstorm.com

Website: www.metalstorm.com

UNITED STATES OF AMERICA

Metal Storm Inc.

Suite 810

4350 N Fairfax Drive

Arlington VA 22203

Telephone: +1 703 248 8218

Facsimile: +1 703 248 8262

Email: msau@metalstorm.com

ProCam Machine LLC

Suite 150

18421 Bothell Everett Hwy

Mill Creek WA 98012

Telephone: +1 425 485 9889

Facsimile: +1 425 488 6554

Email: sales@procammachine.com

Website: www.procammachine.com

BOARD OF DIRECTORS

Admiral William A. Owens

US Navy(retired) Chairman

James Michael O'Dwyer

Lt. General Daniel W. Christman

(US Army retired)

Terence James O'Dwyer

General Wayne A. Downing

(US Army retired)

Dr Daniel Alspach

CORPORATE DIRECTORY

COMPANY SECRETARY

Sylvie Moser-Savage

AUDITORS

Ernst & Young

BANKERS

Westpac Banking Corporation Limited

LAWYERS

Corrs Chambers Westgarth

Brisbane Australia

Greenberg Traurig

Washington DC USA

PATENT ATTORNEYS

Davies Collison Cave Brisbane Australia

SHARE REGISTRY

AUSTRALIA

Computershare Investor

Services Pty Ltd

Level 27, Central Plaza One

345 Queen Street

Brisbane Qld 4000 Australia

Telephone: +61 7 3237 2137

Facsimile: +61 7 3229 9860

UNITED STATES OF AMERICA

Bank of New York

Depositary Receipts Division

6th Floor, 620 Avenue of the Americas

New York NY 10011 USA

STOCK EXCHANGE LISTINGS

Australian Stock Exchange trading

code - MST

Nasdaq Exchange ticker symbol - MTSX

PICTURES

Pictures courtesy of:

• US Department of Defense

• Australian Department of Defence

• Defence Science and Technology

• Organisation (DSTO)

• Dragonfly Pictures Inc.

• Foster-Miller Inc.

1 METAL STORM LIMITED ANNUAL REPORT

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CHAIRMAN'S REVIEW

The Revolution in Military Affairs of the last decade has taken on a new and different meaning today. Solving the operational problems confronted by today's military requires a 'network centric' approach to warfare which utilises new military equipment that is mobile, electronic, networked, digital, smart and capable of providing field commanders with an offensive choice, and greater immediacy than has been possible in the past.

Metal Storm's unique technology is in line with these requirements. Our weapon systems are fully electronic, digital, lightweight, mobile, multi-barrelled and non-mechanical, and will provide a choice of munitions.

The live test firing of our 24-barrel weapon system last October showed that Metal Storm's technology really is transformational; that it can connect with the modern operational battlefield - where new challenges and threats arise with little or no notice.

Commercialising Metal Storm's technology is the primary driver for our company. Both our internally and externally funded development programs are the vehicles through which we are developing applications of our technology for defence and civilian markets.

Last year the Metal Storm board determined that the company needed to improve our presence among development partners and be agile and responsive to their needs; to speed our progress towards commercialisation. In support of this, we outlined a number of key strategies, which have driven the company's actions during the past 12 months.

To strengthen your company's presence with potential customers and alliance partners, we established Metal Storm Inc., to position us for US defence contracting work. Metal Storm Inc., is now "fully" qualified to act as a prime contractor on US defence contracts to directly derive revenue from US funded research and development programs.

Your company acquired ProCam Machine LLC (ProCam) in December. ProCam is a manufacturer of precision-machined parts for the electronics, aircraft and space propulsion industries with strong defence relationships. ProCam will enable us to manufacture prototype, proprietary US government-accepted, weapon system components to support our internal development program.

We focussed our internal product development program on two core platforms, 40mm and 9mm calibres. Each of these can lead to multiple end-use applications that are aimed at providing unique solutions to current military problem areas. Metal Storm believes that this approach provides the best opportunity to have commercial outcomes in the shortest possible timeframe.

The significant technical achievements of 2003 put us on track for a mid-2004 demonstration of our technology in the US.

A series of test firings that culminated in the successful field firing of the 24-Barrel Grenade Pod last October, proved that Metal Storm's technology can integrate multiple features and capabilities into the one weapon system. This event sparked significant interest and project opportunities for Metal Storm from several US defence organisations.

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The heightened level of interest in our technical advancements is elevated further when the broader context of increased military engagement globally and heightened security requirements are considered. US and allied forces are heavily committed on operations around the world. These factors position your company to selectively link with partners and projects that offer us the best development and commercialisation opportunities.

I am optimistic about the opportunity to weaponise an Unmanned Aerial Vehicle (UAV) helicopter through Metal Storm's project with Dragonfly Pictures Inc. We expect this project to enable us to achieve our goal of demonstrating our technology in the US by mid-2004 on a more developed platform than previously planned.

I expect that the US Department of Defense and key players in the US defence industry will expand their interest in Metal Storm further, when they see the versatility and adaptability of Metal Storm's technology to defence platforms that are currently in use in defence operations.

To continue funding our internal product development efforts and ongoing costs, we raised more than A$7 million in additional capital through a Share Purchase Plan in October 2003.

Our ongoing challenge is to progress our key internal development projects into the best commercial outcomes for Metal Storm.

On behalf of the board and shareholders I extend my appreciation to all the Metal Storm staff in Australia and the US. Their passion and contribution has driven the company to the exciting opportunities we now have before us.

I extend my thanks to my fellow directors for their dedication and contribution during the past year. I acknowledge the resignation of Mr Kevin Dart, a founding director of the company, and I thank Kevin for his services to Metal Storm. I welcome Dr Dan Alspach to the board, who is co-founder and previous CEO of the US defence technology company ORINCON Inc. His appointment in August added an important bank of commercial experience in the defence sector to the board.

My sincere thanks go to all of Metal Storm's shareholders. Your continued support and loyalty to the company have been one of Metal Storm's greatest assets.

It remains the highest priority for me as your Chairman, along with my fellow directors and company executive management, to ensure the value in Metal Storm is realised commercially for the benefit of all shareholders.

/s/ ADMIRAL WILLIAM OWENS

Admiral William Owens
US Navy (retired)
Chairman

3 METAL STORM LIMITED ANNUAL REPORT

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CHIEF EXECUTIVE OFFICER'S REVIEW [[Image Removed: LOGO]]

In my first year as Chief Executive Officer, Metal Storm's operational and corporate activity levels have increased significantly, particularly in response to enquiries relating to our impressive technical developments. These developments add significantly to our business plans by enabling us to demonstrate more advanced prototype weaponry for US defence customers.

For a company that commenced the reporting year with a staff of just 12 people, the achievements during the period are impressive and importantly, reach across every aspect of our business. Metal Storm now comprises over 60 people in total, including the addition of strong engineering and manufacturing capabilities.

The key achievements in the last 12 months include:

• An increased emphasis on internal product development programs by expanding our Scientific Innovation office. This effort has strengthened the company's technical capabilities in Australia and the US to move into product development and demonstrations for defence customers.

• An internal product development focus on 40mm and 9mm calibres while continuing to expand the number of funded external R&D programs.

• The announcement of six key 40mm technology developments as well as progress towards the commercial development of the O'Dwyer VLe handgun.

• Extending strategic industry relationships. New arrangements have been announced with New Jersey Institute of Technology (NJIT), Taurus International Manufacturing, Inc., Pyrogen Corporation and Dragonfly Pictures Inc. (DPI).

• The announcement of a planned live firing demonstration of a 40mm electronic weapon on an Unmanned Aerial Vehicle (UAV) in the US by mid-2004.

• The acquisition of ProCam Machine LLC., a manufacturer of precision machined parts for the electronics, aircraft and space propulsion industries. This transaction reflects Metal Storm's strategy for the pursuit of growth through acquisitions.

• The successful raising of more than A$7 million in fresh capital through shareholder support of the Share Purchase Plan last October. The funds are being used to finance increased product development and ongoing operating costs.

• Strengthening the commercial defence industry experience on Metal Storm's board with the appointment of Dr Dan Alspach, co-founder and former CEO of ORINCON, a US defence company.

• Improving our investor relations programs through communications with shareholders and the broker and investment communities in Australia and the US.

REPORT CARD ON 2003 STRATEGIES

I am pleased to report on the outcomes of the strategies outlined in last year's Annual Report.

• The transition of Metal Storm, Inc. into a US-based structure enabling US funded R&D revenue streams to flow directly to Metal Storm Limited. This was completed.

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• The securing of more funded R&D programs. Existing programs have been progressed, and Metal Storm has advanced internal product development programs.

• Securing of additional collaborative and industry agreements. New relationships have been announced with NJIT, Taurus, Pyrogen and DPI.

• Pursue a merger and acquisition growth strategy. ProCam was acquired in December 2003 and further M&A will be considered.

• Transition of maturing programs to commercial products. Existing programs continue to progress towards commercial products as outlined in this review. Our internal development efforts are significantly advancing those opportunities particularly in 40mm and 9mm calibres.

• Re-shape the board and management to support the company's strategies. This was completed.

DEVELOPMENT PRIORITIES AND COMMERCIAL FOCUS

The company's focus on internal product development in the past 12 months is a very deliberate strategy aimed specifically at developing Metal Storm products for particular commercial applications to meet current end-user needs.

The internal product development activity focuses principally on the 40mm and 9mm calibre areas, both of which are capable of producing numerous product applications from the core technologies that are being developed and improved under this program.

The critical balance between internal and external product development is vital for Metal Storm as we move towards commercialising our technology. The internal development focus ensures Metal Storm continues to maintain technical leadership in the core areas of our technology, by concentrating on critical calibres used extensively in military products, namely 40mm and 9mm.

Importantly, it also provides the company with the flexibility of having weapon systems available for end-user demonstrations. The value of this internal effort provides direct benefit in seeking additional funded external R&D programs in other areas such as 60mm, 25mm and high pressure applications.

In this way Metal Storm can concentrate its own resources on specific product applications which have the best commercial potential, while continuing to use funded external programs to cover other development requirements.

MAINTAINING TECHNICAL LEADERSHIP

In the last year, Mike O'Dwyer, the inventor of Metal Storm technology and founding CEO, moved his focus to innovation and product development by forming the Scientific Innovation Office (SIO) in Brisbane. The formation of the SIO and the technical focus on internal product development have seen the appointment of additional key technical personnel who drive internal development and provide technical support to externally funded programs.

The office comprises:

• Mike O'Dwyer - Executive Director and Head of Scientific Innovation

• George L Bergeron - Senior Vice President - Product Development US. A highly experienced physics

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CHIEF EXECUTIVE OFFICER'S REVIEW [[Image Removed: LOGO]]

engineer, scientist and program manager, and former director of SAIC's Technology Development Laboratory.

• Sally Kaye - SIO Liaison Officer providing administrative and program control support.

• Sean O'Dwyer - Defence Research Manager with qualifications in Science/Law.

• Ben Bishop - Program Development Engineer and formerly employed by DSTO.

• Ren Rosales - Mechanical Design Engineer with previous defence sector experience including working for Boeing and the RAAF.

The product development outcomes from the SIO in the very short period of its operation have been significant and include the successful completion of a series of live fire tests and demonstrations in Australia. These include:

• May 2003: The live firing of 'converted' stacked conventional munitions, marking a major focus by Metal Storm towards leading its own R&D programs.

• July 2003: The live firing of:

• a multi-stacked 16-barrel hard wired lightweight 40mm pod; and

• multi-stacked 40mm 'flash bang' explosive projectiles.

• August 2003: The live firing of a four shot 40mm rapid reload cartridge, including the successful development and demonstration of electronic inductive ignition.

• October 2003: The successful test firing of our 'new generation' fully re-loadable 24-barrel grenade pod. This was a significant milestone for the company and represented the culmination of a series of successful firings in May and July 2003 of a 16-barrel version with hard-wired ignition, as well as a firing in August of an inductive ignition system with a rapid reload capability using multi-shot cartridges.

The 24-barrel grenade pod demonstrated the successful integration of a computer-operated electronic fire control system with the inductive ignition of inert 40mm grenades and the successful operation of re-loadable multi-shot cartridges. All of this in a compact trailer-mounted 24-barrel pod configuration, capable of simultaneous fire in opposed directions and split elevations, as well as electronically variable rates of fire.

The firing of the electronic 24-barrel grenade pod produced a significant response in the form of direct enquiry about applications of the technology from several US defence organisations. These enquiries have resulted in several new internal 40mm product developments as well as plans for live firing demonstrations in the US in 2004.

Major projects currently being developed through our Scientific Innovation Office include:

• weaponisation of Unmanned Aerial Vehicles (UAVs)

• convoy defence weapons

• vital asset protection systems

• perimeter defence systems

• aircraft self-defence systems

• repeatable access denial systems (RADS)

• crowd control systems

• firefighting systems.

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PLANNED DEMONSTRATION IN US

In February 2004, Metal Storm announced plans to live fire demonstrate a 40mm electronic weapon on a UAV in the US by mid 2004. The live firing is the key deliverable under a Memorandum of Understanding (MOU) which Metal Storm signed with Dragonfly Pictures, Inc. (DPI). Under the MOU our electronic weapon technology will be integrated with DPI's new Dragonfly DP-4X UAV helicopter for the live firings.

DPI's UAVs have already been used in frontline service on operational locations, which makes them an excellent platform for demonstrating Metal Storm's unique, lightweight, electronic, multi-shot weapon system.

The successful integration of Metal Storm's electronic weapon system with small, lightweight UAV helicopters, will assist them, for the first time, to undertake small scale strikes to support ground troops, escort convoys, clear roads and retaliate against mobile, man-launched ordnance such as those used in Iraq recently.

The UAV live firing demonstration has modified Metal Storm's plans to demonstrate the multi-barrelled repeatable access denial system (RADS) in the US, however the demonstration is being designed to allow Metal Storm to also highlight many of the RADS capabilities and features.

We expect US defence sector interest following a successful live fire demonstration to open up opportunities for the company's technology, as it will provide a much anticipated demonstration for the US defence industry, military decision makers, and the US investment community. We also plan to use the demonstration to advance our own internal 40mm development effort to seek major funded defence programs in a range of 40mm defence applications.

The UAV demonstration provides us with an ideal means of showcasing the versatility of our electronic weapon systems in the expanding UAV market, which is expected to grow to around US$10.5 billion in the next decade.

MUNITIONS DEVELOPMENT

The success of our internal product developments is also being supported with a munitions development program, particularly to support activities in the key calibre areas of 40mm and 9mm. We have developed and fired kinetic and pyrotechnic munitions in the last 12 months and are now extending plans to produce a range of lethal and less-than-lethal munitions in small and medium calibres to support our weapon programs. The initial focus of this stacked round, munitions and fusing development program, will be in medium and smaller calibres centred initially around 40mm.

The timing of lethal and less-than-lethal munition development follows on from the technical success last October of the 24-barrel weapon system and subsequent key technology improvements we have announced. The advanced development of our inductive ignition and lightweight reloadable multi-shot cartridges, open the way for us to now develop a range of munitions to meet the military's capability requirements.

7 METAL STORM LIMITED ANNUAL REPORT

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CHIEF EXECUTIVE OFFICER'S REVIEW [[Image Removed: LOGO]]

Metal Storm is seeking to develop munitions which will complement the unique features of our weapon systems and provide the ability for users to select from a range of munitions.

O'DWYER VLe HANDGUN

Activity surrounding the VLe handgun increased significantly in the last six months of 2003. It centred around developments in law enforcement, military and civilian applications.

In November 2003, we announced the signing of a collaboration memorandum with the New Jersey Institute of Technology (NJIT) and Taurus International Manufacturing, Inc.

The memorandum sets the preliminary framework under which NJIT's Dynamic Grip Recognition (DGR) technology will be integrated with Metal Storm's O'Dwyer VLe handgun with the aim of producing a marketable end product by 2005/06.

The development of the electronic handgun is in response to the landmark New Jersey legislation to the effect that "three years after it is determined that personalized handguns are available for retail purposes, it will be illegal.... for any dealer or manufacturer to sell, assign or transfer any handgun unless that handgun is a personalized handgun".

Metal Storm presented its findings to the National Institute of Justice (NIJ) in October 2003 following the mid year submission of our substantial study document regarding the use of the O'Dwyer VLe handgun for law enforcement purposes. We continue to be engaged with the NIJ to advance this capability.

FIREFIGHTING

In September 2003, we signed a heads of agreement with Pyrogen Corporation outlining a program for analysis, development and ultimate commercialisation of 'rapid attack' firefighting systems within an anticipated three-year period. This exciting non-military project is being designed to provide new and innovative capabilities for firefighters to target fires that are difficult to access using conventional firefighting methods.

Both our Brisbane and Washington, DC offices have received several enquiries from parties interested in these firefighting applications.

PROGRESSING OUR EXTERNAL DEVELOPMENT PROGRAMS

• ADWS - The Area Denial Weapons System (ADWS), a Defence Science & Technology Organisation (DSTO) led program which offers an alternative to conventional anti personnel landmines, is now in the final stages of concept demonstrator development. There are plans to demonstrate the system to the Australian Defence Force (ADF) and other defence customers in mid-2004.

• AICW - The Advanced Individual Combat Weapon (AICW) is a DSTO led program which combines a Metal Storm stacked round, electronic 40mm barrel with a mechanical assault rifle. This concept technology demonstrator program is on track to mature in 2004.

• Missile Defense Agency (MDA) - Our two R&D Small Business Innovation Research Programs (SBIRs) with the MDA, through StratCom International, are progressing, however further details are not available for disclosure at this time.

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• US Army- This SBIR is aimed at providing a lethal and less-than-lethal weapon system for the US Army. Discussions have begun regarding the transition of this SBIR to a Phase II proposal for the next stage of funded development.

• US Navy - Metal Storm was asked to submit a Phase II proposal for this R&D project. The proposal was completed and filed in January 2004 and is aimed at providing the US Navy with a close-in defence system for ships.

TECHNICAL DEVELOPMENT RELATIONSHIPS

Metal Storm has entered into four new key relationships in the last 12 months with a view to further developing potential Metal Storm products in 40mm and 9mm calibres. These relationships are:

• New Jersey Institute of Technology (NJIT)

We announced a partnering arrangement with the NJIT in August 2003 to jointly develop the O'Dwyer VLe electronic handgun, integrating NJIT's Dynamic Grip Recognition biometric authorising technology.

• Taurus International Manufacturing

We signed a collaborative memorandum with Taurus in November 2003 with the goal of developing and bringing to market the O'Dwyer VLe electronic handgun.

• Pyrogen Corporation

In September 2003, we signed a heads of agreement to proceed with the development and commercialisation of 'rapid attack' firefighting systems within an anticipated three year period.

• Dragonfly Pictures Inc. (DPI)

In February 2004, we signed a Memorandum of Understanding with DPI to integrate the company's electronic weapon technology with DPI's new Dragonfly DP-4X UAV. The live firing demonstration of Metal Storm's 40mm electronic weapon on the UAV by mid-2004 is the key deliverable under the MOU.

ONGOING RELATIONSHIPS

• Scientific Applications International Corporation (SAIC)

The agreement with SAIC provides for marketing selected Metal Storm technology.

• Defence Science and Technology Organisation (DSTO)

Metal Storm continues its work with DSTO through a Research Agreement and the AICW and ADWS programs.

• StratCom International

The two MDA SBIRs are worked through StratCom.

• National Institute of Justice (NIJ)

We continue our relationship with the NIJ through the O'Dwyer VLe smartgun.

ACQUISITION AND INTEGRATION OF US SPECIALIST ENGINEERING BUSINESS

On 11 December 2003, Metal Storm acquired Seattle based ProCam Machine, LLC., a manufacturer of precision machined parts for the defence, electronics, aircraft and space propulsion industries. The business employs approximately 45 people and has a turnover in excess of US$4 million annually.

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CHIEF EXECUTIVE OFFICER'S REVIEW [[Image Removed: LOGO]]

This acquisition provides us with an established business in the US defence and aerospace sector as well as the ability to produce Metal Storm prototype weapon systems for demonstration in the US.

ProCam has contracts with a number of major defence industry contractors and importantly maintains an ISO-9001:2000 rating which is vital when competing for a wide variety of defence manufacturing contracts.

ProCam is strategically located in Seattle where many major defence companies are based and is close to a number of firing ranges and other facilities that are important to Metal Storm.

Since the acquisition, ProCam has received two contracts from General Dynamics Ordnance and Tactical Systems (GD-OTS) totalling more than US$1 million for the production of precision assemblies to be used in tactical munitions dispensers. This is part of an ongoing long-term relationship between GD-OTS and ProCam.

ProCam also played a vital role in NASA's successful landing on the planet Mars. Among the top ten mission-critical items for NASA's recent Mars Exploration Rover missions, Spirit and Opportunity, were the successfully deployed parachute canister and associated components, manufactured by ProCam. The success and significance of this endeavor illustrates the high quality manufacturing, engineering, metallurgy, and prototyping expertise that Metal Storm has acquired with ProCam.

EMPHASIS ON INVESTOR RELATIONS

Metal Storm has placed greater emphasis on communicating with shareholders and the investment community during the last 12 months. Shareholder briefings were held in Australia's mainland capital cities in September 2003. Plans are in place to hold further briefing sessions later in 2004. Investor and shareholder briefings were also held in New York City, Washington, DC, Los Angeles, California and Seattle, Washington.

Briefings to the broker and institutional investment community were conducted throughout 2003, and this effort will be increased in both Australia and the US during 2004.

OBJECTIVES FOR 2004

Metal Storm's focus on product development and the commercialisation of a product in the 40mm and 9mm category remain our highest priority. To that end, we have committed to the following strategic objectives for 2004:

• Live fire demonstrations of Metal Storm's technology in the US.

• Expand defence sector relationships to collaboratively develop and commercialise our technology.

• Through ongoing product development efforts, continue the process of commercialising as soon as possible, selected 40mm and 9mm calibre products.

• Pursue further merger and acquistion related opportunities where there is advantage in integrating a related business with Metal Storm's own business priorities.

• Continue to promote and raise the company's public profile in Australia and the US.

• Develop and protect Metal Storm's technology by ensuring that adequate resources are available to meet future requirements. Measures are already

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in place to ensure the timing of these critical resource issues are aligned with our development needs.

• Continue to coordinate and streamline the executive and management processes required to effectively run offices in Washington DC, Brisbane, Australia and now Seattle, Washington.

CAPITAL ADDITIONS

In October 2003 Metal Storm Limited raised an additional A$7,078,784 in working capital through a Share Purchase Plan (SPP) to institutional and private investors. This resulted in 15,730,631 new ordinary shares being issued.

EXECUTIVE ADDITIONS

Executive management was strengthened in May 2003 with the appointment of Mr Ian Gillespie as General Manager-Australia. Ian brings more than 18 years of broad domestic and international commercial experience to the company. He is responsible for furthering our business relationships with Australian partners and supporting the business development and commercialisation opportunities in Australia, the United Kingdom, Europe and Asia. His role also includes increasing emphasis on investor relations, capital markets and intellectual property.

A further addition to the management team was the appointment of George Bergeron as Senior Vice President - Product Development US in March 2004. George has prime responsibility for the technical and commercial development of the handgun and other key projects in the US.

MOVING FORWARD

The significance of Metal Storm's achievements in the US defence sector over the last 12 months are indeed significant for a company at this stage of development. Enquiries are flowing into the company as a consequence of those achievements at an unprecedented level, and I expect this interest will only increase as we demonstrate our technology in the US over coming months.

Metal Storm now has the appropriate structure and management in place to take full advantage of these opportunities. In pursuing these business opportunities, Metal Storm's successful internal development program has enabled us to selectively focus on building, testing, qualifying and manufacturing those product applications that offer the most expedient commercial outcomes. This positions us ever closer to commercialisation, continued growth and revenue generation in the coming years.

/s/ CHARLES A. VEHLOW

Charles A. Vehlow
Chief Executive Officer

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BOARD OF DIRECTORS [[Image Removed: LOGO]]

1. ADMIRAL WILLIAM OWENS BS BA MA MBA,

US Navy (retired)

Chairman - Age: 63

Admiral Owens has been a director of Metal Storm Limited since 2000 and was appointed Chairman in November 2001. His distinguished 34-year military career included two years as Vice Chairman of the Joint Chiefs of Staff, the second highest military rank in the US. In this role he was responsible for post-Cold War restructuring of the US Armed Forces and advised the President and Secretary of Defense on the use of military force.

Admiral Owens has also served as the Deputy Chief of Naval Operations for Resources, Warfare Requirements and Assessments, Senior Military Assistant to the Secretary of Defense, and Director of the Office of Program Appraisal for the Secretary of the Navy and Commander of the US Sixth Fleet during the Gulf War. Admiral Owens is the Chairman of Teledesic LLC and Extend America, Inc. and a director of several public boards of directors including Australian telecommunications leader, Telstra Corporation. Previously he was President, Chief Operating Officer and Vice Chairman of Science Applications International Corporation.

2. MIKE O'DWYER

Executive Director - Age: 59

Mr O'Dwyer is the inventor of the company's 100% electronic ballistics technology and is Director - Scientific Innovation. He founded the company in 1994, and is its largest shareholder. Until 2003 he served in the positions of Managing Director and Chief Executive Officer.

His role has a focus on innovation and product and program development, and is targeted at accelerating product into defence industry markets as well as technical support to the Australian and US R&D program effort.

Mr O'Dwyer is an innovator and prolific inventor with a strong commercial background from over 30 years experience as owner, manager and operator of wholesale and retail businesses. Since 1995 he has worked exclusively on building the company, developing the technology and its range of applications, introducing it to defence departments in Australia, the United States and Europe, and building the strategic alliances Metal Storm currently holds with major defence-related organisations and industry.

The original invention has to date resulted in over 50 issued patents worldwide.

In recognition of his service and achievement in business, Mr O'Dwyer was awarded the Centenary Medal in 2003.

3. LT. GENERAL DANIEL CHRISTMAN

US Army (retired)

Non-executive Director - Age: 60

General Christman joined Metal Storm Limited as a director in June 2002. He is Senior Vice President, International Affairs in the US Chamber of Commerce, commencing in that role in July 2003, with responsibility for representing the Chamber before foreign business leaders and government officials, and for providing strategic leadership on international issues affecting the US business community. General Christman previously served as President and Executive Director of the Kimsey Foundation, a pre-eminent US organisation active in education, community development and international issues. He has 36 years experience in the US Army and federal government, holding the position of Superintendent of the United States Military Academy at West Point for five

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years before his retirement from the military in 2001.

Prior to his West Point post, General Christman served as assistant to the Chairman of the Joint Chiefs of Staff in the Pentagon. In this position he travelled with and advised President Clinton's Secretary of State on a broad range of military and national security issues.

4. TERRY O'DWYER B.Com Dip Adv Acc FCD FAICD

Non-executive Director - Age: 54

Mr O'Dwyer, a chartered accountant, has been a director of Metal Storm Limited since 1998. He is Chairman of BDO Kendalls, a large Queensland accountancy firm of which he has been a partner for 26 years. He is a director of Bendigo Bank Limited, CS Energy Limited, Qld Theatre Co. Ltd and is Chairman of BreakFree Limited and Brumby's Bakeries Holdings Limited.

His past board and government authority appointments include Leutenegger Limited and the Australian Financial Institutions Steering Committee as well as membership of the North Brisbane Regional Hospitals Board and the Legal Aid Commission.

5. GENERAL WAYNE DOWNING BSc MBA

US Army (retired)

Non-executive Director - Age: 62

Appointed as a director of Metal Storm Limited in October 1999, General Downing resigned from the board in October 2001 following his appointment as US National Director and Deputy National Security Advisor for Combating Terrorism. Following completion of this role, he was reappointed to the Metal Storm board in October 2002.

General Downing retired from active service in the military after a distinguished 34 year career. His postings included senior commands in infantry, armoured, airborne, special operations and joint units. He served two combat tours in Vietnam as a junior infantry officer; commanded all US special operations forces during the 1989 invasion of Panama; and commanded a joint special operations task force during the first Gulf War. General Downing culminated his career as Commander in Chief of the US Special Operations Command (SOCOM) where he was responsible for all special operations forces in the US Army, Navy and Airforce. He is active in several public and private sector boards in the US and is the Chair of West Point's Combating Terrorism Center. He also serves as a director of Metal Storm's strategic alliance partner, the US based technology company, Science Applications International Corporation.

6. DR. DANIELL ALSPACH PhD

Non-executive Director - Age: 64

Dr Alspach was appointed a director of Metal Storm Limited in August 2003. Until mid-2003 Dr Alspach served as Chairman and Chief Executive Officer of ORINCON Corporation International, the systems integration and information technology company he co-founded in 1973. ORINCON, which specialises in defence-related intelligence, surveillance and reconnaissance, was sold to Lockheed Martin Corporation in June 2003.

Dr Alspach led many of ORINCON's efforts, including contracts with DARPA, the US Navy and other government customers. Prior to co-founding ORINCON, he was a tenured Professor of Engineering at Colorado State University and took a visiting Professorship in Engineering at the University of California in San Diego. Dr Alspach holds a Bachelor and Master of Science Degree in Physics from the University of Washington and a Ph.D. in Engineering Sciences from the University of California in San Diego.

13 METAL STORM LIMITED ANNUAL REPORT

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KEY PERSONNEL [[Image Removed: LOGO]]

1. CHARLES A. VEHLOW BSc (Eng) MSc (Aero Eng) MBA

US Army (retired)

Chief Executive Officer - Age: 58

Mr Vehlow was appointed Chief Executive Officer in March 2003 and is based in Metal Storm's US office in Arlington, Virginia. He first joined the company in April 2002 in the role of Chief Corporate Officer. Mr Vehlow has extensive senior experience in both early stage and established business environments and a strong track record in progressing and finalising defence-related technology licensing agreements, procurement contracts and mergers and acquisitions.

From 1998 to 2000 Mr Vehlow was Vice President and General Manager for Boeing Helicopter Division. In the eight years prior to this, he held the position of Vice President of McDonnell-Douglas' Apache Program for the US Army, which resulted in the current AH-64D Longbow Apache remanufacture production program. Mr Vehlow also served as Director of Customer Support at McDonnell-Douglas from 1988 to 1991. Mr Vehlow is a member of the US Secretary of the Army's advisory Army Science Board (ASB).

2. IAN A. GILLESPIE BA (IR), Dip Law (BAB)NSW, MAICD

General Manager, Australia - Age: 48

Mr Gillespie was appointed as the company's General Manager in May 2003. He is responsible for managing Metal Storm's relationships with key stakeholders including its investors, partners and customers. Mr Gillespie is also responsible for managing business development and commercialisation opportunities in Australia, United Kingdom, Europe and Asia.

Prior to joining Metal Storm Mr Gillespie was Managing Director and Chief Executive Officer of Grow Force Australia Limited. In this role he was responsible for business planning, strategy formulation and growth, and investor relations. Between 1984 and 1999 he held general management positions with Wormald International Limited, Atlas Steels Limited and Incitec Limited/Chemtrans.

3. SYLVIE MOSER-SAVAGE B Com MBA ASCPA

Company Secretary - Age: 39

Ms Moser-Savage joined the company in January 2003. She has more than 15 years experience in accounting, finance, business management and administration. She is responsible for Metal Storm's financial and administrative management as well as all secretarial, company reporting and compliance functions.

Ms Moser-Savage's qualifications include a Bachelor of Commerce in accounting and an MBA in business law.

4. ARTHUR SCHATZ BSc Pharm

Senior Vice President - Operations

Age: 64

Mr Schatz commenced with Metal Storm in 2001 and is based in Arlington, Virginia. He is responsible for strategic and business planning and product development priorities, with an emphasis on the planning, development and implementation of operational strategy. Mr Schatz ensures the focussed future direction for the company, in conjunction with business development plans. For the 12 years prior to joining Metal Storm, Mr Schatz was employed by the Australian Government at the Australian Embassy in Washington, DC. His position as Assistant Director, Defense Industry was to provide support to the Australian defence industry in the US marketplace.

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During his tenure with the Embassy, Mr Schatz was instrumental in securing contracts worth hundreds of millions of dollars for Australian industry.

5. G. RUSSELL ZINK

Senior Vice President - Business Development - Age: 61

Mr Zink was appointed Senior Vice President - Business Development in September 2002. Based in Metal Storm's US office, he has prime responsibility for generating R&D and production contracts, as well as securing teaming, partnering or licensing arrangements with major defence firms. Mr Zink has 20 years of specific defence experience in program management, marketing and business development. Prior to joining Metal Storm he was President and CEO of Systems Management, Inc., the world's leader in automated weather systems.

From 1997 to 1999 Mr Zink was Vice President - Business Development for United Industrial Corp, Inc. and AAI Corporation, a defence manufacturer of mechanical and electronic systems.

6. GEORGE L. BERGERON III

Senior Vice President - Product Development - Age: 49

Mr Bergeron was appointed Senior Vice President - Product Development in March 2004. Based in Metal Storm's US office, he has prime responsibility for driving the technical and commercial development of the company's O'Dwyer VLe handgun and other key projects in the United States.

Mr Bergeron is a specialist in mechanical and electronic systems design, power generation and material science, with more than 25 years as a highly experienced physics engineer, scientist and program manager.

For the 14 years prior to joining Metal Storm, Mr Bergeron worked from Scientific Applications International Corporation (SAIC) where he held several senior positions, most recently as director of SAIC's Technology Development Laboratory. Mr Bergeron brings considerable experience to the company, particularly through his work as Program Manager on many aspects of Metal Storm technology during his time with SAIC.

7. PETER PURSEY AM MBA

Program Development Adviser - Age: 54

Mr Pursey was a non-executive director of Metal Storm Limited from 1994 until his retirement from the board in March 2003. He has actively contributed to the development of a number of the company's weapon systems. In his current role he assists with the development of a number of the company's technology projects in Australia and the US.

Mr Pursey is a former Brigadier in the Australian Army and has a detailed knowledge of defence-related technology and strategic security issues. He was awarded the Order of Australia (AM) in 1993.

15 METAL STORM LIMITED ANNUAL REPORT

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FINANCIAL ACCOUNTS

31 DECEMBER 2003

Corporate Governance Statement 17-18

Director's Report 19-23

Independent Audit Report 24-25

Director's Declaration 26

Statement of Financial Performance 27

Statement of Financial Position 28

Statement of Cash Flows 29

Notes to the Financial Statements 30-58

Additional Stock Exchange Information 59-60

CORPORATE GOVERNANCE STATEMENT [[Image Removed: LOGO]]

The Directors are responsible for the corporate governance practices of the group. Set out below are the main corporate governance practices that were in operation throughout the financial year.

THE BOARD OF DIRECTORS

The Board carries out its responsibilities according to the following mandate:

• the Board should comprise at least six directors;

• the Board should be made up of at least two-thirds of non-executive directors;

• the Chairman of the Board should be a non-executive director;

• the Directors should possess a broad range of skills, qualifications and experience;

• the Board should meet on a monthly basis; and

• the Board shall review the activities and performance of the company's management and shall be provided with all relevant information concerning the activities of the company.

On the day on which the Directors' Report is made out, the Board consisted of five non-executive Directors and one executive Director. Details of the Directors are set out in the Directors' Report.

The primary responsibilities of the Board include:

• the approval of the annual and half-year financial reports;

• the establishment of the long-term goals of the group and strategic plans to achieve those goals;

• the review and adoption of annual budgets for the financial performance of the group and monitoring of the results on a quarterly basis; and

• ensuring that the group has implemented adequate systems of internal controls together with appropriate monitoring of compliance activities.

INDEPENDENT PROFESSIONAL ADVICE

With the prior approval of the Chairman, each Director has the right to seek independent legal and other professional advice at the group's expense concerning any aspect of the group's operations or undertakings in order to fulfil their duties and responsibilities as Directors.

AUDIT COMMITTEE

The Board has established an Audit Committee consisting of two Directors, both of whom are non-executive Directors. The current members of the Audit Committee are:

• Mr T.J. O'Dwyer (Chairman); and

• Dr D. Alspach.

The Audit Committee provides a forum for the effective communication between the Board and the external auditors. The Audit Committee reviews:

• the annual and half-year financial reports prior to their approval by the Board;

• the effectiveness of management information systems and systems of internal control; and

• the efficiency and effectiveness of the internal and external audit functions, including reviewing the respective audit plans.

The Audit Committee invites the external auditors to attend audit committee meetings where appropriate. The Audit Committee also meets with and receives reports from, the external auditors concerning any matters which arise in connection with the performance of their role, including the adequacy of internal controls.

The Audit Committee has determined internal audit procedures appropriate for the group's present financial and administrative position and complexity. Members of the Audit Committee administer the procedures and report to the Board in respect of this matter.

17 METAL STORM LIMITED ANNUAL REPORT

CORPORATE GOVERNANCE STATEMENT [[Image Removed: LOGO]]

REMUNERATION COMMITTEE

The Board has established a Remuneration Committee comprised of two non-executive Directors and executive Director. The current members of the Remuneration Committee are as follows:

• Lt Gen D. Christman (Chairman);

• Gen W.A. Downing; and

• Mr. M. O'Dwyer.

The Remuneration Committee reviews the remuneration policies applicable to all Directors and executive officers on an annual basis and makes recommendations on remuneration packages and terms of employment to the Board. Remuneration packages are reviewed with due regard to performance and other relevant factors.

In order to retain and attract executives of sufficient calibre to facilitate the efficient and effective management of the company's operations, the Remuneration Committee may seek the advice of external advisers in connection with the structure of remuneration packages.

Remuneration packages contain the following key elements:

a) Salary/fees;

b) Benefits - including the provision of motor vehicle, superannuation and health benefits; and

c) Incentive schemes - including performance-related bonuses and share options under the Discretionary Share Option Scheme.

Particulars concerning Directors' and executives' remuneration and the company's executive and the Discretionary Share Option Scheme are set out in notes 6 to 8 to the financial statements.

RISK MANAGEMENT

The Board is responsible for the group's system of internal controls. The Board constantly monitors the operational and financial aspects of the company's activities and, through the Audit Committee, the Board considers the recommendations and advice of external and internal auditors and other external advisers on the operational and financial risks that face the group.

The Board receives recommendations made from the external and internal auditors and other external advisers. These recommendations and appropriate ensuing actions are taken as and when the Board determines it necessary to ensure an adequate and appropriate internal control environment is in place to manage the key risks identified.

In addition, the Board investigates ways of enhancing existing risk management strategies, including appropriate segregation of duties. Management also has suitably qualified and experienced personnel in key positions.

CODE OF CONDUCT

As part of the Board's commitment to the highest standard of conduct, the company has adopted a code of conduct to guide executives, management and employees in carrying out their duties and responsibilities. The code of conduct covers such matters as:

• responsibilities to shareholders;

• compliance with laws and regulations;

• relations with customers and suppliers;

• ethical responsibilities;

• employment practices; and

• responsibilities to the environment and the community.

DIRECTORS' REPORT [[Image Removed: LOGO]]

The Directors of Metal Storm Limited submit herewith the annual financial report for the financial year ended 31 December 2003. Pursuant to the provisions of the Corporations Act 2001, the Directors' report as follows:

The names and particulars of the Directors of the company during or since the end of the financial year are: