MACH7 TECHNOLOGIES LIMITED — Annual Report 2006

Sep 28, 2006

ANNUAL REPORT 2006

CHAIRMAN'S REPORT

Dear Shareholder

On behalf of your directors I'm delighted to present the 2006 annual report of SafetyMed.

Your company has continued to progress since its' listing on the ASX on November $30^{th}$ , 2005.

Throughout the seven months to the end of June 2006 the company focused its' attention primarily on the completion of manufacture quality prototypes of the SecureTouch Retractable Syringe.

This culminated in Exel of the USA giving its' approval of the final model in June, which allowed SMP to then place the order for the building of the two production moulds at JCV Tooling at Wingfield in South Australia.

These moulds, expected to be commissioned by late October will be capable of producing approximately 95 million parts each per year and on completion will be shipped to Exel's cleanroom production facility in Korea.

The company also completed a trial assembly run of 10,000 units at its' Salisbury Facility in the last week of June.

This verified the simplicity and ease of assembly of the SecureTouch device as a production rate of approximately 300 units per hour was achieved by just two people.

7,000 of these complete safety syringes were then forwarded to Exel for regulatory and marketing purposes, 3,000 were retained by the company for its' own marketing and regulatory work.

The company is working closely with Exel to explore the most efficient method of production as well as exchanging information to enable expedient completion of both FDA (Food and Drug Administration, USA) and TGA (Therapeutic Goods Administration, Aust) approvals.

Work has also continued on the MediTag with the lan Wark Research Institute (Uni SA) developing and testing suitable temperature parameters.

Nationwide Labeling of Salisbury has also commenced various production trials.

The Medical Advisory Committee has been invaluable in providing advice and recommendations during this phase of the SecureTouch development.

They have also presented a wide variety of new and innovative products which are under investigation for inclusion into the SMP product range.

The Salisbury Facility that was acquired after the listing was the centerpiece of the Company Open Day where shareholders and a broad array of other interested parties attended.

Demonstrations of the SecureTouch assembly process, new clean room, freezer, warehouse and storage area recently fitted out with brand new pallet racking were very well received by all.

The day was extremely informative and provided a unique opportunity for shareholders and potential investors to meet with the Directors and Medical Advisory Committee and see first hand the progress the company has made in such a short time since listing.

Your company is extremely encouraged by feedback from the market, both Government and Private in relation to the SecureTouch Safety Syringe and what it could mean to the community at large.

My fellow directors and I wish to thank the Managing Director. Mr Riemelmoser for his contribution to your company's development.

We wish also to thank shareholders for their patience while our executive team has worked through the processes that will enable SMP to become a long term, world class producer of Safe Medical Products.

Regards,

John Darley

ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2006

CORPORATE GOVERNANCE STATEMENT
DIRECTORS' REPORT
DIRECTORS' REPORT
DIRECTORS' REPORT
DIRECTORS' REPORT
DIRECTORS' REPORT
DIRECTORS' REPORT
DIRECTORS' REPORT
DIRECTORS' REPORT
DIRECTORS' REPORT
AUDITOR'S INDEPENDENCE DECLARATION 13
INCOME STATEMENT
BALANCE SHEET
STATEMENT OF CHANGES IN EQUITY
CASH FLOW STATEMENT
NOTES TO THE FINANCIAL STATEMENTS 18
NOTES TO THE FINANCIAL STATEMENTS 19
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS 21
NOTES TO THE FINANCIAL STATEMENTS 22
NOTES TO THE FINANCIAL STATEMENTS 23
NOTES TO THE FINANCIAL STATEMENTS 24
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS 26
NOTES TO THE FINANCIAL STATEMENTS 27 NOTES TO THE FINANCIAL STATEMENTS 28
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS 30
NOTES TO THE FINANCIAL STATEMENTS 31
NOTES TO THE FINANCIAL STATEMENTS 32
NOTES TO THE FINANCIAL STATEMENTS 33
NOTES TO THE FINANCIAL STATEMENTS 34
NOTES TO THE FINANCIAL STATEMENTS 35
NOTES TO THE FINANCIAL STATEMENTS 36
NOTES TO THE FINANCIAL STATEMENTS 37
NOTES TO THE FINANCIAL STATEMENTS 38
DIRECTORS' DECLARATION
ASX INFORMATION

CORPORATE GOVERNANCE STATEMENT

Unless disclosed below, all the best practice recommendations of the ASX Corporate Governance Council have been applied for the entire financial year ended 30 June 2006.

Board Composition

The skills, experience and expertise relevant to the position of each director who is in office at the date of the annual report and their term of office are detailed in the director's report.

The names of the independent directors of the company are:

John Darley
                          Joseph Nicholas

When determining whether a non-executive director is independent the director must not fail any of the following materiality thresholds:

• less than 10% of company shares are held by the director and any entity or individual directly or indirectly associated with the director;
• no sales are made to or purchases made from any entity or individual directly or indirectly associated with the director; and
• none of the directors income or the income of an individual or entity directly or indirectly associated with the director is derived from a contract with any member of the company other than income derived as a director of the entity.

Independent directors have the right to seek independent professional advice in the furtherance of their duties as directors at the company's expense. Written approval must be obtained from the chairman prior to incurring any expense on behalf of the company.

The functions of the audit and remuneration committees are carried out by the board and their attendance at meetings are detailed in the directors' report.

Trading Policy

The company's policy regarding directors and employees trading in its securities, is set by board. The policy restricts directors and employees from acting on material information until it has been released to the market and adequate time has been given for this to be reflected in the security's prices.

Audit Committee

The board carried out the functions of the audit committee.

Performance Evaluation

An annual performance evaluation of the board and all board members was conducted by the board for the financial year ended 30 June 2006. The board sought feedback from all board members and members of the senior management team on how they thought the board had performed. The chairman also spoke to each director individually regarding their role as director. The results were collated and developed into a series of recommendations to improve performance. This was presented to the board at which time an action plan was developed to implement the recommendations and set the performance criteria and goals for the next year.

CORPORATE GOVERNANCE STATEMENT

Remuneration Policies

The remuneration policy, which sets the terms and conditions for the chief executive officer and other senior executives, was developed by the board and approved by the board. All executives receive a base salary, superannuation, fringe benefits and retirement benefits. The board performs the function of the remuneration committee and reviews executive packages annually by reference to company performance, executive performance, comparable information from industry sectors and other listed companies. The policy is designed to ensure appropriate feedback to the board.

Executives are also entitled to participate in the employee and officers share scheme.

The amount of remuneration for all directors and the highest paid executives, including all monetary and nonmonetary components, are detailed in the Note 6 to the financial report. All remuneration paid to executives is valued at the cost to the company and expensed. Shares given to executives are valued as the difference between the market price of those shares and the amount paid by the executive. Options are valued using the Black-Scholes methodology.

The board expects that the remuneration structure implemented will result in the company being able to attract and retain the best executives to run the company. It will also provide executives with the necessary incentives to work to grow long-term shareholder value. The policy complies with the four key principles of IFSA Guidance Note 02-16.

The payment of bonuses, options and other incentive payments are reviewed by the board annually as part of the review of executive remuneration and a recommendation is put to the board for approval. Any bonuses, options and incentives must be linked to predetermined performance criteria. No such bonuses were paid this year. The board can exercise its discretion in relation to approving incentives, bonuses and options and can recommend changes to the remuneration policy. Any changes must be justified by reference to measurable performance criteria.

Remuneration Committee

The board carried out the functions of the remuneration committee.

There are no schemes for retirement benefits other than statutory superannuation for executive directors.

DIRECTORS' REPORT

Your directors present their report on the company for the financial year ended 30 June 2006.

Directors

The names of directors in office at any time during or since the end of the year are:

John Riemelmoser

John Darley (appointed 1 August 2005)

Marcus Boland (appointed 1 August 2005)

Joseph Nicholas (appointed 1 August 2005)

Michael Lindblom (resigned 1 August 2005)

Richard Hart (resigned 1 August 2005)

Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

Company Secretary

The following person held the position of company secretary at the end of the financial year:

Bruce Hocking LLB - Bachelor of Law. Bruce Hocking has worked for Safety Medical Products Limited since his appointment on the 1^st August, 2005, being legal counsel for the company and chairman of the Medical Advisory Committee.

Principal Activities

The principal activities of the company during the financial year were the commercialisation of the SecureTouch Retractable Syringe and further development of the MediTag and Freeze Indicator Devices.

There were no significant changes in the nature of the company's principal activities during the financial year.

Operating Results

The result of the company after providing for income tax amounted to a loss of \$1,523,000.

Dividends Paid or Recommended

No dividends were paid or declared since the start of the financial year.

Review of Operations

During the seven months since listing the company embarked on the commercial development of the SecureTouch Safety Syringe as well as commencing work on the MediTag for which SMP secured exclusive rights to all industry applications.

Prototype tooling was completed for the SecureTouch Safety Syringe.

The Salisbury Production and Distribution Facilty was leased in November 2005 and the fit out commenced with the view to being operational by June 2006.

The SMP Facility was officially opened on 9 June by the Honourable Nick Xenophon MLC and attended by approximately 100 guests that included shareholders and interested parties.

The company lodged a provisional patent application for a freeze indicating device in December 2005.

On 1 February 2006, SMP announced it had secured exclusive rights for all market applications of the MediTag Technology from Thermonitor Pty. Ltd.

DIRECTORS' REPORT

Review of Operations (continued)

In March 2006 SMP received TGA certification for over 300 of Exel's Medical Products providing the opportunity for the company to begin the importation and sale of these products into Australia and New Zealand for which it had secured an exclusive distribution agreement in early November 2005.

In June 2006 following the sign off by Exel on the final Secure Touch prototype model, the first two production moulds were ordered. They are capable of producing approximately 95mill plastic saddles and sleeves that when retrofitted to a standard syringe, convert it to a Manual Safety Syringe.

10,000 units were hand assembled at the Salisbury Plant at the rate of approximately 300 units per hour by just two people. This verified the simplicity of the SecureTouch design and ease of manufacture and in fact, even if manufactured at this low rate, would be more than competitive with other comparable devices currently available.

The company is working closely with Exel on a much larger scale of production to significantly reduce production costs and bring the SecureTouch to the world for just a few cents more than a standard syringe.

Looking forward, the company is well positioned to commence significant sales of the SecureTouch Safety Syringe as well as an expanded range of relevant safety products into several different market categories, including Avian flu masks and has entered into distribution arrangements in Australia in respect of some of these.

Financial Position

The net assets of the company have increased by \$1,835,000 from 30 June 2005 to \$1,795,000 in 2006. This increase has largely resulted from the successful capital raising during the year which raised \$2,886,000 net of capital raising costs.

The company's strong financial position has resulted in an improvement in the company's working capital ratio. The company's working capital, being current assets less current liabilities, has improved from negative \$42,000 in 2005 to positive \$1,639,000 in 2006.

The directors believe that the company is in a strong and stable financial position to expand and grow its current operations.

Significant Changes in State of Affairs

The following significant changes in the state of affairs of the company occurred during the financial year:

On 1 August 2005 the company issued 6,000,000 bonus ordinary shares at nil cost to shareholders on the $(i)$ basis of one share for every three shares held. The share rank for dividends paid after 1 August 2005.

On 1 August 2005, it was resolved to issue shares to the value of \$400,000 and one option for every two shares issued exercisable at 20c each on or up to 31 December 2008 upon FDA (requiatory body of USA) approval of the Securetouch version of the company's safety syringe as per the agreement with Exelint. These shares and options will be divided between all existing shareholders as at 1 August 2005 in proportion to their present shareholding.

On 1 August 2005, it was resolved to issue shares to the value of \$400,000 and one option for every two shares issued exercisable at 20c each on or up to 31 December 2008 upon sales commitments of 25 million units being reached as per the agreement with Exelint. These shares and options will be divided between all existing shareholders as at 1 August 2005 in proportion to their present shareholding.

On 1 August 2005, it was resolved to issue shares to the value of \$400,000 and one option for every two shares issued exercisable at 20c each on or up to 31 December 2008 upon sales commitments of 50 million units being reached as per the agreement with Exelint. These shares and options will be divided between all existing shareholders as at 1 August 2005 in proportion to their present shareholding.

• $(ii)$ On 24 November 2005 the company issued 20,052,500 ordinary shares at a cost of \$0.20 from a new share issue during the year, and 10,026,250 options exercisable at 20c each on or up to 31 December 2008.
• On 24 November 2005 the company issued 9,500,000 ordinary shares at no cost to directors and related $(iii)$ parties, and 10,500,000 options exercisable at 20c each on or up to 31 December 2008..

DIRECTORS' REPORT

Adoption of Australian Equivalents to IFRS

As a result of the introduction of Australian equivalents to International Financial Reporting Standards (AIFRS), the company's financial report has been prepared in accordance with those Standards. A reconciliation of adjustments arising on the transition to AIFRS is included in Note 2 to this report.

After Balance Date Events

No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future financial years.

Future Developments, Prospects and Business Strategies

To further improve the company's profit and maximise shareholder wealth, the following developments are intended to be implemented in the near future:

$(i)$ Commencement of production, sales and distribution of the company's products as well as introduction and development of a range of new innovative products for which the company has negotiated distribution agreements.

These developments, together with the current strategy of continuous improvement and an adherence to quality control in existing markets, are expected to assist in the achievement of the company's long-term goals and development of new business opportunities.

Use of Funds

The company's cash and assets at the time of admission to the Australian Stock Exchange have been used in a manner consistent with the business objectives as outlined in the prospectus for the company's initial public offering dated 5 October 2005.

Corporate Governance

In recognising the need for the highest standards of corporate behaviour and accountability the directors fully support and have adhered to the principles of good corporate governance.

The company's corporate governance statement is contained in the section "Corporate Governance Statement".

Environmental Issues

The company's operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory.

DIRECTORS' REPORT

Information on Directors
John Riemelmoser	w	Managing Director - Executive
Experience		Director of large dairy products distribution business in SA which grew substantially over 23 years prior to its recent sale. The business achieved several awards under John's stewardship winning National Foods SA Distributor of the Year Award five times, and winning The Australian Dairy Association, National Wholesale Distributor of the Year Award. John has designed the automatically retractable syringe, and has been extensively involved in its continued development.
Interest in shares and options		12,155,470 ordinary shares in Safety Medical Products Limited and 6,155,470 options.
Special responsibilities	w	Managing director and chief executive officer. Research and development of company products.
Directorships held in other listed entities	w	Nil
John Darley		Chairman - Non Executive
Experience		Previously Valuer-General of South Australia and has chaired numerous boards and is currently Chairman of Commissioners of Charitable Funds Organisation, The Burnside Retirement Services Inc and the Land Reform Association of South Australia.
Interest in shares and options	w.	500,000 shares and 1,000,000 options.
Special responsibilities		Chairman and investments, liaison with governmental, regulatory and administrative authorities.
Directorships held in other listed entities	$\omega$	Nil
Marcus Boland		Director - Executive
Qualifications		B Com LLB
Experience	w.	Over 20 years of commercial, legal and corporate experience across a number of industries. Has carried out various public company listings and acquisitions and is director of Sydney based investment firm, Resource Capital Australia.
Interest in shares and options		8,285,000 shares and 4,197,500 options
Special responsibilities		Finance director, corporate development, acquisitions and investments.
Directorships held in other listed entities	w	Nil
Joseph Nicholas		Director -- Non Executive
Qualifications		MB BS
Experience		Chairman of Australian Medical Co-operative Ltd of 700 GP doctors in Australia. Has been in private medical practice for over 20 years, and is a member of the General Practice Advisory Panel of Astra Pharmaceuticals.
Interest in shares and options		500,000 shares and 1,025,000 options
Special responsibilities		Medical Director, Ilaison with Medical Advisory Committee
Directorships held in other listed entities	w	Nil

DIRECTORS' REPORT

REMUNERATION REPORT

This report details the nature and amount of remuneration for each director of Safety Medical Products Limited. and for the executives receiving the highest remuneration.

Remuneration policy

The remuneration policy of Safety Medical Products Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the company's financial results. The board of Safety Medical Products Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the company, as well as create goal congruence between directors, executives and shareholders.

The board's policy for determining the nature and amount of remuneration for board members and senior executives of the company is as follows:

• The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed and approved by the board.
• All executives receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits, options and performance incentives.
• The board reviews executive packages annually by reference to the company's performance, executive performance and comparable information from industry sectors.

The performance of executives is measured against criteria agreed bi-annually with each executive and is based predominantly on the forecast growth of the company's profits and shareholders' value. All bonuses and incentives must be linked to predetermined performance criteria. The board may, however, exercise its discretion in relation to approving incentives, bonuses and options, and can recommend changes. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth.

Executives are also entitled to participate in the employee and officers share scheme.

The executive directors and executives receive a superannuation quarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Some individuals, however, have chosen to sacrifice part of their salary to increase payments towards superannuation.

All remuneration paid to directors and executives is valued at the cost to the company and expensed. Shares given to directors and executives are valued as the difference between the market price of those shares and the amount paid by the director or executive. Options are valued using the Black-Scholes methodology.

The board policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. The remuneration committee determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the company. However, to align directors' interests with shareholder interests, the directors are encouraged to hold shares in the company and are able to participate in the employee and officers share scheme.

Performance-based remuneration

No performance-based remuneration was paid during the year.

DIRECTORS' REPORT

Company performance, shareholder wealth and director and executive remuneration

The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. The company has issued options to the majority of directors and executives to encourage the alignment of personal and shareholder interests.

The following table shows the gross revenue, profits and dividends for the last two years for the listed entity, as well as the share price at the end of the respective financial years. As the company is in the development phase of its operations over both of these years, it is considered that analysing remuneration with profitability is not warranted to date.

Remuneration Report

	2006	2005
	\$000	\$000
Revenue	69	52
Net Profit	(1,523)	(168)
Share Price at Year-end	\$0.21	n/a
Dividends Paid	Nil	Nil

The directors felt the share price was not as stable as was expected during the year, reaching a low of \$0.11 and a high of \$0.22. It is a concern of the board and also executives as greater fluctuations may lead to a further devaluation of the share price, and thus shareholder wealth. The board has decided to increase and maintain promotional activity amongst analysts so as to increase investor awareness of the company and to stabilise the company's share price in line with a consistent and stable financial position and is seeking appropriate acquisitions that are value-accretive.

Details of remuneration for year ended 30 June 2006

The remuneration for each director and each of the four executive officers of the company receiving the highest remuneration during the year was as follows:

Salary, Fees and Commi- ssions	Super- annuation Contri- bution	Cash Bonus	Equity	Options	Total	Perform- ance related %
277	9	$\omega$	$\tilde{\phantom{a}}$	$\tilde{\phantom{a}}$	286
56	$\overline{2}$	$\omega$	100	82	240
125			a.	u.	125
a.	33	w	100	82	215
$\blacksquare$	۰.	$\tilde{\phantom{a}}$	a.	$\omega$		w
A.	$\blacksquare$	$\omega$	$\blacksquare$	w		w
458	44	w	200	164	866
20	u.	$\omega$	100	124	244
20	$\blacksquare$	$\omega$	100	124	244	w
	\$000	\$000	\$000	\$000	\$000	\$000

DIRECTORS' REPORT

Performance income as a proportion of total remuneration

Executive directors and executives remuneration is not performance related.

Options issued as part of remuneration for the year ended 30 June 2006

Options were issued to some directors and executives as part of their remuneration. The options were not issued based on performance criteria, but were issued to the majority of new directors and executives of Safety Medical Products Limited to provide incentive to join the board.

		Options Granted as Part of Granted No. Remuneration	Total Remuneration Represented by Options	Options Exercised	Options Lapsed	Total
		\$000	$\%$	\$000	(3)	\$000
Directors
John Darley	1,000,000	82	34	$\mathbf{u}$	u.	82
Joseph Nicholas	1,000,000	82	38	$\blacksquare$	u.	82
	2,000,000	164	36	$\overline{\phantom{a}}$		164
Specified Executives
Bruce Hocking	1,500,000	124	51	$\blacksquare$		124
	1,500,000	124	51	$\blacksquare$	L	124

Employment contracts of directors and senior executives

The employment conditions of the managing director, John Riemelmoser, the executive director and specified executives are formalised in contracts of employment. Other than the managing director, all executives are not full-time employees of Safety Medical Products Limited. John Riemelmoser is employed under a fixed three-year contract, which commenced on 1 August 2005 and expires on 1 August 2008.

The employment contracts stipulate a range of one- to three-month resignation periods.

Meetings of Directors

During the financial year, eleven meetings of directors were held. Attendances by each director during the year were as follows:

	Directors' Meetings
	Number eligible to attend	Number attended
John Riemelmoser	12	12
John Darley	11	11
Marcus Boland	11	11
Joseph Nicholas	11	11
Michael Lindblom	1	1
Richard Hart	1

DIRECTORS' REPORT

Indemnifying Officers or Auditor

During or since the end of the financial year the company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums as follows:

The company has paid premiums to insure each of the following directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the company, other than conduct involving a wilful breach of duty in relation to the company. It is a condition of the insurance contract that the amount of the premium is not disclosed.

Options

At the date of this report, the unissued ordinary shares of Safety Medical Products Limited under option are as follows:

Grant Date	Date of Expiry	Exercise Price	Number under Option
30 May 2005	31 December 2008	\$0.20	9,000.000
1 August 2005	31 December 2008	\$0.20	3.000.000
24 November 2005	31 December 2008	\$0.20	19,276,250
			31 276 250

No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of any other body corporate.

Proceedings on Behalf of Company

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

The company was not a party to any such proceedings during the year.

Non-audit Services

The board of directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor's independence for the following reasons:

• all non-audit services are reviewed and approved by the board prior to commencement to ensure they do $\bullet$ not adversely affect the integrity and objectivity of the auditor; and
• the nature of the services provided do not compromise the general principles relating to auditor independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia's Professional Statement F1: Professional Independence.

The following fees for non-audit services were paid/payable to the external auditors during the year ended 30 June 2006:

	\$000
Due diligence services	19
IFRS transition services	4
	23

DIRECTORS' REPORT

Auditor's Independence Declaration

The auditor's independence declaration for the year ended 30 June 2006 has been received and can be found on the following page.

Rounding of Amounts

The company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statements and directors' report have been rounded to the nearest thousand dollars.

Signed in accordance with a resolution of the Board of Directors.

John Riemelmoser Director

Marcus Boland Director

Dated this 29^th day of September 2006

AUDITOR'S INDEPENDENCE DECLARATION

RSM Bird Cameron Partners

Chartered Accountants

Level 12, 60 Casliersagh Street Sydney NSW 2500
GPO Box 6136 Sydney NSW 2661
T+6 2 \$233 8933 | F+81 2 \$233 8821 BUILD SEATS ABRE 225

AUDITOR'S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001

TO THE DIRECTORS OF SAFETY MEDICAL PRODUCTS LIMITED

I declare that, to the best of my knowledge and belief, during the year ended 30 June 2006 there have heen:

• (i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review, and
• (b) No contraventions of any applicable code of professional conduct in relation to the audit.

RSM Read pressant an han

RSM Bird Cameron Partners Sydney, New South Wales

Dated this 29^th day of September 2006

Allall

$\mathbb H$ R Moll Partner

INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2006

	Note	2006 \$000	2005 \$000
Revenue	3	69	52
Employee benefits expense		(324)	(38)
Depreciation and amortisation expense		(8)	(1)
Other expenses		(1,363)	(208)
Finance costs		(1)	(6)
Result before income tax	4	(1,627)	(201)
Income tax benefit	5	104	33
Result attributable to members of the company	4	(1,523)	(168)
Continuing Operations
Basic earnings per share (cents per share)	9	(3.6)	(0.9)
Diluted earnings per share (cents per share)	9	(2.3)	(0.6)

BALANCE SHEET AS AT 30 JUNE 2006

	Note	2006 \$000	2005 \$000
CURRENT ASSETS
Cash and cash equivalents	10	1,709
Trade and other receivables	11	25	3
Inventories	12	42
Other current assets	14	131	36
TOTAL CURRENT ASSETS		1,907	39
NON-CURRENT ASSETS
Property, plant and equipment	13	155	1
TOTAL NON-CURRENT ASSETS		155	$\mathbf{1}$
TOTAL ASSETS		2,062	40
CURRENT LIABILITIES
Trade and other payables	15	247	12 2
Short-term borrowings	16		68
Short-term provisions	18	20
TOTAL CURRENT LIABILITIES		267	80
TOTAL LIABILITIES		267	80
NET ASSETS		1,795	(40)
EQUITY
Issued capital	19	2,887	271
Reserves	20	742
Retained earnings		(1, 834)	(311)
TOTAL EQUITY		1,795	(40)

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2006

	Note	Ordinary Share Capital \$000	Options Reserve \$000	Retained Earnings \$000	Total \$000
Balance at 1 July 2004		271		(143)	128
Profit attributable to members of parent entity				(168)	(168)
Balance at 30 June 2005		271		(311)	(40)
Shares issued during the year		6.010	.	w	6,010
Transaction costs		(3,394)		w	(3, 394)
Share based payments		аń,	742	÷.	742
Profit attributable to members of parent entity		$\overline{\phantom{a}}$		(1,523)	(1,523)
Balance at 30 June 2006		2.887	742	(1, 834)	1.795

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2006

	Note	2006 \$000	2005 \$000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers		3	56
Interest received		69	1
Payments to suppliers and employees		(1,566)	(247)
Finance costs		(1)	(6)
Income tax benefit and goods and services tax received		76	49
Net cash used in operating activities	24	(1, 419)	(147)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(162)
Loans to related parties			(2)
Net cash used in investing activities		(162)	(2)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares		3,358
Proceeds from borrowings			53
Repayment of borrowings		(53)
Net cash provided by financing activities		3,305	53
Net increase (decrease) in cash held		1,724	(96)
Cash at beginning of financial year		(15)	81
Cash at end of financial year	10	1,709	(15)

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Urgent Issues Group Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial report covers Safety Medical Products Limited as an individual entity. Safety Medical Products Limited is a listed public company, incorporated and domiciled in Australia.

The financial report of Safety Medical Products Limited complies with all Australian equivalents to International Financial Reporting Standards (AIFRS) in their entirety.

The following is a summary of the material accounting policies adopted by the company in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Basis of Preparation

First-time Adoption of Australian Equivalents to International Financial Reporting Standards

Safety Medical Products Limited has prepared financial statements in accordance with the Australian equivalents to International Financial Reporting Standards (AIFRS) from 1 July 2005.

In accordance with the requirements of AASB 1: First-time Adoption of Australian Equivalents to International Financial Reporting Standards, adjustments to the accounts resulting from the introduction of AIFRS have been applied retrospectively to 2005 comparative figures excluding cases where optional exemptions available under AASB 1 have been applied. These accounts are the first financial statements of Safety Medical Products Limited to be prepared in accordance with Australian equivalents to IFRS.

The accounting policies set out below have been consistently applied to all years presented. The company has however elected to adopt the exemptions available under AASB 1 relating to AASB 132: Financial Instruments: Disclosure and Presentation, and AASB 139: Financial Instruments: Recognition and Measurement. Refer to Note 28 for further details on changes in accounting policy.

Reconciliations of the transition from previous Australian GAAP to AIFRS have been included in Note 2 to this report.

Reporting Basis and Conventions

The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Accounting Policies

Income Tax a.

The charge for current income tax expense is based on the profit for the year adjusted for any nonassessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

$b.$ Inventories

Inventories are measured at the lower of cost and net realisable value. Costs are assigned on a first in first out basis.

Property, Plant and Equipment Ċ.

Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses.

Plant and equipment

Plant and equipment are measured on the cost basis.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset's employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

Depreciation

The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over their useful lives to the company commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset	Depreciation Rate
Plant and equipment	7.5% to 37.5%
Motor Vehicles	18.75%

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

d. Leases

Leases where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are classified as finance leases.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Financial Instruments e.

Recognition

Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

Financial Liabilities

Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation.

Impairment

At each reporting date, the company assesses whether there is objective evidence that a financial instrument has been impaired. Impairment losses are recognised in the income statement.

f. Impairment of Assets

At each reporting date, the company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Employee Benefits g.

Provision is made for the company's liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

h. Provisions

Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

Cash and Cash Equivalents í.

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 12 months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Revenue í.

Revenue from the sale of goods is recognised upon the delivery of goods to customers.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Revenue from the rendering of a service is recognised upon the delivery of the service to the customers.

All revenue is stated net of the amount of goods and services tax (GST).

Goods and Services Tax (GST) $\mathbf{k}$ .

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

Comparative Figures Ī.

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

Rounding of Amounts m.

The company has applied the relief available to it under ASIC Class Order 98/100 and accordingly. amounts in the financial report and directors' report have been rounded off to the nearest \$1,000.

Critical Accounting Estimates and Judgments

The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the company.

Key Estimates - Taxation Losses

The company has carried forward losses for Australian taxation purposes. Deferred tax assets arising from both temporary differences and tax losses are not recognised as their realisation is considered to be uncertain.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

			2005			2004
	Note	Previously Stated \$'000	Adjust- ments \$'000	Restated \$'000	Previously Stated \$'000	Adjust- ments \$'000	Restated \$'000
Income Statement
Result after tax		(168)	$\blacksquare$	(168)	(118)	$\omega$	(118)
Balance Sheet
Adjustment to opening retained earnings	2(a)	(142)	(1)	(143)	(24)	(1)	(25)
Intangibles	2(b)	1	(1)	$\overline{\phantom{a}}$	1.	(1)	$\tilde{\phantom{a}}$

NOTE 2: FIRST-TIME ADOPTION OF AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

Intangibles

Start up costs and pre-operating expenses are no longer allowed to be capitalised. All previously capitalised start up costs and pre-operating expenses have been written back to profit in the prior financial years.

	2006 \$000	2005 \$000
Retained earnings comprise: (a) Recognition of start-up costs and pre-operating costs as expenses	(1)	(1)
Intangible assets comprise: (b) Recognition of start-up costs and pre-operating costs as expenses	(1)	(1)
NOTE 3: REVENUE
Operating activities
- interest received from unrelated parties	69
- services revenue		51
	69	52

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

	Note	2006 \$000	2005 \$000
NOTE 4: RESULT FOR THE YEAR
Expenses (a)
Finance costs
— external		1	1
- related entities			4
Total finance costs		1	5
Rental expense on operating leases
- minimum lease payments		4
Research and development costs		57	38
Significant Revenue and Expenses (b)
Patent and trademark expenses reimbursed to related parties	26а.	420
Patent and trademark expenses reimbursed to non- related parties		223.	15
Consultancy fees		125	89
Licence fees		29	18
NOTE 5: INCOME TAX BENEFIT
The prima facie tax on the result from ordinary activities before income tax is reconciled to the income tax as follows:
Prima facie tax payable (benefit) on the result from ordinary activities before income tax at 30% (2005: 30%)		(488)	(61)
Add tax effect of:
- non-allowable and capital items		213	30
- tax losses carried forward		357	6
		82	(25)
Less tax effect of:
- 25% increment allowed on eligible research and development expenditure		21	7
- s40-880 write off regarding legal fees on capital raising		165	1
Income tax expense (benefit) attributable to the company		(104)	(33)

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 6: KEY MANAGEMENT PERSONNEL COMPENSATION

Names and positions held of company key management personnel in office at any time during the a. financial year are:

Key Management Person	Position
John Riemelmoser	Managing Director - Executive
John Darley	Chairman - Non Executive (appointed 1 August 2005)
Marcus Boland	Director - Executive (appointed 1 August 2005)
Joseph Nicholas	Director - Non-Executive (appointed 1 August 2005)
Bruce Hocking	Company Secretary - Executive (appointed 1 August 2005)
Michael Lindblom	Director – Non Executive (resigned 1 August 2005)
Richard Hart	Director - Non Executive (resigned 1 August 2005)

$\mathbf{b}$ . Compensation Practices

The board's policy for determining the nature and amount of compensation of key management for the group is as follows:

The compensation structure for key management personnel is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the company. The contracts for service between the company and key management personnel are on a continuing basis, the terms of which are not expected to change in the immediate future. Upon retirement key management personnel are paid employee benefit entitlements accrued to date of retirement.

The company does not provide cash bonus reward schemes, specifically, the incorporation of incentive payments based on the achievement of revenue targets and return on equity ratios.

The employment conditions of the managing director, John Riemelmoser and other key management personnel are formalised in contracts of employment. Other than the managing director, all other key management personnel are part-time employees of Safety Medical Products Limited. John Riememoser is employed under a fixed three year contract, which commenced on 1 August 2005 and expires on 1 August 2008.

The board determines the proportion of fixed and variable compensation for each key management personnel. Refer Note 6(c).

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 6: KEY MANAGEMENT PERSONNEL COMPENSATION (continued)

Key Management Personnel Compensation c.

2006

	Short-term Benefits	Post- employment Benefits	Share-based Payment
Key Management Person	Cash, salary and commis- sions	Super- annuation	Equity	Options	Total	Performance Related
	\$000	\$000	\$000	\$000	\$000	₩
John Riemelmoser	277	9	M	MA	286	$\blacksquare$
John Darley	56	2	100	82	240	$\tilde{\phantom{a}}$
Marcus Boland	125	u.			125	$\tilde{\phantom{a}}$
Joseph Nicholas	ă.	33	100	82	215	$\tilde{\phantom{a}}$
Bruce Hocking	20	u.	100	124	244	$\mathbf{u}$
Michael Lindblom	w	u.	$\overline{\phantom{a}}$
Richard Hart	$\omega$	u.	$\blacksquare$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\blacksquare$
	478	44	300	288	1,110

2005

	Short-term Benefits	Post- employment Benefits		Share-based Payment
Key Management Person	Cash, salary and commis- sions	Super- annuation	Equity	Options	Total	Performance Related
	\$000	\$000	\$000	\$000	\$000	%
John Riemelmoser	4	$\blacksquare$	÷	$\blacksquare$	4	$\blacksquare$
Michael Lindblom	Address	u.	÷	A	an.	$\mathbf{u}$
Richard Hart	$\omega$	$\blacksquare$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	$\blacksquare$
	4	u.	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	4	$\tilde{\phantom{a}}$

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 6: KEY MANAGEMENT PERSONNEL COMPENSATION (continued)

d. Compensation Options

Options Granted As Compensation

						Terms & Conditions for Each Grant
	Vested No.	Granted No. Grant Date Value per Exercise		Option at Grant Date \$	Price \$	First Exercise Exercise Date	Last Date
Key Management Personnel
John Darley	1.000.000	1.000.000	24/11/05	0.082	0.20	24/11/05	31/12/08
Joseph Nicholas	1.000.000	1.000.000	24/11/05	0.082	0.20	24/11/05 31/12/08
Bruce Hocking	1.500.000	1.500.000	24/11/05	0.082	0.20	24/11/05	31/12/08
	3.500.000	3.500,000

All options vest at grant date.

The service and performance criteria set to determine compensation are included per Note 6(b) and Note 25. All options were granted for nil consideration.

Options and Rights Holdings e.

Number of Options Held by Key Management Personnel

		Granted as		Net		Total	Total Exer-	Total Unexer-
	Balance 1/7/2005	Compen- sation	Options Exercised	Change* Other	Balance 30/6/2006	Vested 30/6/2006	cisable 30/6/2006	cisable 30/6/2006
John Riemelmoser and related parties	4,230,000				$-1,885,000$ 6.115,000 6.115,000 6.115,000
John Darley		$-1,000,000$			$-1,000,000$ 1,000,000 1,000,000
Marcus Boland and related parties		Ab.			$-4.197,500$ 4.197,500 4.197,500 4.197,500
Joseph Nicholas		$-1.000.000$	$\overline{\phantom{a}}$		25,000 1,025,000 1,025,000 1,025,000
Michael Lindblom (resigned 1/8/05)	720.000		$\tilde{\phantom{a}}$		360,000 1,080,000 1,080,000		1.080.000
Richard Hart (resigned 1/8/05)	720.000		$\tilde{\phantom{a}}$		360,000 1,080,000 1,080,000		1,080,000
Bruce Hocking		$-1.500.000$			$-1.500.000$ 1.500.000 1.500.000
Total	5.670.000 3.500.000				- 6,827,50015,997,50015,997,50015,997,500

* The net change other includes:

Options issued under a bonus issue which occurred on 1 August 2005. All shareholders were issued one free option for every three shares held.

Four million options issued to Resource Capital Australia Pty Limited, a company associated with Marcus Boland, for carrying out and completing the listing of the company.

Options that have been forfeited by holders as well as options issued during the year under review.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 6: KEY MANAGEMENT PERSONNEL COMPENSATION (continued)

f. Shareholdings

Number of Shares held by Key Management Personnel

Net Change Other*	Balance 30.6.2006
3.695.000	12,155,470
$\bullet$	500,000
8,285,000	8,285,000
$\bullet\bullet$	500,000
12.500	512.500
11.992.500	21,952,970
	$\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$ $\blacksquare$

* The net change other includes:

Shares acquired or disposed during the financial year. ......................................

Eight million shares issued to Resource Capital Australia Pty Limited, a company associated with Marcus Boland, for carrying out and completing the listing of the company on the ASX.

		2006 \$000	2005 \$000
	NOTE 7: AUDITORS' REMUNERATION
	Remuneration of the auditor of the company for:
	auditing or reviewing the financial report	25	10
	due diligence services	19
	IFRS transition assistance services	4
	NOTE 8: DIVIDENDS
	No dividends were paid or declared since the start of the financial year.
	NOTE 9: EARNINGS PER SHARE
a.	Reconciliation of earnings to profit or loss
	Earnings used to calculate basic EPS	(1, 523)	(168)
	Earnings used in the calculation of dilutive EPS	(1, 523)	(168)
		No.	No.
b.	Weighted average number of ordinary shares outstanding during the year used in calculating basic
	EPS	42,032,500	18,001,000
	Weighted average number of options outstanding	23,565,750	9,000,000
	Weighted average number of ordinary shares outstanding during the year used in calculating dilutive
	EPS	65,598,250	27,001,000

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

		2006 \$000	2005 \$000
NOTE 10: CASH AND CASH EQUIVALENTS
Cash at bank and in hand		1,709
Reconciliation of cash
Cash at the end of the financial year as shown in the cash flow statement is reconciled to items in the balance sheet as follows:
Cash and cash equivalents		1,709
Bank overdrafts	16		(15)
		1,709	(15)
NOTE 11: TRADE AND OTHER RECEIVABLES CURRENT
Other receivables		25	3
NOTE 12: INVENTORIES CURRENT
Finished goods at cost		42
NOTE 13: PROPERTY, PLANT AND EQUIPMENT
Plant and equipment at cost		164	2
Accumulated depreciation		(9)	(1)
		155	1

Movement in Carrying Amounts a.

Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year

	Plant and Equipment	Total
	\$000	\$000
Balance at the beginning of year
Additions	162	162
Depreciation expense	(8)	(8)
Carrying amount at the end of year	155	155

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

	2006 \$000	2005 \$000
NOTE 14: OTHER ASSETS
CURRENT
Prepayments	3
Income Tax Receivable	104	33
GST Receivable	24	3
	131	36
NOTE 15: TRADE AND OTHER PAYABLES
Sundry payables and accrued expenses	247	$12 \,$
NOTE 16: BORROWINGS
CURRENT
Unsecured liabilities		53
Bank overdrafts		15
	$\tilde{\phantom{a}}$	68
NOTE 17: TAX
Deferred tax assets not recognised, the benefits of which will only be realised if the conditions for deductibility set out in Note 1b occur
temporary differences	18	3
operating tax losses	1,157	20
	1,175	23
NOTE 18: PROVISIONS
CURRENT
Opening balance	$\blacksquare$
Additional provisions	20
Closing balance	20
The provision is for employee benefits.
NOTE 19: ISSUED CAPITAL
54,053,500 (2005: 18,001,000) fully paid ordinary shares	2,887	271

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

	2006 No.	2005 No.
NOTE 19: ISSUED CAPITAL (continued)
Ordinary shares
At the beginning of reporting period	18.001.000	1,000
Shares issued during the year
30 May 2005	$\overline{\phantom{a}}$	18,000,000
1 August 2005 (i)	6,000,000
24 November 2005 (ii)	20,552,500
24 November 2005 (iii)	8,000,000
24 November 2005 (iv)	1,500,000
At reporting date	36.052,500	18,001,000

$(i)$ On 1 August 2005 the company issued 6,000,000 bonus ordinary shares at nil cost to shareholders on the basis of one share for every three shares held. The share rank for dividends paid after 1 August 2005.

On 1 August 2005 it was resolved to issue shares to the value of \$400,000 and one option for every two shares issued exercisable at 20c each on or up to 31 December 2008 upon FDA approval of the SecureTouch version of the company's safety syringe as per the agreement with Exelint. These shares and options were divided between all existing shareholders as at 1 August, 2005 in proportion to their shareholding.

On 1 August 2005 it was resolved to issue shares to the value of \$400,000 and one option for every two shares issued exercisable at 20c each on or up to 31 December 2008 upon sales commitments of 25 million units being reached as per the agreement with Exelint. These shares and options were divided between all existing shareholders as at 1 August 2005 in proportion to their shareholding.

On 1 August 2005 it was resolved to issue shares to the value of \$400,000 and one option for every two shares issued exercisable at 20c each on or up to 31 December 2008 upon sales commitments of 50 million units being reached as per the agreement with Exelint. These shares and options were divided between all existing shareholders as at 1 August 2005 in proportion to their shareholding.

• $(ii)$ On 24 November 2005 the company issued 20,552,500 ordinary shares at \$0,20 per share from applications from the company IPO issued on 23 September 2005.
• On 24 November 2005 the company issued 8,000,000 ordinary shares and 4,000,000 options at no cost in $(iii)$ consideration of services rendered.
• $(iv)$ On 24 November 2005 the company issued 1,500,000 ordinary shares and 6,500,000 options at no cost to the directors, an Advisory Board Member and Chairman of the company in consideration of accepting directorships of the company.

Ordinary shares participate in dividends and the proceeds on winding up of the company in proportion to the number of shares held.

At the shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.

Options

• For information relating to details of options issued, exercised and lapsed during the financial year and the options outstanding at year-end, refer to Note 25 Share-based Payments.
• For information relating to share options issued to key management personnel during the financial year, refer to Note 25 Share-based Payments.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

		2006 \$000	2005 \$000
	NOTE 20: RESERVES
	Option reserve	742
	The option reserve records items recognised as expenses on valuation of share options issued to directors in connection with the capital raising during the year.
	NOTE 21: CAPITAL AND LEASING COMMITMENTS
a.	Operating Lease Commitments
	Non-cancellable operating leases contracted for but not capitalised in the financial statements
	Payable - minimum lease payments
	- not later than 12 months	55
	- between 12 months and five years	97
		152
	There are two operating leases, one for warehouse property and one for warehouse equipment.
	The property lease is a non-cancellable lease with a three year term, with rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minimum lease payments shall be increased by CPI each year. An option exists to renew the lease at the end of the three year term for an additional term of five years. The lease allows for subletting of all lease areas.
b.	Capital Expenditure Commitments
	Capital expenditure commitments contracted for:
	- capital expenditure projects	685
	Payable:
	- not later than 12 months	685
	Under the Alliance Agreement the company is committed to a capital contribution of up to US\$500,000 in respect of capital development works and tooling. This is expected to be expended within the next six months.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

		2006 \$000	2005 \$000
	NOTE 22: CONTINGENT ASSETS AND LIABILITIES
	The directors are unaware of any legal actions being made against the company. There are no know contingent assets or liabilities.
	NOTE 23: SEGMENT REPORTING
	The company currently does not have more than one business or geographical segment.
	Business segments
devices.	The company has one business segment involving research, development, manufacturing and retail of safety medical
	Geographical segments
	The company's business segment is located in Australia.
	NOTE 24: CASH FLOW INFORMATION
	Reconciliation of Cash Flow from Operations with Result after Income Tax
	Profit after income tax	(1, 523)	(168)
activities	Cash flows excluded from profit attributable to operating
	Non-cash flows in profit
	Depreciation	8	$\mathbf{1}$
	Changes in assets and liabilities
	(Increase)/decrease in trade and term receivables	(22)
	Increase in inventories	(42)
	Increase in other current assets	(95)	15.
	Increase in trade payables and accruals	235	5
	Increase in provisions	20
	Cashflow from operations	(1, 419)	(147)

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 25: SHARE-BASED PAYMENTS

The following share-based payment arrangements existed at 30 June 2006:

The following share options were granted on 24 November 2005:

$-2,000,000$ share options to directors;

$-3,000,000$ share options to advisory board members; and

-4,000,000 share options to Resource Capital Australia Pty Ltd, an associated company of Marcus Boland.

The share options have an exercise price of \$0.20. The options are exercisable after 24 November 2005 but before 31 December 2008. The options hold no voting or dividend rights and are not transferable. At balance date, no share option has been exercised.

All options granted to key management personnel are ordinary shares in Safety Medical Products Limited, which confer a right of one ordinary share for every option held.

			2005
Number of Options	Weighted Average Exercise Price \$	Number of Options	Weighted Average Exercise Price \$
	0.20
9,000,000	0.20	w	$\omega$
9,000,000	0.20	$\overline{\phantom{a}}$	$\mathbf{u}$
9,000,000	0.20	w	w
		2006

There were no options exercised during the year ended 30 June 2006.

The options outstanding at 30 June 2006 had a weighted average exercise price of \$0.20 and a weighted average remaining contractual life of 2.5 years. Exercise prices of all options issued are \$0.20 in respect of options outstanding at 30 June 2006.

The weighted average fair value of the options granted during the year was \$0.082.

This price was calculated by using a Black Scholes option pricing model applying the following inputs:

Weighted average exercise price	\$0.20
Weighted average life of the option	$3.0825$ years
Underlying share price	\$0.20
Expected share price volatility	53%
Risk free interest rate	5.38 %

Historical volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future tender, which may not eventuate.

The life of the options is based on the historical exercise patterns, which may not eventuate in the future.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

		2006 \$000	2005 \$000
	NOTE 26: RELATED PARTY TRANSACTIONS
	Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.
	Transactions with related parties:
a.	Associated Companies
	An arrangement was made with Resource Capital Australia Pty Ltd (RCA), a company associated with Mr Marcus Boland, pursuant to which RCA was paid a brokerage commission on the amount of application monies received, where RCA has introduced the applicant.
	These Brokerage fees paid by Safety Medical Products Limited to RCA were substantially disbursed to other third party brokers and/ or sub-underwriters to perform this service.	410
	The company entered into an agreement with Resource Capital Australia Pty Limited (RCA), a company associated with Mr Marcus Boland, on 5 April 2004 to list the company on the ASX on normal terms and conditions. In consideration of providing its services pursuant to the company and for its role in identifying, enabling and carrying out the listing of the company, RCA was issued shares and options equal to an amount of one-third of the consideration received by the original shareholders of the company.
	RCA was responsible for introducing the company to Exelint and enabling the transaction and terms of the Alliance Agreement pursuant to which the company will achieve its first revenue stream.
	RCA was issued 8,000,000 shares and 4,000,000 options in the company, and received \$200,000 cash in performing this mandate.	2,129
	Unsecured loan from J. & C. Riemelmoser, M. & K. Lindblom and R. Hart totalling \$53,305 and outstanding as at the 30 June 2005 was fully repaid during the year. No interest was paid to the directors for this loan.
	Payment for reimbursed costs in respect of patent/trademark application costs and product development was paid to existing shareholders. Included in this payment was an amount to John Riemelmoser and Concettina Riemelmoser as trustee for the John & Tina Riemelmoser Family Trust of which
	John Riemelmoser is a beneficiary.	258

$\ddot{\phantom{a}}$

$\ddot{\phantom{a}}$

$\ddot{\phantom{0}}$

$\omega$

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

		2006 \$000	2005 \$000
	NOTE 26: RELATED PARTY TRANSACTIONS (continued)
a.	Associated Companies (continued0
	Payment for reimbursed costs in respect of patent/trademark application costs and product development was paid to existing shareholders. Included in this payment was an amount to Johann Riemelmoser and Janet Riemelmoser as trustee for the Riemelmoser Family Trust of which John Riemelmoser is a beneficiary, and Johann Riemelmoser and Janet Riemelmoser is a related party to John Riemelmoser.	42
	Payment for reimbursed costs in respect of patent/trademark application costs and product development was paid to existing shareholders. Included in this payment was an amount to Richard Hart.	60
	Payment for reimbursed costs in respect of patent/trademark application costs and product development was paid to existing shareholders. Included in this payment was an amount to Michael and Kathryn Lindblom.	60
b.	Key Management Personnel
	Legal and professional services fees paid to Bruce Hocking in connection with the listing of the company.	22
	Legal fees paid to Bruce Hocking to perform the role of legal counsel for the company, and be paid at the normal commercial rate.	46

NOTE 27: FINANCIAL INSTRUMENTS

a. Financial Risk Management

The company's financial instruments consist mainly of deposits with banks and accounts receivable and payable.

í. Treasury Risk Management

The board meets on a regular basis to analyse currency and interest rate exposures and to evaluate treasury management strategies in the context of the most recent economic conditions and forecasts.

ii. Financial Risks

The main risk the company is exposed to through its financial instruments is liquidity risk. Liquidity risk

The company manages liquidity risk by monitoring forecast cash flows.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 27: FINANCIAL INSTRUMENTS (continued)

Financial Instruments $\mathbf{b}$ .

í. Interest Rate Risk

The company's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rate on classes of financial assets and liabilities, is as follows:

	Weighted Average Effective Interest Rate		Floating Interest Rate		Non-Interest Bearing		Total
	2006	2005	2006 \$000	2005 \$000	2006 \$000	2005 \$000	2006 \$000	2005 \$000
Financial Assets:
Cash and cash equivalents	5%	5%	1,709	ш.		$\pmb{\mu}$	1,709
Receivables	u.	Ł	$\tilde{\phantom{a}}$	$\blacksquare$	25	$\overline{2}$	25	2
			1,709	$\blacksquare$	25	$\overline{2}$	1,711	$\overline{2}$
Financial Liabilities:
Trade and other payables				$\blacksquare$	247	12	247	12.
Bank overdraft	ш.	10%	$\tilde{\phantom{a}}$	15	$\pmb{\ast}$		a.	15
Related party loan		$\blacksquare$		$\blacksquare$	$\pmb{\ast}$	53	$\,$	53
				15	247	65	247	80

ii. Net Fair Values

The net fair value of the company's financial assets and financial liabilities approximates their carrying value at balance date.

NOTE 28: CHANGE IN ACCOUNTING POLICY

• The company has adopted the following Accounting Standards for application on or after 1 January 2005: a.
• AASB 132: Financial Instruments: Disclosure and Presentation; and .........
• AASB 139: Financial Instruments: Recognition and Measurement.

The changes resulting from the adoption of AASB 132 relate primarily to increased disclosures required under the Standard and do not affect the value of amounts reported in the financial statements.

There were no material differences in the recognition and measurement of the company's financial instruments resulting from the adoption of AASB 139.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 28: CHANGE IN ACCOUNTING POLICY (continued)

The following Australian Accounting Standards have been issued or amended and are applicable to the b. company but are not yet effective. They have not been adopted in preparation of the financial statements at reporting date.

AASB	Amendment AASB Standard Affected	Nature of Change in Accounting Policy and Application Date Impact	of the Standard	Application Date for the Group
$2005 - 10$	AASB 139: Financial Instruments: Recognition and Measurement	No change, no impact	1 January 2007	1 July 2007
	AASB 101: Presentation of Financial Statements	No change, no impact	1 January 2007	1 July 2007
	AASB 114: Segment Reporting	No change, no impact	1 January 2007	1 July 2007
	AASB 117: Leases	No change, no impact-	1 January 2007	1 July 2007
	AASB 133: Earnings per share	No change, no impact_	1 January 2007	1 July 2007
	AASB 132: Financial Instruments: Disclosure and Presentation	No change, no impact	1 January 2007	1 July 2007
	AASB 1: First-time Adoption of AIFRS	No change, no impact	1 January 2007	1 July 2007
New Standard	AASB 7: Financial Instruments: Disclosure	No change, no impact	1 January 2007	1 July 2007

All other pending Standards issued between the previous financial report and the current reporting dates have no application to company.

AASB Amendment	AASB Standard Affected
$2004 - 3$	AASB 1: First-time Adoption of AIFRS
	AASB 101: Presentation of Financial Statements
	AASB 124: Related Party Disclosures
$2005 - 1$	AASB 139: Financial Instruments: Recognition and Measurement
2005-2	AASB 1023: General Insurance Contracts
$2005 - 4$	AASB 139: Financial Instruments: Recognition and Measurement
	AASB 132: Financial Instruments: Disclosure and Presentation
2005-5	AASB 1: First-time Adoption of AIFRS
	AASB 139: Financial Instruments: Recognition and Measurement
2005-6	AASB 3: Business Combinations
$2005 - 9$	AASB 4: Insurance Contracts
	AASB 1023: General Insurance Contracts
	AASB 139: Financial Instruments: Recognition and Measurement
	AASB 132: Financial Instruments: Disclosure and Presentation

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006

NOTE 28: CHANGE IN ACCOUNTING POLICY (continued)

2005-10	AASB 4: Insurance Contracts
	AASB 1023: General Insurance Contracts
	AASB 1038: Life Insurance Contracts
$2006 - 1$	AASB 121: The Effects of Changes in Foreign Exchange Rates
New Standard	AASB 119: Employee Benefits: December 2004

NOTE 29: COMPANY DETAILS

The registered office of the company is:

Michael Quinlan 8 Greenhill Road WAYVILLE SA 5034 Phone 08 8372 7890

The principal places of business is: 25 Fenden Road

SAILSBURY HEIGHTS SA 5109 Phone 08 8285 5226

DIRECTORS' DECLARATION

The directors of the company declare that:

• $1₁$ the financial statements and notes, comprising the income statement, balance sheet, statement of changes in equity, cash flow statements and notes to the financial statements, are in accordance with the Corporations Act 2001 and:
• comply with Accounting Standards and the Corporations Regulations 2001; and a.
• give a true and fair view of the financial position as at 30 June 2006 and of the performance for the $\mathbf b$ . year ended on that date of the company;
• $\overline{2}$ . the Chief Executive Officer and Chief Finance Officer have each declared that:
• the financial records of the company for the financial year have been properly maintained in a. accordance with section 286 of the Corporations Act 2001;
• the financial statements and notes for the financial year comply with the Accounting Standards; $\mathbf b$ . and
• the financial statements and notes for the financial year give a true and fair view; c.
• 1. in the director's opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Board of Directors.

John Riemelmoser Director

Marcus Boland Director

Dated this 29^th day of September 2006

INDEPENDENT AUDIT REPORT

RSM Bird Cameron Partners

Chartered Accountants

.
Level 12, 53 Cartiereagh Oliees Oydney N99N 2000 GPG Ber 5136 Gyaney N2Vx 2001
T +\$ 2 \$233 \$\$33 | F +\$ 1 3 \$233 \$\$21

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF SAFETY MEDICAL PRODUCTS LIMITED

Scope

We have audited the financial report of Safety Medical Products Limited for the financial year ended 30 June 2006 comprising the directors' declaration, income statement, balance sheet, statement of changes in equity, cash flow statements and notes to the financial statements.

The company's directors are responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of the company.

Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements in Australia and statutory requirements so as to present a view which is consistent with our understanding of the company's financial position, and performance as represented by the results of its operations and cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Independence

In conducting our audit we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Audit Opinion

In our opinion, the financial report of Safety Medical Products Limited is in accordance with:

• the Corporations Act 2001, including: $\langle A \rangle$
• giving a true and fair view of the company's financial position as at 30 June 2006 and 住 of its performance for the year ended on that date; and
• $\langle j | i \rangle$ complying with Accounting Standards in Australia and the Corporations Regulations 2002; and
• $\Phi)$ other mandatory professional reporting requirements in Australia.

Read Canar Parker

RSM Bird Cameron Partners Sydney, New South Wales Dated this 29^th day of September 2006

bbland

H R Moll Partmer

ASX INFORMATION

SAFETY MEDICAL PRODUCTS LIMITED ABN 26 007 817 192

ASX ADDITIONAL INFORMATION

Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this Annual Report is set out below.

Shareholder information set out below was applicable as at 28 September 2006.

Distribution of equity security holders $(a)$

	Fully Paid Ordinary Shares					Options \$0.20 expiry 31/12/2008
	Number οf	Number of		Number оf	Number of
Holdings Ranges	Holders	Shares	%	Holders	Options	%
1-1.000	0	$^{\circ}$	0.000	0	0		0.000
1,001-5,000	27	92,721	0.172	174	870,000		2.782
5,001-10,000	197	.930,617	3.572	81	731,250		2.338
10,001-100,000	286	10.142.574	18.764	189	5,350,000		17.106
100,001-99,999.999,999	58	41,887,588	77.493	43	24,325,000		77.775
Totals	568	54,053,500	100.000	487	31,276,250		100.000

The number of shareholders holding less than a marketable parcel was 3 (a marketable parcel being \$500).

(b) Twenty largest Shareholders

Number of	Percentage
Ordinary	Ωf
Shares Held	Capital Held
	℅

1.	John Riemelmoser & Tina Riemelmoser (i)		10,765,400	19.92
2	Resource Capital Australia Pty Ltd (i)		8,275,000	15.31
3	Makamill Pty Ltd		2,400,100	4.44
	Michael Lindblom & Kathryn Lindblom (i)		2,160,080	4.00
5	Peter Mario Louca & Caroline Joy Louca (i)		2,155,280	3.99
6	Richard Barry Hart (i)		2,050,580	3.79
7	Johann Riemelmoser & Janet Riemelmoser (i)		1,980,070	3.66
8	Bruce Percy Hocking		512,500	0.95
9	MJ Cross Pty Limited		500,000	0.93
10	John Darley (i)		500,000	0.93
11	Kulgara Holdings Pty Ltd < Joe Nicholas Super Fund A/C> (i)		500,000	0.93
12	Michael Quinlan & Amanda Quinlan < Quinlan Family A/C> (i)		481,520	0.89
13	Aerken Kuerban & Dennis Carapetis & Steve Paraskevopoulos		480,020	0.89
14	M L Baker Pty Ltd		475,000	0.88
15	Aurora Consolidated Pty Ltd		450,000	0.83
16	John Tsouvalas & Elizabeth Tsouvalas < J & E Tsouvals Invest A/C>		420,010	0.78
17	H Simone Investments Pty Ltd		345,010	0.64
18	Michael Gregory Hillan & Jane Francis Hillian James Patrick Bowe < Bow Pearl Super Fund		345,000	0.64
19	$A/C$ >		300,000	0.56
20	Andrew John Mitchell		295,010	0.55

(i) Includes shares in escrow. See note (i) below.

(c) Twenty Largest Option Holders

$\mathbf f$

		Number of Options		Percentage of
		Held		Capital Held ℅
1	John Riemelmoser & Tina Riemelmoser (i)	5020000	16.05
2	Resource Capital Australia Pty Ltd (i)	4000000	12.79
3	Peter Mario Louca & Caroline Joy Louca (i)	1635000	5.23
4	Bruce Percy Hocking	1500000	4.80
5	Makamill Pty Ltd	1200000	3.84

65.47

6	Michael Lindblom & Kathryn Lindblom (i)	1080000	3.45
	Richard Barry Hart (i)	1080000	3.45
8	John Darley (i)	1000000	3.20
9	Kulgara Holdings Pty Ltd < Joe Nicholas Super Fund A/C> (i)	1000000	3.20
10	Johann Riemelmoser & Janet Riemelmoser (i)	990000	3.17
11	Dr Paul John Russell	575000	1.84
12	Mr Fred Boswell	500000	1.60
13	M L Baker Pty Ltd	300000	0.96
14	Dr John Alexander Cross	270950	0.87
15	Michael Quinlan & Amanda Quinlan < Quinlan Family A/C> (i)	270000	0.86
16	Nottingham Pty Ltd	270000	0.86
17	Aerken Kuerban & Dennis Carapetis & Steve Paraskevopoulos	240000	0.77
18	Aurora Consolidated Pty Ltd	225000	0.72
19	John Tsouvalas & Elizabeth Tsouvalas	210000	0.67
20	H Simone Investments Pty Ltd	172500	0.55

(i) Includes options in escrow. See note (i) below.

Substantial Shareholders	Number of	Percentage of
	Ordinary	Capital Held
	Shares Held	℅
John Riemelmoser & Tina Riemelmoser (i)	10.765.400	19.92
Resource Capital Australia Pty Ltd (i)	8,275,000	15.31

68.87

(i) Includes shares and options in escrow. See note (i) below.

Voting

(e) Rights

$(d)$

Ordinary Shares

The voting rights set out in the Company's Constitution are:

Subject to any rights or restrictions for the time being attached to any class or classes of shares.

(a) at meetings of members or classes of members each member entitled to vote may vote in person or by proxy or attorney; and

(b) on a show of hands every person who is a member has one vote and on a poll every person present in person or by proxy or by attorney has one vote for each ordinary share held.

Statement on use of cash and assets in form readily convertible to cash. $(f)$

Since admission to the Australian Stock Exchange Limited on 28th November, 2005, the Company has used the cash and assets in a form readily convertible to cash that it had at the time of admission in a manner consistent with its business objectives.

(g) Share Registry

Registries Limited 28 Margaret Street Sydney NSW 2000 Phone 02 9290 9609

(h) Stock Exchanges where securities are quoted.

Australian Stock Exchange (ASX) Berlin-Bremen Stock Exchange (OTC)

(i) Escrowed Securities

	Number of Ordinary	Number of Options
	Shares Held	Held
John Riemelmoser & Tina Riemelmoser	9,600,400	4,800,000
Resource Capital Australia Pty Ltd	8,000,000	4,000,000
Peter Mario Louca & Caroline Joy Louca	240,010	120.000
Michael Lindblom & Kathryn Lindblom	1.920,080	960,000

Richard Barry Hart	1.920,080	960,000
John Darley	500.000	1,000,000
Kulgara Holdings Pty Ltd	500,000	1,000,000
Johann Riemelmoser & Janet Riemelmoser	1.680,070	840,000
Michael Quinlan & Amanda Quinlan < Quinlan Family A/C>	480,020	240,000
Mr Eugene Nathaniel & Hazel Nathaniel	240.010	120,000
Mr Russ Gill	240,010	120,000
Teagle Investments Pty Ltd	240,010	120,000
	25.560.690	14.280.000

The above shares and options have been placed in escrow for 24 months from the date of quotation until 28th November, 2007.