NANOSONICS LIMITED

ABN 11 095 076 896

initial public offering in connection with an offer of 54,000,000 fully paid ordinary shares at \$0.50 each to raise \$27,000,000.

UNDERWRITER AND LEAD MANAGER

Wilson HTM Corporate Finance Limited ABN 65 057 547 323

LEGAL ADVISER

Important information

This Prospective and a construction of the Construction of the Construction of the Construction of the Construction of the Construction of the Construction of the Construction of the Construction of the Construction of the

For the two tests of the companies of the construction of the construction of the construction of the construction of the construction of the construction of the construction of the construction of the construction of the

Applications for approach and the conditions of the Application of the Application of the Application of the application of the application of the application of the application of the application of the application of the

Piscial processes in the company of the processes in the processes of the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of th

E COLORED DE L'A

Exposure Portod
The Company from orders the Apple Semparation of Germany
Applications moduled until that
The cupit of the apple the Sement
The application of the apple of the semi-
Coupled to the continuer semi-
Coupled by

participarity prior fo the officing of
Shares That examination may result
In the Bort friction of dolicionals
in the Paspectus in which case any
Application recolused may need to
be deatherthis occorrence with
Section 724

Section 724 of the Constraints Act
The Fresh cross-the Constraints Act
(specially spoke by Constraints Construction)
Telephone of the Processing potential
(specially spoke of the Constraints Constraint)
Apelos cross-to-app

The Company reserves the data to
control the Chief Society the Offer
control the Chief in Coch,
core without notice,

For the total contracts and the contracts of the contracts of the contracts of the contracts of the contracts of the contracts of the contracts of the contracts of the contracts of the contracts of the contracts of the con

Maria Bara

Frivacy
Il you apply for the profile proposition of the main of the Company
Internation to the Company and
the Share Realty will celect
I had and use you celected
Thomas and use you celected
Application application Applica

me Underwinning Greeke exek

THEORY CONSTRUCTION

EPO Box 0182 Penn MA 6640

e de la composición de la composición de la composición de la composición de la composición de la composición
En la composición de la composición de la composición de la composición de la composición de la composición de TANGKA MA

đ. Nanos nica trotad
Unit 24 565 (cardeners Road)
Aexancina NSW 2015
Talaphia - 461 2 9813 4599
Facsmile - 461 2 9817 5910 ang pangalang

Gotober Walle

CONFIDENCE ONLY THE PLACE (SIGN)
The decisions of other islamption
on the website is his proported by
reference into this Proported by

Definitions doct Astore defions

No Cooling Off Period
Top Cooling Off Period
Top Cooling Period Perspects for
Space They apply The Treates for
Space They apply The Treates for
Space Theory The Treates of
Space Theory The Treates of Contract Cooling
Space

Financial Amounts
The financial discussion of the
Practice discussion of the
Australian dolors unless of practices
stated Any disclosed between
Jaids contained in this Prospects
are due to rounding

Industry and market data

Industry and market data
Industry and market data used
Throughout this Propose turns.
Throughout a set do to be a state.
Third parties and mainly chains are perfect publications.
The perfect publications the Company
has be

Environment

stier Group wordte

If you have any questions about
how ar whether to invest in the
Company you should cantact
your stockbroket, accountant or
financial adviser.

This Prospectus is dated 2 April, 2007.

This document is important and should be read in its entirety. You should contact your professional adviser about the contents of this Prospectus. The Shares offered under this Prospectus are speculative in nature and potential investors and their professional advisors should consider the risk factors set out in Section 11 of this Prospectus in detail.

The Shares offered under this Prospectus have not been registered under the US Securities Act and may not be offered, sold or delivered in the United States or to, or for the account or benefit of, any US Person. In addition, hedging transactions with regard to Shares may not be conducted unless in accordance with the US Securities Act.

important notice

chairman's letter

CRECQUSE intection control IS O SCIENCE 33

dear prospective investor,

On behalf of the board of Directors, it is with great pleasure that I invite you to become. $\alpha$ is shareholder in in Nanosonics Limited ("Nanosonics" or the "Company").

Nanosonics is an Australian company focused, on developing and commercialising a portfolio of novel disinfection and sterilisation products. utilising its proprietary technology piatform. The Company's products are designed to deliver cost-effective, safe and rapid infection control solutions that seek to overcome inadequacies of existing products.

The Company's technology has broad application. However, the Initial focus of Nanosonics is on developing disinfection devices for medical instruments. The first two products are disinfection devices for ultrasound fransducers and flexible endoscopes. The Directors believe that there is a strong market need for more effective disinfection solutions in these established, large and growing global markets.

The Company has spent over six years developing these technologies and systems beyond proof-of-concept stage and has working prototypes for its two lead products. The ultrasound disinfection product is sufficiently advanced such that first sales are anticipated in the first half of calendar 2008. The endoscope disinfection device is targeted to attract a strategic partnership with a major Original Equipment Manufacturer within 12 months after the close of this Offer.

Nanosonics and the Vendor Shareholders are offering 54,000,000 Shares at \$0.50 per Offer Share to raise \$27,000,000. This will represent 29.3% of the Issued Shares of Nanosonics following the Offer Upon listing on the ASX. Nanosonics will have a market capitalisation of approximately \$92 million.

The proceeds of the New Shares Issued under the Offer will be used to advance the commercialisation of the ultrasound and endoscope disinfection devices and conduct additional R&D on further products and innovations that are expected to enhance the Company's technology - platform : and product offerings. The remainder of the Offer proceeds will be available to fund the Group's working capital and business development opportunities, as well as pay for the Offer related expenses.

This Prospectus contains detailed information about Nanosonics and its business. Lencourage you to read it carefully and in its entirety before making your investment decision.

On behalf of my fellow Directors, I look forward to welcoming you as a shareholder in Nanosonics.

Yours sincerely,

MAURE STANG Non-Executive Chairman chairman's leffer

key Offer statistics

Offer Price	\$0.50
New Shares	44,000,000
Vendor Shares	10,000,000
Amount to be raised by the Company	\$22,000,000
Amount to be raised by the Vendor Shareholders [11] [11] manufacturers [11] Amount to be raised by the Vendor Shareholders [11] [11] manufacturers [11] [11] manufacturers [11] $\sim$ [11] $\sim$ [11] $\sim$ [11] $\sim$ [11] $\sim$ [	\$5,000,000
Total amount raised under the Offer	\$27,000,000
Number of Shares on issue tollowing the Offer [100][100][100][100][100][100][100][100	184.319.243
Number of Options on issue following the Offer [[11][11][11][11][11][11][11][11][11][1	16,685,940
159,622 Market capitalisation at Offer Price (excluding the impact of Options)
Pro forma net debt/(cash) (1)	\$(27,426,000)
Pro forma enterprise value at Offer Price (1) ______	\$64,733,622

notes

Based on existing cash reserves as at the date of this Prospectus.

66 Infection control

underpins all modern, surgical, medical, dental, food safety practices and is a multi-billion dollar global market 99

indicative key dates

gan Breath earning the first party of the 1992 gas to a through entitled to
Prospectus todged with ASIC 1	2 April 2007
- Offer opens	- 16 April 2007
Offer closes.	4 May 2007
Expected dispatch of Shareholding statements
Shares expected to commence frading on ASX.

This timetable is indicative only and may change. Subject to the Corporations Act, the Company in consultation with the Underwriter, reserves the right to close the Offer early or extend the Closing Date without notice. Applicants are encouraged to lodge their Applications as early as possible after the Offer opens. The Company and the Underwriter reserve the right to accept late Applications either generally or in particular cases. The Directors also reserve the right not to proceed with the Offer in that case, all Application Monies will be returned without interest. In any event, no Application Form will be accepted nor will any Shares be issued until the expiry of a minimum exposure period of 7 days or any longer period required by ASIC under Section 727(3) of the Corporations Act after lodgement of this Prospectus with ASIC.

key offer statistics

2. investment overview

医眼镜医皮肤病医皮肤病医无线医梅毒素经有限收益医心包炎
2.1 key investment highlights	05.
2.2 platform technology [[ [[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[	- 06 -
2.3 products Rejistava	07.
$2.4\,$ competitive advantages.
$\mathbb{R} \sim$ of Nanosonics technology $\mathbb{R}$	09.
$2.5$ : global market overview $\overline{ }$	09.
2.6 Commercialisation strategy	IO.
2,7 key risks

$\mathsf{\&}$ It is estimated that around 150,000 Australians contract new infections whilst in hospital, contributing about 7,000 deaths per annum. England tells a similar story, hospital-acquired infections are estimated at 300,000 and cost the National Health Service around £1 billion annually⁹⁹

2.1 key investment highlights

Nanosonies Limited is an Australian company researchina, developing and commercialising a range of innovative technologies that are utilised for infection control and decontamination.

The Company's High-Level Disinfection ("Disinfection") and sterilisation technology combines the powerful biocidal properties of formulated nanoparticles of hydrogen peroxide with proprietary delivery systems (hardware). This combination produces a cost effective, near ambient temperature, low-toxic and rapid Disinfection process. As a result, Nanosonics's fechnology has a broad application for the Disinfection of heat sensitive medical instruments.

The initial focus of Nanosonics is the market for Disinfection of medical instruments. The Company's first two products in development relate to the Disinfection of ultrasound probes (transducers) and flexible endoscopes, both of which are widely used in clinical practices and hospitals around the world.

An overview of the Company and its investment merits is provided below:

. Novel technology with wide application: External experts and the Company believe its novel technology has significant competitive advantages over existing technologies. The Company's technology platform has valuable applications in the healthcare, industrial and food sectors facilitating a broad product development

pipeline. All of the Company's research and inquiries lead it to believe that the Company's lead product, the Nanosonics ultrasound Disinfector, is currently the only non-toxic, fully automated and environmentally friendly Disinfection process for ultrasound probes.

Near term revenue opportunity: Nanosonias intends to generate revenues through the sale of devices and the ondoina sale of consumables used within these devices. The Company's devices require the use of consumables supplied by Nanosonios. As more devices are deployed, It is intended that the sale of consumables will provide a growing and recurrent Income stream. First sales are anticipated in the first half of calendar 2008.
Large, growing markets: There is a large and established market need for a medical device Disinfector that is rapid, automated and safe. The Company believes that this need presents a global market opportunity in excess of US\$2 billion per annum.
3M investment and collaboration: 3M Corporation, a global diversified company with a strong presence in the health care and infection control markets, has provided Nanosonics with A\$2.8 million in direct research and development funding. together with substantial fechnical support. since 2002. 3M has agreed to take up a 2.2% equity interest (undiluted) in Nanosonics upon completion of the Offer.

Guberculosis (TB) has re-emerged as a major global threat - the HIV pandemic & various strains of TB are now resistant to major anti-TB drugs. Two million people die every year from TB 39

World Health Oraanisation report ~ 2004

Relationships with OEMs: Nanosonics has been working closely with Original. Equipment Manufacturers (OEMs) in the ultrasound and endoscope markets where the Company has identified the most Immediate opportunity. This has enabled the Company to collaborate on product. development and instrument compatibility testing. Nansonics may also seek to enter into other research and development agreements with one or more OEM to assist in product development funding.
$\cdot$ . Federal Government support: The Federal Government has awarded two concurrent R&D grants to Nanosonics fotaling A\$4.3 million to advance the development and commercialisation of the ultrasound and endoscope.products.
Compliance with Disinfection standards: Based on extensive internal and external testing, the Directors believe that the platform Disinfection technology will satisfy the current Australian and international standards.
Patent protection: Nanosonias has a portfolio of Australian and International patents and patent applications coupled with trade secrets and in-house know-how to protect its fechnologies and data - see Section 9.

2.2 platform technology

Nanosonics has developed a novel platform technology for the rapid and cost effective. Disinfection of instruments and other croplications, referred to as NanoNebulant® . · NanoNebulant technology uses thigh-

frequency ultrasonic energy to nebullse (break up a liquid into a fine spray or aerosol) stabilised hydrogen peroxide to form active narioparticles. This is applied to objects that need to be Disinfected and deactivates the Infectious agents or microorganisms. The hydrogen peroxide gerosol. is then converted into environmentally benign oxygen and water by-products.
The NancNebulant technology Tuses minute unit dose amounts of hydrogen. peroxide in a process that destroys the infectious cagents for interc-organisms in very short periods of time relative to other methodologies.
Extensive internal and a number of independent trials have confirmed the NanoNebulant technology is effective against a range of micro-organisms-and medical Instruments, includina complex endoscopes and simpler devices such as ultrasound probes. The trials have also demonstrated that the NanoNebulant technology is highly scaleable and can be used to Disinfect chambers or enclosed.

spaces.

Nanosonics ultrasound Disinfector

Initial market opportunities are in the "semicritical" medical device sector. This market is characterised by the requirement to Disinfect medical instruments. A arowing number of medical instruments, devices and Items are heat sensitive and cannot be autoclaved (traditional method of Disinfection and sterilisation) and as such tend to be submerged in toxic liquid chemistries such as alutaraidehyde.
The Initial focus of Nanosonics is to use the NanoNebulant fechnology to commercialise three products:
Nanosonics ultrasound probe Disinfector;
Nanosonies automated endoscopic reprocessor; and
Nanosonics general purpose Disinfector.
In addition, the Company's technology is also relevant to other industries including food manufacturing and processing, industrial and military applications. These potential applications will benefit from the Company's ongoing R&D and their development is expected to be accelerated with the benefit of the completion of various trade and commercial agreements.

Refer to Section 5.4 for an overview of the Nanosonics products that are in development.

indicative timeline for product development and commercialisation

product	development stage	jan to jun-07	jul to dec-07 jun-08	jan to	jui to $dec-08$	jan to jun-09	jul to $dec-09$
Ultrasound Disinfector	Proof of principle and prototype
	Product development
	Manufacturing process setup
	Regulatory clearance and product sales
Endoscope - Disinfector	Preef of principle - and profotype
	Product development
	Manufacturing process setup
	Regulatory clearance
	and product sales
General Purpose	Proof of principle
Disinfector	and prototype
	Product development
	Manufacturing
	process setup
	Regulatory clearance
	and product sales

Einfection control issues are driving a growing global recognition of the need for increased focus and expenditure in healthcare, food handling and storage across a range of commercial institutions and market sectors 99

2.4 competitive advantages of Nanosonics technology

The alobal infection control and medical instruments markets are characterised by the stringent need to Disinfect or sterilise instruments between patients. Use of Nanosoics technologies for Disinfecting or sterilising medical instruments presents a combination of advantages over other currently available products and methodologies, including:

· supporting end users to comply with infernational best practice standards
. Iow toxicity leading to enhanced patient and operator safety
. Disinfection and sterilisation at near ambient temperatures
· rapid cycle times
· improved materials and instrument compatibility
environmentally friendly biodide and process
· competitive capital and running costs
near dry process with no post cycle rinsing reauired

2.5 global market overview

infection control underpins all modern medical, dental and food safety practices and is a fundamental determinant of healthcare outcomes. It is also a multi-billion dollar global market. Infection control issues are driving a growing global recoantition of the need for increased focus and expenditure in healthcare, food handling and storage across a range of commercial institutions and market sectors. This demand is also being driven by a growing "duty of care" requirement for employers, aovernments, retailers, manufactures and service providers to ensure that their employees, customers and consumers are receiving safe and clean products and working environments.

The market for Disinfection and sterilisation of products in the medical industry is large and growing due to several factors, including:

· rapid pace of medical device develpment. particularly in the increased use of minimally invasive surgical procedures. These types of procedures generally require speciality instruments which often cannot be Disinfected by traditional methods such as heat sterilisation (autoclaving).
evolving regulatory standards that continue to outpace many current and conventional technologies
growing recognition that some competing technologies fail to offer validated efficacy (micro-organism deactivation) and reproducibility
Increasing awareness microbial юf resistance
· increased risk of pandemic infections (Avian filu, SARS etc).
arowina awareness amona medical practitioners and the public of incidents of Infection and disease-transmissionthreats, heightening the importance of prevention methods

There is a growing need for an improved way. to Disinfect medical instruments typically used in minimally invasive surgery and diagnostics. Commonly used chemicals are often toxic (putting patients and healthcare workers) at risk) damage instrument materials (due to the use of corrosive chemicals) and have adverse environmental consequences upon disposal. These technologies have significant

weaknesses and are generally folerated in the absence of a better solution. There is an Increasing demand for Disinfection control technologies that provide the advantages exhibited by the products and processes being developed by Nanosonics.

The following table outlines some of the key statistics for the markets in which Nanosonics is developing products.

estimated global market for the disinfection of medical instruments

596 : 111 : 140, 140, 111, 120, 120, 120 market segment	estimated market size (2005)1	estimated annual growth rate
		Ultrasound ASS600 million
$\label{eq:2.1} \mathcal{L}{\mathcal{A}}^{(1)}\left(\mathcal{H}{\mathcal{A}}^{(1)}\right)^{2}\leq \mathcal{L}{\mathcal{A}}^{(1)}\left(\mathcal{H}{\mathcal{A}}^{(1)}\right)^{2}\mathcal{H}{\mathcal{A}}^{(1)}\left(\mathcal{H}{\mathcal{A}}^{(1)}\right)^{2}\leq \mathcal{L}{\mathcal{A}}^{(1)}\left(\mathcal{H}{\mathcal{A}}^{(1)}\right)^{2}\leq \mathcal{L}{\mathcal{A}}^{(1)}\left(\mathcal{H}{\mathcal{A}}^{(1)}\right)^{2}\leq \mathcal{$ Endoscope www.www.com a consideration of the construction of the construction of the construction of the construction of the construction of the construction of the construction of the construction of the construction of the construction of the	A\$650 million	the form of the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of the company of

Including expected revenues from consumables, maintenance and spare part replacement

2.6 commercialisation strategy

Nanosonics intends to outsource the manufacturing of both devices and consumables (through an outsourcing arrangement with one or more specialist design, engineering and manufacture companies) and sell those. devices and consumables through distributors with expertise in each product category. This strategy is intended to advance market acceptance, achieve scaleable production capacity and effectively manage costs.

manufacturing

In November 2006 the Company achieved certification against the EN ISO13485:2003 standard. As a result, Nanosonics is able to, if it so elected, design and develop its product and upon obtaining further certification, would be entitled to manufacture its own products. However, it is the Company's present intention. to outsource the manufacturing of its initial product offering to a well developed international manufacturing capacity on a

competitive basis. The Company may also outsource aftermarket servicina, maintenance and repairs and the replenishment of consumables to suitably qualified distributors. The Company is committed to maintaining control over its intellectual property, R&D program. regulatory compliance and global marketing and sales. The Company has already commenced discussions with potential manufacturers of the initial devices and consumables.

distribution

Nanosonios has developed a distribution strategy that is expected to maximise returns from its technology. It is engaged in discussions with alobal OEMs regarding the establishment of distribution relationships. In addition, the Company has received numerous indications of interest to distribute Nanosonics products in key overseas markets.

It is intended that Nasnosonics will:

. employ a branding model that emphasises the value of the NanoNebulant fechnology across its range of product offerina: and
· outsource affermarket service, warehousing and distribution of products and spare parts.

In Australia and New Zealand, the Company is in discussions with a leading healthcare distributor and continues to work in collaboration with two feading diagnostic imaging groups, both of whom have confirmed a strong market need for the ultrasound Disinfector product. International market penetration will be facilitated by distribution agreements specific to different regions and different products.

$2.7\;$ key risks

Nanosonies faces a range of significant risks, the most important of which are referred to in Section 11.

An investment in Nanosonics should be regarded as a speculative investment.

Some of the key risks are:

Commercialisation Risks: Risks exist in manading the commercialisation of the Company's products with respect to reautatory approvals, manufacturina, and distribution of its products globally. The Company has experienced personnel and consultants and has implemented the EN ISO 13485:2003 certificated auality management systems to help mitigate such risks.
Development Risks: The development of efficacious and effective medical sterilisation and Disinfection solutions can be uncertain if the proper controls and systems are not employed and adhered to. Whilst there may be an inherent risk of errors, the Company believes that by Implementing EN ISO 14971 "Medical Devices - Application of Risk Management to Medical Devices", these risks can be tardely avoided or mitiaated.
Requiatory Risks, Policy and Legislation: The Company's intended business is likely to be subject to various and extensive requiations in the jurisdictions in which If operates and proposes to operate, in the event that any relevant licences or approvais were not granted, or renewed, or that they were withdrawn, or made subject to conditions that were onerous or unacceptable, the Company and its business could be materially and adversely affected.
Ability to Attract and Retain Key Personnel: Nanosonics is dependent on the skills of the principal members of its scientific and management team. In addition, the Company relies upon consultants for some key activities. Aftracting and retaining suitably qualified personnel and consultants is critical to the Company's success. The Company faces competition to employ and retain the services of suitably qualified individuals.

Kitwo large diagnostic imaging businesses in Australia have confirmed a strong market need for the Nanosonics product₃₃

3. the Offer

$\Box$ 3 ......................................

$\mathbb{E}[\mathbb{E}^n]$

$\mathbb{R}^4$

$-16$

3.1 the Offer
3.2 underwriting
$3.3$ . capital structure $\gamma$
$3.4$ use of funds $\overline{\phantom{a}}$
3.5 when to apply for Offer Shares 2000-15
3.6 (how to apply for Offer Shares $\perp$

3.	-acceptance of Applications and allocation of Offer Shares	6

3.8	application for admission to
	asx and official quotation of
	Shares and Options.	Ó
3.Q -	nno Issue af Offer Shares after
	13 months	l6
	$3.10$ . restricted securities $\cdot$	7
	3.11 CHESS	18
	$3.12$ foreign investors	19
	3.13 - financial prospects	l Ç
	$3.14$ -dividend policy.	ÎĢ
	3.15 linvestor's questions	9

SACRET STAND STANDARD STANDARD STANDARD STANDARD STANDARD STANDARD STANDARD STANDARD STANDARD STANDARD STANDARD Annual Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard St ********
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------	--

Pursuant to this Prospectus, the Company and the Vendor Shareholders invite Applicants to apply for a total of 54,000,000 Offer Shares in Nanosonics at a price of \$0.50 per Offer Share to raise a total of \$27,000,000.

The Offer comprises 44,000,000 New Shares to be issued by the Company and 10,000,000 Vendor Shares to be sold by the Vendor Shareholders, to successful Applicants. The proceeds of the Offer will be paid to the Company and the Vendor Shareholders in proportion to the number of Shares that each party is offering under this Prospectus.

All Offer Shares will, on issue, rank equally in all respects with all other Shares then on issue.

On completion of the Offer, the Offer Shares will represent approximately 29.3% of the Issued Shares.

Proceeds from the sale of Vendor Shares	A\$ 5 million
Proceeds from the issue of New Shares	A\$ 22 million
Amount to be raised under the Offer	A\$ 27 million
Offer Price	A\$ 0.50 per Share payable in full on Application
Minimum Application by each Applicant	Applications must be for a minimum of 4,000 Offer Shares and thereaffer in multiples of 1.000 Offer Shares
indicative market capitalisation on quotation	A\$ 92.2 million
Indicative date on which Shares are expected to commence trading on ASX	15 May 2007

The Shares issued pursuant to this Prospectus have not been, and will not be registered in the United States of America under the US securities leaislation, or any securities laws of any state or other jurisdiction, and may not be offered, sold or delivered within the United States of America or to or for the account or benefit of any US Person. In addition, hedging transactions with regard to the Offer Shares issued under the Offer may not be conducted unless in accordance with the US securities leaisfation.

3.2 underwriting

The Offer of 54,000,000 Offer Shares is fully underwritten by Wilson HTM Corporate Finance Limited (ACN 057 547 323).

Any oversubscriptions do not form part of the underwritten component of the Offer. The details of the Underwriting Agreement, including the circumstances in which that agreement can be ferminated, are set out in Section 12.5.

3.3 capital structure

On the issue and allotment of Offer Shares under this Prospectus, the capital structure of Nanosonics will be as set out below:

a da da da da da da da da da da 1970 a da da 1970 a 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a 19
Da da da da da da da da da da da 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a 1972 a

ada da da alligilla se all'ina alteraziona di a Periodista e el eleva 医胸膜内静脉炎医血管内皮炎化乙基苯甲基 and a construction of the construction of the construction of the construction of . Providence of the second complete the	number of securities pre Offer	percentage of post Offer securities (fully diluted) ²
Existing Shares	. . 40,319,243	. 69.X
Existing Options New York .	16.685.940.	.
New Shares	.	-91 O .
$\sim$ , commonly communications Total number of issued Securities	201,005,183	OS 0%

For a detailed breakdown of the Existing Options, piease see Section 13.7.
All percentages have been rounded to the nearest tenth of a per cent.

3.4 use of funds

The amount to be raised by the Company under the Offer of New Shares (\$22,000,000) combined with the existing cash reserves of approximately \$7.2 million that Nanosonias has available to it at the date of the Prospectus, will be used in the manner set out below:

estimated use of proceeds	amount (\$000's)
Research & Development	-2.500
. Product Development and Manufacturing	. . 12,500 .
Establishment of Channels to Market	も6ほ)
. Market Research & Market Development	. .
Patent Related Costs	60 K
General Corporate & Compliance Costs	. 3.100
Working Capital	-6.126
	. 27.426
. Cost of this Offer	, , , , , , , , , , , , , , , , , , , , L / / 4
	29.201

The funds raised under the Offer are intended to enable Nanosonics to achieve the following key objectives:

Commercialise initial products
· Establish sustainable revenue streams
· Further R&D and strengthen IP portfolio
. Support arowth and expand on initial product range

The Directors believe that after the successful close of the Offer and the dispersal of the Offer proceeds to the Vendor Shareholders, the Company will have sufficient working capital to carry out its stated objectives as set out above and elsewhere in this Prospectus.

3.5 when to apply for Offer Shares

The Offer is expected to close at 5pm Sydney time on the 4th of May 2007, subject to the right of the Company, in consultation with the Underwriter, to close the Offer earlier than the Closina Date or to extend the Closina Date without notice.

Application Forms must be received no later fhan 5.00 pm (AEST) on the Closing Date.

The Offer Period may be shortened or may be extended without giving notice. Accordingly, Abplicants are encouraged to submit their Application Forms as early as possible.

3.6 how to apply for Offer Shares

Applicants should return their completed Application Forms, accompanied by a cheque made payable to 'Nanosonics Limited - Share Offer' and crossed 'Not Negotiable', to the Share Realistry, whose address is shown in the Corporate Directory in this Prospectus and the Application Form.

A payment by cheque will be deemed to have been made when the cheque is honoured by

the bank on which it is drawn. No stamp duty or brokerade is pavable by Applicants. The amount payable on Application will not vary during the Offer Period and no further amount is or will be payable on or after allotment or transfer of the Offer Shares

Offer Applications must be for a minimum of 4,000 Offer Shares (representing a total cost of A\$2,000) and thereafter in multiples of 1,000 Offer Shares (representing multiples of A\$500). There is no maximum number of Offer Shares for which an Applicant can apply.

The Application Form does not need to be sianed to be a binding Application.

Potential investors can only apply for Offer Shares on the Application Form accompanying a complete paper copy of this Prospectus or a completed downloaded copy of the electronic Prospectus and on the terms and conditions set out in this Prospectus. The Corporations Act prohibits any person from passing the Application Form on to another person unless it is attached to a hard copy of this Prospectus or a complete and unaltered electronic version of this Prospectus.

3.7 acceptance of Applications and allocation of Offer Shares

An Application Form constitutes an offer to acquire Shares on the terms and conditions set out in this Prospectus. Nanosonics after consultation with the Underwriter reserves the right:

. not to proceed with the Offer at any time before the issue or transfer of Offer Shares;
to reject any Application Form, including but not limited to Application Forms that have been incorrectly completed, or are accompanied by cheques that are dishonoured: and

. to issue or procure the transfer to any Applicant fewer Offer Shares than applied for by the Applicant.

.
La programa personal

$\begin{split} \mathcal{L}{\text{G}} & = \mathcal{L}{\text{G}} \ \mathcal{L}{\text{G}} & = \mathcal{L}{\text{G}} \ \mathcal{L}{\text{G}} & = \mathcal{L}{\text{G}} \ \mathcal{L}{\text{G}} & = \mathcal{L}{\text{G}} \ \mathcal{L}{\text{G}} & = \mathcal{L}{\text{G}} \ \mathcal{L}{\text{G}} & = \mathcal{L}{\text{G}} \ \mathcal{L}{\text{G}} & = \mathcal{L}{\text{G}} \ \mathcal{L}{\text{G}} & = \mathcal{L}{\text{G}} \ \mathcal{L}_{\text{G}} & = \math$

أأراح فأرابيها ومعاونهما

in consideration for Nanosonics agreeing to consider an Application, the relevant Applicant agrees (except where section 724 of the Corporations Act applies), that a validly completed Application Form is an irrevocable acceptance which cannot be withdrawn other than as permitted under the Corporations Act.

A proportion of the Offer Shares to be sold in the Offer will be reserved for the entitlements. firm allocations and audranteed minimum allocations. Priority allocations will be given to certain Applicants who have provided the Underwriter with firm commitments to apply for Offer Shares and to clients of the Underwriter. Priority allocations may also be aiven to associates of the Directors and employees of the Company.

Any reserved Offer Shares not allocated to these above mentioned Applications will be allocated to satisfy Applicants as determined by the Directors in conjunction with the Underwriter.

As soon as practicable after the Offer closes. Offer Shares will be issued or fransferred, as the case may be, to successful Applicants. Surplus Application Money will be returned to Applicants as soon as practicable after the Closina Date. Interest will not be paid on the Application Money held by Nanosonics or returned to an Applicant and any interest earned on the Application Money will be retained by Nanosonics.

Pending the allocation of the Offer Shares, the Company will deposit or procure the deposit, of all Application Monies received from Applicants into a separate bank account and hold them in the account or trust for the period required under the Corporations Act.

It is the responsibility of Applicants to confirm the number of Offer Shares issued and allotted or transferred, as the case may be, to them prior to trading in the Offer Shares. Applicants who seek to deal in Offer Shares before they receive notification of the number of Offer Shares affocated to them, do so at their own risk.

Partidos de la construcción de la construcción de la construcción de la construcción de la construcción de la
Entre de la construcción de la construcción de la construcción de la construcción de la construcción de la con

$\begin{aligned} \mathcal{L}{\text{GUT}}(\mathcal{P}{\text{GUT}}) \ &\rightarrow \mathcal{P}{\text{GUT}}(\mathcal{P}{\text{GUT}}) \end{aligned}$

3.8 application for admission to asx and official auptation of Shares

Nanosonics will apply within seven days after the date of this Prospectus to be admitted to the Official List of ASX and for all of its Shares to be granted Official Quotation on ASX. If Nanosonics is not admitted to the Official List of ASX and its Shares (including the Offer Shares) are not granted Official Quotation within three months after the date of this Prospectus, none of the Offer Shares offered will be issued or transferred and all Application Monies will be refunded without interest to Applicants within the time prescribed by the Corporations Act.

No application will be made for the Official Quotation of any Options.

ASX takes no responsibility for the contents of this Prospectus. The fact that ASX may admit Nanosonics to the Official List is not to be taken in any way as an indication or endorsement of the merits of the Offer, Nanosonics or the Offer Shares by ASX or any of its officers or employees.

3.9 no issue of Offer Shares after 13 months

No Offer Shares will be issued or allotted pursuant to this Prospectus later than its expiry date, being the date 13 months after the date of this Prospectus.

3.10 restricted securities

None of the Offer Shares issued pursuant to this Prospectus will be classified as restricted securities. However, in accordance with the Listing Rules if is expected that the following existing Shares and Options will be classified as restricted securities.

13,745,000	Nil	12 months from the idate of the issue of those Shares i.e. on 15 February, 2008

3,445,898	NI	12 months from the date of the issue of those Shares i.e. on 15 January, 2008
950.000	NI	24 months from the Listing Date
Nil	1,650,000	24 months from the Listing Date
58,690	547,700	24 months from the Listing Date.
1.128.670	NI	24 months from the Listing Date
24,376,000	Νiί	24 months from the Listing Date
25,302,000	NII	24 months from the Listing Date
25,127,000	Ni	:24 months from the Usting Date
number of restricted Shares	number of restricted Options	restriction period

fre ofer

$17$

Each of the above mentioned security holders has entered into restricted security arrangements in accordance with the requirements of the Listing Rules whereby they have agreed that, subject to the application of the "cash formula" referred to immediately below, they will not dispose of or encumber any Shares held by them after completion of the Offer until:

. In the case of existing security holders who are, or associated with, a Director or promoter, the second anniversary of the date of commencement of Official Quotation: and
. In the case of existing security holders who, are not, and are not associated with, a Director or promoter, the first anniversary of the date of issue of their respective Shares. Cash Formula: in accordance with the provisions of the Listing Rules, the existing Shareholders will be permitted to dispose of or encumber that number of Shares held by them at the commencement of Official Quotation, as is equal to the proportion that the original cash payment that they made for each such Share bears to the Offer Price. This exemption is known as the application of the "cash formula". For example, if an existing Shareholder paid \$0.30 per Share to acculte. 400,000 Shares and holds those 100,000 Shares on the commencement of Official Quatation,

then given that the Offer Price is \$0.50. That existing Shareholder will be entitled to dispose at any time after the commencement of Official Quotation, of no more than 60,000 of those Shares, for the duration of the applicable escrow period.

$3.11 \cdot$ CHESS

The Company participates in the Clearing House Electronic Subregister System, known as CHESS, ASX Settlement and Transfer Corporation Pty Ltd (ACN 008 504 532) ("ASTC"), a wholly owned subsidiary of ASX, operates CHESS in accordance with the Corporations Act and Security Clearing House Business Rules.

Under CHESS, Applicants will not receive share certificates if they are issued or transferred. Shares, but will receive a statement of their holding indicating the issue of the Shares pursuant to acceptance of the Offer.

If an Applicant is broker sponsored, ASTC will, after issue, send that person a CHESS statement. If an Applicant is registered on the Issuer sponsored sub register, the Applicant's statement will be despatched by the Share Registry.

A CHESS statement or Issuer spansored statement will be routlinely sent to Shareholders at the end of any calendar month during which the balance of their Shareholding changes. Shareholders may request a statement at any other time. However the Company may charge an administration fee for additional issuer sponsored statements.

3.12 foreign investors

No action has been taken to register or qualify the Offer Shares or otherwise to permit a public offering of the Offer Shares, in any jurisdiction outside Australia or New Zealand. The distribution of this Prospectus in jurisdictions outside Australia and New Zealand may be restricted by law and therefore persons who obtain a copy of this Prospectus should inform themselves about, and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of those laws.

This Prospectus does not constitute an offer or invitation to apply for Offer Shares in any jurisdiction where, or to any person to whom, if would not be lawful to issue this Prospectus.

Where this Prospectus has been dispatched to persons in jurisdictions outside of Australia and New Zealand, in which the securities legislation or regulations requires registration or any analogous treatment, this Prospectus is provided for information purposes only. This Prospectus has not been and will not be registered under any such legislation or requiation or in any such jurisdiction.

It is the responsibility of an overseas resident Applicant to ensure compliance with all laws of any country relevant to their Application. The return of a duly completed Application Form will be faken by the Company to constitute a representation and warranty made by the Applicant to the Company that there has been no breach of such laws and that the necessary approvals and consents have been obtained.

The Offer does not and will not constitute an offer of securities in the United States of America. Furthermore, no US Person is permitted to submit an Application. If the Directors believe

that any Applicant is ordinarily a US Person, or is acting on behalf of a person or entity that is ordinarily a US Person, the Directors will reject that Applicant's Application.

3.13 financial prospects

Revenue, profits and cash flows for the Company are dependent on a number of factors including without limitation successful completion of product development, gaining requiditory approvals and successful appointment of a commercial scale manufacturer and distributor of the Company's products, in light of these factors and having regard to the matters set out in ASIC Policy Statement 170, the Board considers that at this stage of the Company's development, the Company is unable to provide, and accordingly does not provide, potential investors with reliable revenue, profit or cash flow projections or forecasts.

3.14 dividend policy

Offer Shares issued under the Offer will rank equally with existing fully paid Shares from the time of allotment. The Company is not expected to pay a dividend for the year ending 30 June 2007.

The primary focus of the Company is to complete the development and commercialisation of its existing products.

The Directors give no representation, assurance or guarantee as to the future dividend policy, the extent of future dividends nor the franking of any dividends, as these will depend upon the actual levels of profitability and the financial and taxation position of the Company at the relevant time.

3.15 investor's questions

Investors with questions on how to complete the Application Form or who require additional copies of the Prospectus should contact the Company Secretary on (02) 9313 4399 or by e-mail on [email protected].

4. the market need

$1.1^\circ$ current sterilisation and Disinfection
requirements and a state of the state of the
1.2 current Disinfection and sterilisation.
$\sim$ practices for medical instruments $\Box$	-99
1.3 - ultrasound market : L	23
1.4. lendoscope market	25

Globally, the demand for effective infection control solutions is increasing dramatically with infection control underpinning all modern medical, dental and food safety practices. The existing infection control solutions available in a number of markets are not optimal but are tolerated because of a lack of safe, effective and user-friendly atternatives. Nanosonics will seek to satisfy established market needs by overcoming the inadequacles of existing products.

In 2005, the alobal market for Disinfection and sterilisation systems was estimated to be in excess of US\$2 billion. It is also expected that the annual market opportunity for the Company's initial product offering, including consumables, maintenance and spare parts is:

Ultrasound AS600 million; and
Endoscopes A\$650 million.

These markets are anticipated to grow by an average of 5% per annum due to the increasing needs of healthcare markets, the introduction of new diagnostic medical fechnologies and the growing demands for improved health services from expanding economies like China. India and Eastern Europe. Such frends are generating numerous opportunities for new Disinfection and sterilisation technologies.

4.1 current sterillisation and Disinfection requirements

Infection control is the discipline concerned with preventing the spread of infections in the healthcare setting. A critical part of any infection control programme is the appropriate cleaning and reprocessing of reusable medical instruments, the sterilisation and Disinfection requirements that are determined according to the level of risk associated with the intended use of any aiven instrument.

The classification of medical devices by their level of risk was published by Dr Earl Spalding in 1968, the identified categories of which are summarised in the table below:

level of risk	application	process
Critical	Entry or penetration into sterile tissue, cavity or bloodstream	Sterility required
	Contact with intact non-sterile mucosa or non-intact skin	Sterilisation advisable where possible. If sterilisation not possible then high- level disinfection required.
Non-critical	Contact with intact skin	Clean as necessary with detergent and water

international regulatory bodies such as the FDA in the USA. TGA in Australia and CE Mark in Europe require that all medical instruments that enter a cavity or breach a sterile surface on the body be sterilised after each procedure.

These are called critical and semi-critical instruments. For heat-stable medical instruments, such as stainless steel instruments autoclaves are used. Semi-critical medical instruments that are heat-sensitive and can not be sterilised in an autoclave are subject to

low temperature sterilisation processes and the slightly less stringent requirement of High-Level Disinfection which destroys all micro-organisms except for the total kill of bacterial spores. Some semi-critical devices that currently require High-Level Disinfection and that cannot be autoclaved are involved in reautar diagnostic. examinations. These include intra-cavity ultrasound probes, flexible aastroenterological endoscopes, bronchoscopes and anaesthesial equipment.

levels of disinfection

High-Leyel News All Disinfection (HLD)	Kills all micro-organisms, except high numbers of bacterial spores
Intermediate-Level	Kills vegetative bacteria, mycobacteria, most viruses, and most fungi but
Disinfection	not all bacterial endospores
Low-Level Lexical	Kills most vegetative bacteria as well as medium sized lipid containing
Americanský p	viruses, but not relied upon to destroy, within a practical period,
Disinfection	-bacterial endospores, mycobacterium, fungl, or all small non lipid viruses

The High-Level Disinfection of semi-crifical medical instruments is the initial target market of Nanosonics lead product.

4.2 current Disinfection and sterilisation practices for medical instruments

The current market for sterilisation or Disinfection of medical instruments is characterised by several technologies that are based on either:

. Steam: time, heat and pressure to achieve the desired level or efficacy (i.e. autoclaves):
. Liquid Immersion: foxic chemistries which inactivate the micro-organism; or
. Gas: hydrogen peroxide plasma or ethylene oxide contained systems which are relatively expensive, slow and incompatible with many instruments.

Medical instruments which are heat resistant (e.g. steel and glass) can be sterilised in an autoclave - a device which uses steam at extremely high temperatures and pressure to kill infectious micro-organisms. However, this method requires long sterilisation cycle times (ranging from 20 - 60 minutes) and the requisite heat and steam may significantly reduce the lifetime of some instruments. Furthermore, a growing number of instruments being used in diagnostic procedures are becoming increasingly complex, with many being made from heat sensitive materials or incorporating delicate electronic or fibre optic componentry, all of which precludes them from being autoclaved. Currently the most commercially viable technologies used for items that can not be sterilised in an autoclave are liquid immersion and gaseous sterilisation.

4.3 ultrasound market

Liquid-based Disinfection systems accounted for the bulk of the low temperature sterilisation. and Disinfection market in 2004. However, almost all llauid Disinfection systems used widely today employ chemicals that are considered highly toxic and create significant risks for patients and medical staff. Glutaraldehyde, the most commonly used liquid disinfectant, is beina chased out in certain countries such as the United Kingdom for these reasons.

Gaseous sterillisation is a low temperature sterilisation method that typically operates at room temperature. The two main gases used are ethylene oxide (ETO) and hydrogen peroxide plasma (HPP). Sterilisation by ETO has the significant disadvantage of being an extremely slow process (up to 8 to 10 hours) and to avoid the risk of leaving residue on the instruments, requires protoriged deration of up to 12 hours following the sterillsation cycle. Sterilisation by HPP has a shorter cycle time of around 40 to 50 minutes, but requires complex technology and has a much higher initial capital cost and cost per cycle than other sterillsation fechnologies. In addition, neither of the two gaseous sterilisation methods is suitable for most flexible endoscopes and are relatively expensive.

Medical technology in the 21st century is increasingly using non or minimally invasive technologies to diagnose, identify and remedy diseases and health issues. These devices are likely to be heat sensitive and susceptible to damage from chemicals as they contain complex electronic components and sophisticated hardware. In addition, many of these new medical instruments are unable to be adequately sterilised or disinfected using current technologies.

There is a significant need for an infection control technology for the sterillsation or Disinfection of medical instruments without the inherent weaknesses of current products.

ultrasound in medicine

Ultrasound is a procedure in which high-energy soundwaves (ultrasound) are transmitted through the body to internal tissues or organs with some of the waves "bouncing back" to create echoes which are transmitted to the screen of an ultrasound system, forming a picture called a sonogram. Medical sonography is used to visualise the size and structure of muscles, tendons, and many internal organs for various purposes such as the examination of a foetus during pregnancy.

Ultrasound procedures are performed by healthcare professionals including accredited sonographers, general practitioners and specialist medical staff. These procedures are performed in a variety of medical settings including radiology, departments of anglography and emergency medicine, operating theatres and private practices or specialists rooms.

ultrasound transducers (probes)

Ultrasound fransducers or probes are the devices used in ultrasound procedures which transmit and receive the ultrasound and send the sound waves to a computer which creates the sonogram. Transducers come in different shapes and sizes suitable for different parts of the body. Surface transducers are passed over the surface of the body, intra-cavity transducers are designed to be inserted into natural body cavities.

disinfection of ultrasound transducers

Intra-cavity transducers come into contact with mucous membranes, and are defined as semi-critical medical instruments requiring sterilisation or Disinfection. Disinfection processes for these medical instruments have not been adequate to date. The rapid expansion of ultrasound fechnology and related instruments presents challenges which the Nanosonias technology seeks to overcome.

Common Disinfection methods for ultrasound transducers use highly toxic liquids that present significant risks to the patient and medical staff. and in addition, may result in damage to the medical instrument.

Surface fransducers do not enter any cavities of a human body and consequently require. only low to medium level Disinfection. Current cleaning practices commonly involve the use of specific wet wipes or physical cleaning using a cloth or paper fowel. However there is data that suggests that patients are still. at significant risk of cross infection by skin - born - pathogens - carried - by - these fransducers. In addition, the number of surface transducers used in surgery or to provide visual guidance during injections and biopsies and therefore coming into contact with blood, is increasing rapidly Therefore in specific. dircumstances, surface transducers need to be High-Level Disinfected.

ultrasound market size and growth

All markets in which ultrasound transducers are reprocessed are considered a target for the Nanasonics ultrasound Disinfector. Broadly these markets can be divided into two segments:

• regulated Disinfection of Intra-cavity transducers: and

flow, medium and high level disinfection of t surface transducers.

It is estimated that more than 480 million. ultrasquind procedures are carried out per annum. Leading manufacturers of ultrasound transducers predict a 4-5% annual arowth. rate in the global ultrasound market between 2004 and 2008. The Company estimates that there are approximately 550,000 ultrasound instruments currently in use worldwide. Siemens, Philips and GE control over 65% of

the alobal ultrasound manufacturing market, The remaining 35% of the market is shared by Toshiba, Hitachi, Aloka, B-K Medical, Medison and other specialised companies.

summary of market opportunity Current trends in the ultrasound market have been characterised by the following:

$\bullet$ if the price of ultrasound systems declining; · Increasing diagnostic confidence due to improving ultrasound imaging technology: introduction from new flicategory is of ultrasound transducers (4D Doppler), which has the potential to impact the market over the coming years; and increase in the demand for non-invasive.

medical technologies.

RANG NG NASA NG KASA MATATANG KATILITI NA KATILITI NA KATILITAN NA KATILITANG NA KATILITANG KATILITANG KATILIT

. A. MANAMAR South Communication of the summum management of the summon, all also and the construction of the
********
	********

The rise in both the use of ultrasound technology and the range of medical and diagnostic procedural applications presents an opportunity for Nanosonics. As the use and applications of ultrasound transducers increases so does the pressure for transducer manufacturers to províde guidelines about appropriate Disinfection solutions for the devices they sell, both from an end-user and a regulatory point of view. These market trends have highlighted a gap in the market.

The alobal ultrasound market needs a viable and effective solution for the Disinfection of transducers.

4.4 endoscope market

flexible endoscopy in medicine

Flexible endoscopy is a minimally invasive diagnostic medical procedure used to evaluate the interior surfaces of an organ. An endoscope is usually inserted through one of the body's natural cavities, such as the mouth, urethra or anus. Some endoscopy procedures may require a small incision through the skin and are usually performed under general or local andesthetic.

Procedures which come under the broad banner of flexible endoscopy include:

proceaure	method	US ^®
Gastroscopy	Viewing of the stomach	Checking for ulcers or furnours and to treat causes of bleeding
Colonescopy and Sigmoidoscopy	Viewing of the colon	Checking for fumours and other abnormalities and to freat causes of bleeding or remove small growths
Small bowel enteroscopy	Viewing of the small intestine	Diagnosing tumburs or sources of bleeding
Endoscopic Retrograde - Pancreatocholangiography (ERCP) …	Injection of dye into the bile or pancreatic ducts	Identifying and treating stones, strictures or furnours in these organs
Bronchoscopy	Viewing of the airways and lung tissue	Removing foreign bodies, take samples to diagnose lung cancer and to assess the condition of airways
	Viewing the urinary tract and bladder as well as gall bladder	Checking for tumours stones and other abnormalities
Hysteroscopy	Viewing of the uterus	Checking for adhesions or polyps and to investigate excessive menstrual bleeding

A. Hydrodactor Depth

flexible endoscopes

A flexible endoscope is a long, usually flexible tube with a lens at one end and a telescope or computer chip for fransmitting images to a computer monitor at the other. Endoscopes were originally developed in the 1950s for the diagnosis of suspected upper gastro-intestinal tract pathology but later developed for use in other procedures such as colonoscopy and bronchoscopy.

The first flexible endoscopes were developed to overcome some of the limitations of riaid endoscopes and broaden the device's application.

Disinfection of flexible endoscopes

Flexible endoscopes are considered semicritical medical instruments and should be sterilised or Disinfected after each use. Due to their structural complexity and fragility they cannot be sterilised in an autoclave Nanosonics is well advanced in the development of a product that is capable of both sterilising and Disinfecting flexible endoscopes.

Many health authorities and professional societies currently mandate or recommend, as appropriate, that flexible endoscopes should be Disinfected as a minimum, in practice this may be achieved in one of two ways:

a. automatic endoscope reprocessors (A.E.R.'s)

These are automated devices which thoroughly wash and Disinfect endoscopes. They are normally installed in farge healthcare settings due to their expense. Typically smaller healthcare organisations can not afford the relatively expensive current generation A.E.R. There is also an increasing demand for the effective transfer of endoscopes from a "dirty" exposed environment to a "clean room" environment. Nanosopics believes that it can address the market needs of both large and small users.

b. manual cleaning and Disinfecting

Endoscopes must have some level of manual cleaning and Disinfecting before being soaked in a high-level disinfectant. The encloscope is thoroughly cleaned according to standardised methods and then If no automatic disinfectors are available. the endoscope is thoroughly cleaned according to standardised methods and then soaked in a high level chemical disinfectant. Due to the device's complexity, manual cleaning is very difficult, time consuming and the healthcare worker can also be exposed to toxic chemicals used in the Disinfection process.

. The concernent of the color changes of the changes of the color community of the commutation commutation of the color commutation of the color commutation of the color commutation of the color color color color color col "Source-co-co-curriculum processes and curriculum consequences of the co-co-co-co-co-co-co-co-co-co-co-co-co-c

endoscopy market size and arowth

The number of endoscopic procedures performed in the USA alone is estimated to be in excess of 10 million per annum and growing. Nanosonics estimates that 750,000 flexible endoscope procedures were carried out in Australia and approximately 60 million worldwide in 2005. The number of procedures requiring flexible endoscopes is estimated to be increasing at 5% per annum.

Olympus, Pentax and Fujinon are the three leading manufacturers of endoscopes having approximately 60%, 20% and 10% of the market share respectively.

customer characteristics

The target market for endoscope Disinfection devices can be segmented into the two following major categories:

	characteristics
High Volume Sifes	Busy hospitals with dedicated endoscopy departments may have up to 50 endoscopes in use at any one time while mid sized hospitals may have between 5 and 25. An average endoscopy procedure takes between 30 and 90 minutes, whilst endoscope cleaning and Disinfecting may take between 45 and 60 minutes. Generally applied regulations require that all endoscopes must be re-Disinfected if they are not used within 2-4 hours.
	To accommodate such high usage rates, high volume sites usually have "spare" endoscopes. Specific dedicated Disinfection rooms, or "clean rooms", are equipped with sinks for manual pre-cleaning and aufomatic Disinfection and storage devices.
	Small specialised clinics or private clinics most commanly manually Disinfect endoscopes. Most existing automated endescope Disinfection solutions are too costly for these facilities.

The Nanosonics endoscope Disinfector is expected to be adaptable, scaleable and affordable for smaller healthcare settings as well as the high volume users.

summary of market opportunity

The expanding use of endoscopic procedures in diagnosis and surgical freatment of patients has reinforced the need for safe and effective methods of cleaning. Disinfection and sterilisation of these instruments. In addition, the focus of regulatory requirements for the sterilisation and Disinfection of medical instruments has been broadened from concentrating on the end user to now also placing the responsibility on the manufacturers of medical instruments to give advice on an appropriate sterilisation or Disinfection procedure to enable re-use.

5. the Company
and its technology

6.1 the Company	つの
5.2 Manosonics platform technology	29
5.3 Competitive advantages of NanoNebulant technology	32,
5.4 product overview and development plan	34
5.5 guality management system	36
5.6 regulatory approval process	35
5.7 Intellectual property __	35

5.1 The Company

Nanosonias is focused on the research. development, and commercialisation of innovative technologies in Infection control and decontamination. The Company's strategic goal is to establish itself as a recognised atobal feader in economical, safe, low or nontoxic and rapid disinfection, sterilisation and decontamination products.

Nanosonics has achieved significant progress in the development of its platform Nano-Nebulant technology from initial concept stage, through the R&D and proof of principle stages, to now being a proven technology for the Disinfection of medical instruments. Verification of the NanoNebulant technology has been accomplished through extensive internal and some independent trials against the mandated range of micro-organisms and medical instruments

As part of the Nanosonics technology progression legating to product testing, the Company has developed several product specific prototypes based on the NanoNebulant technology. The most advanced prototypes are the ultrasound Disinfector and the endoscope Disinfector products. These have been developed in consultation with worldwide leaders in the ultrasound and endoscope markets. An advanced production prototype has been developed for the uttrasound Disinfector and upon receiving regulatory approvals the Company anticipates initial sales of the ultrasound Disinfector in the first half of calendar 2008. The endoscope prototype is being further advanced and refined. Where possible. Nanosonics will seek to leverage the global positioning and distribution networks of the instrument manufacturers to market and sell its products.

To date, Nanosonics has secured investments from private investors and venture capitalists fotalling in aggregate A\$13.9 million. Nanosonios private raisings were conducted in two separate rounds, in April 2006 and January

The Company has also been awarded two Federal Government arants, one for each of its lead products, these being:
1) a Federal Government R&D Start Grant of \$1.88m in 2004 to assist in the funding of the R&D of Nanosonics endoscope Disinfection device: and
2) a Federal Government Commercial Ready Grant for A\$2.4 million in 2005 to assist in the funding and commercialisation of the Nanosonics uttrasound Disinfection device.

Additionally, 3M Corporation has provided R&D loans totalling A\$2.0 million to the Company and has agreed to convert those loan funds to Shares at the time of the Offer and at the Offer Price

In 2006, Nanosonics attained the EN ISO 13485:2003 medical device standard enablina the Company to apply a quality management system for design and development, control of manufacturing, distribution, seals and servicina of disinfection, decontamination and sterilisation systems. Nanosonics plans to outsource manufacturing and distribution of devices and consumables so as to allow the Company to focus on its core competencies of research and product development, quality assurance and reaulatory affairs.

5.2 Nanosonics platform technology

Nanosonics has developed broad patented platform technologies for the rapid and Disinfection of medical cost. effective instruments and other applications, referred to as NancNebulant, in addition. Nanosonias is researching and developing a novel liquid solution for disinfecting a range of items and instruments without the toxicological issues associated with competitive liquid solutions.

Products based on the NanoNebulant technology are the major facus of the business in the short to medium term.

NanoNebulant technology

NanoNebulant technology uses ultrasonic energy to nebulise (break up a liquid into a fine mist or aerosal) formulated hydrogen peroxide fiquid to form particles of hydrogen peroxide aerosal. This is applied to objects that need to be Disinfected and deactivates the infectious agents or micro-organisms. The hydrogen peroxide is then processed and converted to environmentally benign oxygen and water.

Various forms of hydrogen peroxide have been used in a range of pharmaceutical and health care applications to date. Whilst hydrogen peroxide is well regarded by both regulators and the market, in its conventional form it has proven to have severe limitations. Nanosonics' patented approach overcomes the conventional shortcomings and provides a novel fechnology which kills micro-organisms quickly and in a controlled reproducible manner.

NanoNebulant process

STEP 1 Nebulise	The process begins with the high frequency nebulisation of the Nanosonics hydrogen peroxide formulation (the biocide solution). This nebulant is then directed to the patented NanoNebulant ŵ Generator.
SIEP 2 NanoNebulant Generator	The NanoNebulant Generator enables control and ŵ conversion of the hydrogen peroxide from droplets of mist and concentrates the biocide, producing spheres of NanoNebulant which are smaller than any bacteria. The NanoNebulant is distributed evenly and quickly in a Ù space, much like a gas, but still retains the essential properties of a liquid. This facilitates wide surface coverage similar to that achieved by the use of a gas, and access to the occluded spaces that bacteria and viruses can occupy. The large increase in relative surface area of the NanoNebulant is a key advantage of the Nanosonics process.
5167.3 Gázntechor ag an ngananan a	The NanoNebulant is then passed into the closed chamber, ø and is distributed quickly and evenly, ensuring rapid and extensive Disinfection of micro-organisms. The target micro-organisms are then subjected to the Ý NanoNebulant biocide for a set time period, during which all micro-organisms are killed. Due to the inherent efficiency of the spheres of H NanoNebulant, a very small unit dose is required per cycle and since these spheres are in the main too small to coalesce, a rapid near dry-to-dry process is achieved.
STEP 4 Catalytic Processor	After the Disinfection cycle, the residual NanoNebulant in ø the Disinfection chamber is evacuated and passed through a catalytic processor, the end products of which enter the atmosphere as environmentally benign water and oxygen in minute quantities.

Extensive trials have demonstrated the NanoNebulant technology to be effective against the required range of micro-organisms confaminating medical instruments, including complex endoscopes and ultrasound probes and have also demonstrated that the technology can be used to Disinfect chambers or other enclosed spaces. This extensive festing supports the Company's expectation that the technology will meet current Australian and international regulatory standards for the Disinfection of medical instruments.

5.3 competitive advantages of NanoNebulant technology

Use of Nanosonics technologies for Disinfecting medical instruments has several significant advantages over the application of competing fechnologies including:

feature / attribute	issues with competing products	Nanosonics competitive advantage
Low Toxicity	Many of the non-autoclave, 心 competitive Disinfection/ sterilisation methods in the market today use highly toxic base chemicals	Hydrogen peroxide is well. known for its low foxicity and environmental friendliness
Low.Temperature Disinfection	Autoclaves operate at temperatures above 130 ⁰ C preventing their use to sterilise many heat sensitive medical instruments, such as endoscopes and cameras	NanoNebulant technology is effective and compatible with most heat sensitive instruments and devices
Rapid Process Cycle Time	Nearly all liquid based technologies, gas plasma sterilisers and autoclaves have cycle times ranging from 15 minutes to 60 minutes Gaseous sterillsation 曲 processes can take up to 48 hours due to the need to ventilate toxic residuals	Nanosonics has demonstrated cycle times ranging between 3 to 15 minutes for many medical applications Customer feedback has indicated that these processing times are unprecedented for some applications
Environment Frjendly	Liquid solutions are often . 66 dumped into waste or grey water systems after completion of cycles	At the end of the NanoNebulant cycle, the hydrogen peroxide is passed through a catalytic destructor which breaks it down into exygen and water, thereby reducing the "waste" into an environmentally benign state

feature / attribute	issues with competing products	Nanosonics competitive advantage
Improved Materials and Instrument Compatibility	Alternative methods to autoclaving often use toxic and potent chemicals that may damage medical Instruments giving them a much shorter economic life	The hydrogen peroxide as used in the NanoNebulant technology has an improved compatability with instruments
Lower Jotal Cost of Ownership	For liquid disinfectant 收 systems proper waste disposal systems and personal protective clothing is required due to the direct contact with these chemicals. In addition these systems often have high device purchase costs and need furne extraction and filtered and often sterile water feed for post disinfection rinsing For gas plasma and autoclaves, consumable	NanoNebulant technology will not normally require any ancillary services such as air extraction systems or any additional safety equipment or systems that may attract high services or maintenance costs The overall cost of ownership and utilisation of the NanoNebulant technology is expected to be attractive in comparison to many fabour intensive alternative Disinfection practices
	costs are high as are their service and maintenance costs due to their complex engineering
Near Dry Process with no Rinsing Required	All liquid based technologies require large volumes of tinse water to remove the disinfectants before using the instrument on a patient Rinse water of appropriate quality is difficult to obtain	Unlike other liquid fechnologies, 帶 for many applications, the NanoNebulant derosol can be removed without needing to be rinsed with water, resulting in less risk to the patient and less waste and expense for the operator
	and is often the source of organisms which may recontaminate an instrument prior to use
Improved Biocide Distribution	Many medical instruments are becoming increasingly complex and difficult to sterilise or disinfect (particularly endoscopes) Many current technologies canact guarantee the complete sterilisation or Disinfection of these instruments partly due to their	Much of the NanoNebulant particles are below one micron, so they operate in a similar manner to gas This allows for an even distribution of the derosol across the surface of a medical device and into occluded spaces
	inability to properly reach all areas of the instruments

5.4 product overview and development plan

Over time Nanosonics expects a number of products to be developed from its platform technologies. However, it has initially chosen to focus on developing those products which offer the greatest potential for short-ferm revenue and sianificant cash flow returns - these being the ultrasound probe Disinfector and its automated endoscope reprocessor.

ultrasound probe Disinfector

Nanosonics ultrasound probe Disinfector

Intracavity ultrasound probes are considered semi-critical medical instruments and require sterilisation or Disinfection as a minimum.
Nanosonics utrasound probe Disinfector, the Company's lead product, is a desktop or wall-mounted device that uses NanoNebulant technology to perform Disinfection on ultrascund probes, and can complete Disinfection within a 4-6 minute cycle.
The Company believes that the Nanosonics uffasound probe Disinfector delivers a superior outcome across the tange of features outlined in Section 5.3.
The ultrasound probe Disinfector is currently in the advanced development prototype stage. The regulatory approval process for this product has commenced.

Nanosonics automated endoscopic reprocessor

Flexible endoscopes are considered semi-critical medical instruments and many health authorities and professional societies worldwide recommend they be Disinfected after each use. Due to their structural complexity and fragility, flexible endoscopes cannot withstand the heat of steam autoclaves.
Nanosonics is developing a next generation endoscope washer/Disinfector using NanoNebulant fechnology, specifically designed to wash. Disinfect, store and transport flexible endoscopes.
The proposed device is fargeted to overcome many of the current inadequacies of the reprocessing of flexible endoscopes. The Nanosonics device should not require a sterile water source or fume extraction and critically, will alleviate the need to reprocess an endoscope more than once between usage if not used within a prescribed period. of time.
Nanosonies has completed a working prototype using the Company's proprietary automated endoscope reprocessing technology. Nanosonics is actively developing industry partnerships in order to accelerate the development and commercialisation of these units

automated endoscopic reprocessor

5.5 quality management system

In November 2006 the Company aftained certification to the medical device standard of the EN ISO 13485:2003. This is an international standard for the development, manufacture, audity control and commercialisation of medical devices.

5.6 regulatory approval process

Major regulatory authorities classify medical devices according to patient and operator risks. Low risk devices, such as simple medical tools, may require only self-asssessment and self-declaration of compliance. Higher risk devices, such as vascular stents, generally require extensive pre-market review as well as quality system control of design and manufacturing processes.

The Nanosonics ultrasound Disinfector is classified as a medium risk device. In Australia. it is classified as a class 11b by the TGA. In the United States of America, the device is classified as class 11 by the FDA. In Europe it is classified as class 11 a by CE Mark.

The reautatory approvals process is expected to take between 6 to 12 months. This has been confirmed in discussions with the TGA and TÜV Rheinland Product Safety GmbH, a German based notified body authorised to act on behalf of the European Union member states for the purpose of regulatory approval and quality systems authority.

5.7 intellectual property

Nanosonics technologies are protected by a combination of patents, trademarks, confidential internally developed data and proprietary know-how. The retention of this intellectual property is protected through nondisclosure and confidentiality agreements with all senior staff members and consultants.

patent portfolio

Nanosonics holds and continues to develop strong patent positions that protect the portfolio of platform technologies as well as a substantial body of proprietary technology and knowledge which together will secure its developments into the future. Nanosonics has taken an active role in developing, filing and prosecuting patent applications to protect the Company's key technologies.

Five of the six patent families are held by a wholly owned subsidiary of Nanosonics and the sixth patent family is directly held by Nanosonies

r&d and additional intellectual property

The Nanosonics core technologies have potentially commercial applications beyond those directed to its fead products. The Company maintains an active R&D investment aimed at producing an ongoing stream of product opportunities in the healthcare and other sectors. The Company has already identified a range of applications that are expected to be resourced by internal funds and a number of proposed strategic collaborations. The Company has already commenced discussions in this reaard.

The Company believes it can secure long term market leadership through a well identified path of product enhancement by developing a number of additional applications for its lead products with relatively small modifications and a rapid path to commercialisation.

6. board and senior management

$^{\circ}$ 6.1 $^{\circ}$ board of directors $\overline{\phantom{a}}$	$_37\pm$ 6.5 $\pm$ corporate governance $\pm$
- 6.2 -senior management [[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[[	$[6.5.1]$ the role of the Board $\perp$ - 38
$\otimes$ 6.3 - advisory board .	$16.5.2$ $\,$ Board composition $\frac{1}{2}$ - 30
$\sim$ 6.4 $\mid$ organisational structure $\mid$	$6.5.3$ $\degree$ code of ethics $\degree$
	$\%6.6.4$ $\%$ standing committees $\pm$
	$\sim$ 6.5.5 $\sim$ roles of committees $\perp$

$\phi$ ,5.6 remuneration $-43$ and performance $\mathop{\square}\limits$
$6.5.7$ . securities trading policy $\Box$ $\Delta 4$

6.1 board of directors

Maurie Stana - Non Executive Chairman

Maurie Stang is the Non-Executive Chairman of Aeris Technologies Limited, Chairman of Regional Healthcare Group and Novapharm Research (Australia) Pty Limited and is a board member of various other unlisted medical/dental businesses in Australia and overseas. Since 1975 he has established and developed a number of successful companies in the health care sector.

Geoff Marshall - Chief Executive Officer

Geoff Marshall has been the CEO of Nanosonics for 3 years and has overseen the Company's growth and transition from R&D to commercialisation. He has a diverse range of skills and experience in engineering, manufacturing, finance and sales & marketing. He has significant international business experience in Europe and North America working for organisations such as Philips Electronics, British Airways Engineering and Compaq Computers. He is a former partner with Price Waterhouse and has held CEO and general management positions with Healthcare of Australia (HCOA), Rothmans Holding Limited and Orica and is also a Non-Executive director of Electrometals Technologies Limited and Mediplan Holding Australia Pty Ltd.

David Fisher - Non-Executive Director

Dr David Fisher has qualifications in science, engineering and finance with over 25 years' experience, including substantial operating experience in the biotechnology and healthcare industry in Australia and overseas. He held senior positions with Pharmacia AB in Sweden and was foundation general manager of Peptech Limited in Australia. He is managing director of Brandon Capital Management Pty Ltd, a venture capital provider and investor in the Company. He is also a director of Australian Biomedical Fund No 1 Ltd. Australian Biomedical Fund No 2 Ltd and Australian Biotechnology and Healthcare Fund No 3 Lfd.

Bill Widin - Non-Executive Director

Bill Widin has over 25 years of public practice as a chartered accountant. He has participated in the establishment and management of such businesses as Mediservice Clinics (major chain of medical centres) and Statewide Roads which successfully designed, constructed and operated the M4 Motorway in Sydney's west. Mr Widin has formal qualifications in Economics & Accounting and is a fellow of the Institute of Chartered Accountants in Australia and Australian Society of Certified Public Accountants.

The Company has an experienced Board of Directors and a highly-qualified advisory board. The Board and management are supported by a team of experienced scientists, chemists, engineers, commercial staff and regulatory affairs personnel and advisors.

The Board and management have a well balanced blend of technical and commercial experience, with most of the Directors having established, led or been actively involved in successful businesses in the health care industry.

In addition to the above mentioned Directors, the Company and its current Board are committed to the appointment of at least one additional independent non-executive director to the Board, in the near future.

6.2 senior management

Dr. Ron Weinberger - General Manager, Innovations & Technology

Dr Ron Weinberger has over 15 years experience working in the biofechnology arena. He has proven experience in developing, designing and managing large scale research programs with strong commercial perspective. He is a co-inventor of several of the key patents referred to in this Prospectus and has published over 50 peer reviewed publications and patent applications. Dr Weinberger has a PhD in medical biochemistry and is a member of the Australian Institute of Management. Dr Weinberger is also responsible for growing and driving all of the Nanosonics' discovery and development programs.

Ole Jochen Stockhausen - General Manager, Global Market Development

Mr Ole Stockhausen's formal qualifications include a Diploma in Economics, a Diploma in Financial Analysis and a Master of Business Administration. Mr Stockhausen's extensive international experience covers financial management, strategy, sales, marketing and corresponding communications. Mr Stockhausen's main focus in the last ten years has been the commercial development of small and mid-size companies, mainly in the biotechnology sector.

Rachael Moore - General Manager, Product Development & Manufacturing

Ms Rachael Moore has worked in new product development for more than 10 years and has spent the last eight working in the medical devices industry. Rachael has proven skills in the planning and execution of medical device development programs, and has specialist knowledge in Mechanical Engineering, Industrial Design, Human Factors and Ergonomics, Ms Moore is responsible for driving all Nanosonics' product development and manufacturing programs. Rachael holds a Masters of Engineering in Product Design Engineering from Glasgow University/Glasgow School of Art (UK). She is co-inventor on a number of patents in medical device design.

John Murtagh – General Manager, Business Systems and Regulatory Affairs

Mr John Murfaah has extensive experience in the medical device industry and has worked as the Quality Manager and Senior Project Manager with two leading Australian medical device companies, ResMed and Cochlear. As the Quality Manager, he successfully led regulatory audits from TGA, FDA, and TÜV. As a Senior Project Manager, John has the experience of brinaina a Class III medical device to market. John holds a Bachelors Degree of Electronic and Electrical Engineering, with additional qualifications in Quality Systems auditing and an Associate Certificate in Project Management from the George Washington University.

Radek Mierzeiewski - Chief Financial Officer (Actina)

Mr Mierzelewski has over 12 years professional accounting experience including 7 years as an auditor working for "Big 4" and other leading chartered accounting firms in Australia, New Zealand and Europe. Prior to joining Nanosonics and the Regional Healthcare Group, Mr Mierzejewski worked as a financial controller and company secretary in an Australian company. He is a member of the institute of Chartered Accountants in Australia and the institute of Chartered Accountants in New Zealand. Mr Mierzeiewski holds a Bachelor of Commerce dearee in Accounting and a Diploma for Graduates in Finance.

6.3 advisory board

The Company is rapidly developing and advancing products and markets and often requires access to a breadth of expertise. Nanosonics believes that an array of skills and experience is necessary to ensure that its commercial and scientific developments are reviewed and challenged by individuals from a wide range of relevant backgrounds.

The advisory board is intended to provide independent scientific, product development. governance and general commercial advice to the executive and board of directors of Nanosonics.

Profiles of the advisory board members are provided below.

Dr Ron Weinberger (Chairman) - see above stated background description.

Steve Kritzler

Steve Kritzler is a director of Aeris Technologies Ltd. He has 30 years experience in commercial R&D in the areas of pharmaceutical, medical, cosmetic and speciality industrial lubricants. Steve holds more than 16 international patents and patent applications, with a variety of products ernanating from these patents, now in general use worldwide.

Carolyn Hewson

Carolyn Hewson araduated in Economics (with honours) from the University of Adelaide and subsequently completed a Masters of Arts in Economics at Cambridge University. She Joined Schroders Australia investment bank in 1981 and worked as an investment banker for 14 years. She became an Executive Director of Schroders in 1989. Carolyn beaan her career as a company director in 1995 and is now a non-executive Director of two listed Australian companies - AGL and Westpac. She has also served as a director on the boards of CSR, AMP South Australia Water and the Economic Development Board of South Australia. Her current community involvement includes board or advisory roles with the Australian Charities Fund, YWCA of NSW, the Neurosurgical Research Foundation and The Royal Humane Society.

TER MANAGER (1982), MARINI SERIKAN MENGENDUAN YANG PERDADA DAN PERDADA DAN PERDADA DAN PERDADA DAN PERDADA PE PERDADA PERDADA PERDADA PERDADA PERDADA PERDADA PERDADA PERDADA PERDADA PERDADA PERDADA PERDADA PERDADA PERDAD

Dr Phil Stricker

Associate Professor Phillip Stricker is Chairman of the Urology Department at St Vincent's Clinic Sydney, Director of the St Vincent's Prostate Cancer Centre Sydney and Conjoint Associate Professor in Surgery at the University of New South Wales. He is one of the Inquaural directors of the Prostate Cancer Foundation of Australia.

Dr Stricker is a prostate cancer expert and has very extensive experience in nerve sparing surgery, brachytherapy and the newer forms of treatment of prostate cancer including robotic prostatectomy and High Intensity Focused Ultrasound. Over the last 20 years he has been involved in the development of public awareness and research into prostate cancer, having published over 50 articles in peer reviewed journals including the Lancet and Journal of National Cancer Institute.

Prof Ron Penny

Prof. Ron Penny is currently the Emeritus Professor of Medicine, University of NSW Senior Clinical Advisor, NSW Health, Chairman of the Corrections Health Services Board, Chairman of the NSW Blood Products Advisory Committee and Chairman of the NSW SARS Task Force. He has published over 350 medical and scientific papers in prestige national and international journals. Prof. Penny is currently involved in the development of several medical products and is also well versed in the commercialisation of medical technology.

Dr Ian Ernst

Dr. ian Ernst has 25 years experience in intellectual property including patent drafting, prosecution, and conflict in Australian and other jurisdictions. In addition he possesses 40 years experience in the chemical industry with a background in Applied and Physical Chemistry. For the last 20 years Dr Ernst has been a practicing Patent Attorney and his clients have included many multinational chemical and pharmaceutical companies. He has worked closely with Nanosonics since its inception.

Dr Peter Spencer

Dr. Peter Spencer worked in Johnson & Johnson research, both in the US and Australia, for over 10 years. He has held many senior positions across a broad range of technologies including medical devices, pharmaceuticals and consumer products and has a successful track record in developing new global businesses from concept through to product launch. Dr Spencer has lead many multifunctional teams and possesses a detailed understanding of critical business strategy, marketing and R&D and interpersonal new business development issues.

Dr Arthur Brandwood

Dr. Arthur Brandwood has over 20 years experience in the medical technology field in industry, academia and government including responsibilities as Director of Devices Registration and Assessment of the Biomaterials and Engineering laboratories at the TGA.

Dr Brandwood is the Chair of the Canberra Region Branch of Ausbiotech - Australia's biotechnology industry association and also represents Ausbiotech in consultations with government, particularly in the medical devices area.

Dr Brandwood is both a biologist and a materials engineer and has particular scientific expertise in biomaterials and implants, especially interactions between implantable materials and living fissues and in materials degradation.

6.5 corporate governance

6.5.1 the role of the Board

The principal functions and role of the Board is to:

· protect the interests of all Shareholders;
review and influence the Company's strategy:
. oversee and review the performance of key senior management;
ensure the integrity of financial reporting; and
oversee Shareholder communications.

6.5.2 Board composition

The Board will initially consist of a total of 4 Directors, comprising a non-Executive Chairman, a Chief Executive Officer and 2 independent non-Executive Directors. In determining the appropriate composition of the Board, regard has been had to the structure and operations of Nanosonics and the recommendations of the ASX Corporate Governance Council.

6.5.3 code of ethics

in relation to independence, the Board acknowledges that in accordance with the Principles of Good Corporate Governance and Best Practice Recommendations published by the ASX Corporate Governance Council, a listed company will generally have a majority of Directors (including the Chairman) who areconsidered to be independent. The Company considers that the David Fisher and BIII Widin are "independent" and non-executive Directors in accordance with the abovementioned ASX recommendations. The Board is also actively engaged in discussions to secure the appointment of a third independent nonexecutive director.

The Board has considered the oblectives of Nanosonias as it makes its transition to a listed company and is comfortable that the Board has the appropriate skills, balance of independence, experience and knowledge of the Company required to assist the Company over this period.

in relation to the role of the Chairman of Board meetings, the Board intends to appoint a lead independent Director who will chair meetings where the Chairman is not present. The Board considers that the non-executive Directors to be appointed have the necessary skills and qualifications to carry out their role and meet their responsibilities as non-executive Directors of Nanosonies

All Directors, executives, employees and consultants of the Group are expected to act with integrity and objectivity and maintain appropriate ethical standards. Accordinaly, the Board has adopted the following Code of Ethics.

All Directors, executives, employees and consultants of the Group have the following duties:

· act honestly, fairly and without prejudice in all commercial dealings and to conduct business with professional courtesy and integrity;
act in the best interest of all shareholders:
. work in a safe, healthy and efficient manner. using their skills, time and experience to the maximum of their ability;
. comply with applicable awards, Company policies and job requirements;
· not knowinaly make any misleading statements to any person or to be a party. to any improper practice in relation to dealings with or by the Company;
ensure that the Company's resources and property are used property; and
not disclose information or documents relating to the Company or its business, other than as required by law and the Listing Rules, not to make any public comment on the Company's affairs and not to misuse any information about the Company or any other members of the Group.

6.5.4 standing committees

From time to time the Board will establish appropriate committees to assist it in the discharge of its responsibilities. The Board has established the following standing committees consisting of the following members:

$\left[\begin{smallmatrix} 1 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \end{smallmatrix}\right] \left[\begin{smallmatrix} 1 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \end{smallmatrix}\right] \left[\begin{smallmatrix} 1 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0 & 0 & 0 & 0 \ 0$ regional control of the process of Topic	audit and risk $^{\circ}$ management committee	governance and nomination committee	remuneration committee
Chairman	B跳 Widin	ALC David Fisher	David Fisher
. Members The experimental construction of a contraction of the contract	David Fisher	Bill Widin	Bill Widin
	Maurie Stang ¹	Maurie Stang ⁺	Maurie Stang ⁺

It is intended that Maurie Stand will stand down from his appointment from each of the abovementioned committees upon the appointment of an additional independent non-executive director, as referred to in Section 6.1. as Mr Stang's replacement.

6.5.5 roles of committees

audit & risk management

The role of this committee is to advise on internal controls and appropriate ethical standards for the financial and operational management of Nanosonics. The Committee also is readired to confirm the quality and reliability of the financial information prepared.

aovernance and nomination

The role of the Governance and Nomination Committee is to oversee the appointment, management, composition and performance of the Board.

remuneration

The role of the Remuneration Committee is to review and make recommendations to the Board on remuneration packages and policies related to the non-Executive Directors. Chief Executive Officer and senior executives of Nanosonics, and ensure that the remuneration policies and practices are consistent with the Company's strategic goals and human resource objectives.

In relation to each of the above committees it is the intention of the Board that each committee has an independent Director appointed as Chairman.

6.5.6 remuneration and performance

Non-executive Directors' remuneration structure:

Non-executive Directors will be paid an annual fee for their service on the Board and committees of the Board. At present, the Chairman will be paid a fotal of \$50,000 per annum, in quarterly instalments and each of the non-executive directors will be paid \$36,000 per annum, in quarterly instalments. The total annual fee amount payable will be determined on a total cost basis comprising cash, superannuation and securities.

Executive remuneration structure:

Nanosonics aims to adhere to a high standard of corporate governance and in furtherance of this objective, advises that the remuneration of its senior executives will be linked to changes in financial performance and Shareholder value, in this reaard executive remuneration will consist of a mix of:

fixed annual remuneration: and
equity participation.

In this regard, see Sections 12.2 and 12.3

6.5.7 securities trading policy

Directors. senior executives and other employees of any member of the Group at any time and from time to time are aware of obligations of confidentiality and propriefy in reaard to their dealings in Shares or other securities in the capital of the Company (collectively, the "Securities"). They are, in particular, aware of their obligations to ensure that they do not communicate price sensitive information to any other person.

It is the policy of the Company that all the Directors and employees (and their associates) are prohibited from trading in any Securities if they are in possession of non-public information which is or should reasonably be regarded as price sensitive ("Inside Information"). In addition, in order to ensure that Directors and employees do not inadvertently breach their obligations under either this policy or the Corporations Act in relation to insider tradina. the Directors have resolved that:

· all Directors and employees of any member of the Group are prohibited from purchasing or selling Securities while in possession of Inside Information, trading in the securities of any other company about which they have acquired Inside Information through their position with the Company and advising or disclosing Inside Information to others:
· all Directors, including the Chief Executive Officer, must disclose any proposed dealing with Securities to the Chairman and obtain his consent prior to any such dealing taking place, which will be given so long as the Chairman is satisfied that the Director making such disclosure does not have any laside Information relating to the proposed dealing;
· senior executives (other than the Chlef Executive Officer) must disclose any proposed dealing with Securities to the

Chief Executive Officer and obtain his written consent prior to any such dealing taking place:

all Directors and employees are prohibited from dealing in any Securities for twenty one days prior to the end of each fiscal halfvear (31 December) and fiscal full year (30 June) and ending no earlier than 9.00 a.m. (Sydney time) on the third day following the official announcement by the Company of its half vearly or yearly results: and
all Directors and employees who have prior knowledge of Inside Information, which is the subject of a public announcement by the Company, are prohibited from trading in any Securities until the second day following the announcement or announcements that disclose to the ASX, or directly to the public. all that inside information, on which the ASX conducts its normal trading operations.

The Directors will ensure that the terms of this policy are published and otherwise communicated to all members of the Group. their staff and their respective associates and that such policy is consistently and rigorously maintained and enforced.

7. financial information

NANOSONICS LIMITED CONSOLIDATED INCOME STATEMENT AS AT 31 DECEMBER 2006

	Notes	Consolidated Reviewed 6 Months 31 December 2006	Consolidated Audited 12 months 30 June 2006	Consolidated Audited 12 months 30 June 2005
		S	S	S
Revenue
Government grants		1,241,271	1,365,853	1,259,814
Finance revenue		152,637	220,312	90,150
Other income		6,843	877,840	62,314
	$\overline{2}$	1,400,751	2,464,005	1,412,278
Operating Expenses
Staffing cost		(1,097,485)	(1, 387, 176)	(867, 545)
R&D and external consultants		(1,586,675)	(1, 877, 126)	(685, 870)
General and administration		(555, 868)	(804, 061)	(293, 663)
Marketing, promotion and travel		(173, 792)	(158, 488)	(59,313)
Financial		(6,099)
		(3,419,919)	(4,226,851)	(1,906,391)
Operating (loss) before income tax expense	3	(2,019,168)	(1,762,846)	(494, 113)
Income tax expense				(471)
Net (loss) after income tax expense attributable to members of the parent entity		(2,019,168)	(1,762,846)	(494, 584)

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

'A6

NANOSONICS LIMITED BALANCE SHEET AS AT 31 DECEMBER 2006

	Notes	Consolidated Reviewed 31 December 2006	Pro-forma Adjustments	Consolidated Unaudited Pro-Forma 31 December 2006
		S	S	\$
CURRENT ASSETS
Cash assets	5	9,130,468	20,430,791	29,561,259
Receivables	6	77,466		77,466
Other	7	162,498		162,498
TOTAL CURRENT ASSETS		9,370,432	20,430,791	29,801,223
NON-CURRENT ASSETS
Property, plant and equipment	8	473,453		473,453
Other non-current assets	9	25,000		25,000
TOTAL NON-CURRENT ASSETS		498,453		498,453
TOTAL ASSETS		9,868,885	20,430,791	30,299,676
CURRENT LIABILITIES
Payables	10	648,626		648,626
Provisions	$\mathbf{H}$	86,953		86,953
TOTAL CURRENT LIABILITIES		735,579		735,579
NON-CURRENT LIABILITIES
Borrowings	12	2,000,000	(2,000,000)
TOTAL NON-CURRENT LIABILITIES		2,000,000	(2,000,000)	$\tilde{\phantom{a}}$
TOTAL LIABILITIES		2,735,579	(2,000,000)	735,579
NET ASSETS		7,133,306	22,430,791	29,564,097
EQUITY
Contributed equity	13	13,656,589	22,430,791	36,087,380
Accumulated losses		(6,523,283)		(6,523,285)
TOTAL EQUITY		7,133,306	22,430,791	29,564,097

The above consolidated reviewed balance sheet and consolidated unaudited pro forma balance sheet should be read in conjunction with the accompanying notes

from the production

$\mathbf{I}$ . Summary of Significant Accounting Policies

The significant accounting policies that have been adopted in the preparation of this financial report are:

$(a)$ Basis of preparation

The financial report has been prepared in accordance with Accounting Standards, Urgent Issues Group Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Law of 2001.

It has been prepared on the basis of historical costs and does not take into account changes in money values or fair values of assets

These accounting policies have been consistently applied by each entity in the consolidated entity and are consistent with those of the previous year.

$(b)$ Principles of consolidation

Controlled entities

A controlled entity is any entity controlled by Nanosonics Ltd. Control exists where Nanosonics Ltd has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Nanosonics Ltd to achieve the objectives of Nanosonics Ltd. A list of controlled entities is contained in Note 13 to the financial statements.

In preparing the consolidated financial statements, all inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated in full. Where controlled entities have entered or left the economic entity during the year, their operating results have been included from the date control was obtained or until the date control ceased.

$\left( \text{c} \right)$ Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the consolidated entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Government grants

Government grants are recognised on a quarterly basis based on the eligible expenses and the relevant forecast information.

Interest revenue

Interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset

Sale of non-current assets

The gross proceeds of non-current asset sales are recognised as revenue at the date control of the asset passed to the buyer, usually when an unconditional contract of sale is signed. The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal (including incidental costs)

$(d)$ Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the ATO in included as a current asset or liability in the statement of financial position.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

$(e)$ Borrowing costs

Borrowing costs include interest or finance charges in respect of finance leases. Interest payments in respect of financial instruments classified as liabilities are included in borrowing costs. Borrowing costs are expensed as incurred.

Taxation $(f)$

The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively 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 assumptions that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

Respectively

Tax consolidation

The company is the head entity in the tax-consolidated group comprising all the Australian wholly-owned subsidiaries set out in Note 13. The head entity recognises all of the current and deferred tax assets and liabilities of the tax consolidated group (after elimination of intragroup transactions).

$(g)$ Acquisition of assets

All assets acquired, including plant and equipment and intangibles other than goodwill, are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. Acquired inprocess development is only recognised as a separate asset when future benefits are expected beyond any reasonable doubt to be recoverable.

$(h)$ Research and development

Research and development expenditure is expensed as incurred except to the extent that development expenditure recoverability is assured beyond reasonable doubt, in which case it is capitalised. Deferred development expenditure is amortised on a straight line basis over the period during which the related benefits are expected to be realised once commercial production has commenced.

$\mathbf{f}$ Use and revision of accounting estimates

The preparation of the financial report requires the making of estimations and assumptions that affect the recognised amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Receivables $(i)$

The collectibility of debts is assessed at reporting date and specific provision is made for any doubtful accounts.

$(k)$ Inventories

Inventories and raw materials are carried at the lower of cost and net realisable value. Costs are assigned on first in first out basis.

$(1)$ Investments

Controlled entities

Investments in controlled entities are carried in the Company's financial statements at the lower of cost and recoverable amount.

$(m)$ Leased assets

Leases under which the consolidated entity assumes substantially all of the risks and benefits of ownership are classified as finance leases. Other leases are classified as operating leases.

Finance leases

Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely that the economic entity will obtain ownership of the asset or over the term of the lease. Lease liabilities are reduced by repayments of principal. The interest components of the lease payments are expensed.

Operating leases

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

$(n)$ Recoverable amount of non-current assets valued on cost basis

The carrying amounts of non-current assets valued on the cost basis are reviewed to determine whether they are in excess of their recoverable amount at reporting date. If the carrying amount of a non-current asset exceeds its recoverable amount, the asset is written down to the lower amount. The write-down is expensed in the reporting period in which it occurs.

Where a group of assets working together supports the generation of cash inflows, recoverable amount is assessed in relation to that group of assets.

In assessing recoverable amounts of non-current assets, the relevant cash flows have been discounted to their present value.

$(0)$ Revaluation of non-current assets

Classes of non-current assets measured at fair value are revalued with sufficient regularity to ensure the carrying amount of each asset in the class does not differ materially from fair value at reporting date.

Depreciation and amortisation $(p)$

Useful lives

All assets, including intangibles, have limited useful lives and are depreciated/amortised using the straight line method over their estimated useful lives, taking into account residual values. Depreciation and amortisation rates and methods are reviewed annually for appropriateness. Depreciation and amortisation are expensed.

The depreciation/amortisation rates or useful lives used for each class of assets are as follows:

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, .	the property of the second contract of the second second contract of the second second contract of the second second second second second second second second second second second second second second second second second ka prana na nananana -2006	$-2005$
Laboratory Fit-out	16.67%	16.67%
Laboratory Equipment	7.5% - 20%	$7.5\% - 20\%$
Office Furniture and Equipment	$7.5\% - 66.67\%$	$7.5\% - 66.67\%$
Leasehold Improvement	11.25%	11.25%

$(q)$ Payables

Liabilities are recognised for amounts to be paid in the future for goods and services received. Trade accounts payable are normally settled within 60 days.

$(r)$ Employee benefits

Wages, salaries, annual leave and sick leave

Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees' services provided to reporting date. Employee benefits expected to be settled within one year together have been measured at the amounts expected to be paid when the liability is settled. Other 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 entitlements.

Superannuation plan

Contributions are made by the economic entity to employee superannuation funds and are charged as expenses as incurred.

$(s)$ Cash

For the purpose of the statements of cash flows, cash includes cash on hand, deposits held at call with banks net of bank overdrafts.

Pro-forma balance sheet $(t)$

The pro-forma balance sheet for the Company has been included for illustrative purposes only. The pro-forma balance sheet has been prepared by adjusting the Balance Sheet to reflect the financial effect of the following transactions as if they had occurred at 31 December 2006:

Issue of 44,000,000 fully paid shares of 50c each pursuant to this Prospectus raising $\mathbf{D}$ \$22,000,000;
A total of 10,000,000 Vendor Shares will be sold by Vendor Shareholders under this ii) prospectus at an issue price of \$0.50 per share for an agreed consideration of \$5,000.000.
Estimated cash costs of \$1,773,500 associated with the Prospectus capital raising set off iii) against the share capital raised:
Conversion of a loan of $$2,000,000$ to $4,000,000$ shares at the issue price of $$0.50$ per $iv)$ share.
Pursuant to the Company's private share placement a further \$204,291 (526,441 shares) $V)$ was received in January 2007.

	Consolidated Reviewed 6 months 31 December 2006 \$	Consolidated Audited 12 months 30 June 2006 S	Consolidated Audited 12 months 30 June 2005 S
2. Revenue
Government grant	1,241,271	1,365,853	1,259,814
Finance revenue	152,637	220,312	90,150
Other income	6,843	877,840	62,314
	1 400 751	2 464 005	412.278

Government grants for 30 June 2005 includes an amount of \$617,064 relating to R & D Tax offsets not received in other years.

Other income for 30 June 2006 includes forgiveness of loan from 3M totalling \$800,000.

$\mathbf{R}$ Loss from ordinary activities before income tax expense

The loss from ordinary activities before income tax includes:

EXPERSES
Depreciation	69,211	98.609	90,423
Research and development costs	1,586,675	1,877,126	685,870
Bank Charges and Interest	2.178	16,263	8.288
Rental expenses relating to operating leases	186,701	109,959	73,827

$\overline{4}$ . Taxation

$\sum_{i=1}^{n}$

Deferred tax assets not taken to account

The potential deferred tax assets in a controlled entity, which is a company, arising from tax losses and timing differences has not been recognised as an asset because recovery of tax losses is not virtually certain and recovery of timing differences is not assured beyond any reasonable doubt:

	31 December 2006	30 June 2006
Tax losses carried forward	6,628,540	4.194.317

The potential future income tax benefit will only be obtained if:

the company and the economic entity derives future assessable income of a nature and an $(i)$ amount sufficient to enable the benefit to be realised;
the company and the economic entity continues to comply with the conditions for deductibility $(ii)$ imposed by the law; and
no changes in tax legislation adversely affect the company and the economic entity in realising $(iii)$ the benefit.

	Consolidated Reviewed 31 December 2006 S	Consolidated Unaudited Pro-forma 31 December 2006 S
5. Cash assets
Cash at bank and on hand	5,082,831	5,082,831
Deposits on call	4,047,637	24,478,428
Balance as per Statement of Cash Flows	9,130,468	29,561,259
Refer Note 14 for Reconciliation of Cash

Receivables $6.$

Current

At cost

Accumulated depreciation

Trade debtors Other debtors	6,028 71,438	6,028 71,438
	77,466	77,466
Other current assets 7.
Other current assets
Prepayments	15,316	15,316
Accrued income	88,650	88,650
Deposits and bonds	13,941	13,941
Deferred expenditure	44,591	44,591
	162,498	162,498
	Consolidated Reviewed 31 December 2006 \$	Consolidated Unaudited Pro-forma 31 December 2006 \$
8. Plant and equipment
Laboratory fit-out
At cost	325,927	325,927
Accumulated depreciation	(251, 648)	(251, 648)
	74,279	74,279
Laboratory equipment
At cost	154,798	154,798
Accumulated depreciation	(81, 287)	(81, 287)
	73,511	73,511
Office furniture & equipment
At cost	268,538	268,538
Accumulated depreciation	(103, 240)	(103, 240)
	165,298	165,298
Leasehold improvements

163,861

160,365

$(3, 496)$

163,861

160,365

$(3,496)$

kompilatori hotoristi

$9₁$ Other non-current asset

Related Party Receivable - other	25,000	25,000

10. Payables
Trade creditors	527,640	527,640
Other creditors	120,986	120,986
	648,626	648,626
Provisions 11.
Current
Employee benefits	86,953	86,953
	Consolidated Reviewed 31 December 2006	Consolidated Unaudited Pro-forma 31 December 2006
	$\mathbb S$	\$
Non-current Liabilities 12.
Current
Loans	2,000,000

Conversion of \$2,000,000 loan to 4 million share capital prior to the company listing on the Australian Stock Exchange. The number of ordinary shares to be issued under the conversion is calculated by dividing the amount of loan outstanding by the issue price of the offer.

13. Contributed Equity

Share capital

(a) Ordinary fully paid shares	8,715,157	36,087,380
(b) Other contributed equity $*$	4,941,432
	13,656,589	36,087,380

$\frac{1}{2}$ Other Contributed Equity represents applications for a total of 13,257,152 ordinary shares which had been received pursuant to the Company's private placement but not allotted. These applications together with applications, received in January 2007, for a further 526,441 ordinary shares $(\overline{\$204,291})$ , totalling 13,783,593 ordinary shares, were allotted and issued in January 2007.

	Ref	31 December 2006 S
Reconciliation of Cash 14.
Cash balance as at 31 December 2006		9,130,468
Additional proceeds from private placement	lt(v)	204.291
Funds raised pursuant to this prospectus - Minimum Subscription	lt(i)	22,000,000
Capital Raising Costs - Minimum Subscription	lt(iii)	(1,773,500)
Pro forma Cash Position		29,561,259

15. Movements in Contributed Equity- Ordinary Shares	Ref	Number of Shares	S
Balance as at 31 December 2006		122,535,650	13,656,589
Ordinary Shares Issued
Shares allotted under private placement	13	13,783,593	204,291
Shares issued under this Prospectus	lt(i)	44,000,000	22,000,000
Costs of the Capital Raising	lt(iii)		(1,773,500)
Conversion of loan funds	lt(iv)	4,000,000	2,000,000
Pro forma balance as at 31 December 2006		184,319,243	36,087,380

Related Party Disclosure 16.

(a) Directors

The directors of the company and their interests in fully paid shares as at the date of this report are:

Director Crdinary Vendor Pro-Forma Options Shares Sale ^1,2 Holding Options Shares
Maurie Stang ²	56,929,000	6,500,000	50,429,000
Bill Widin	1,785,000		1,785,000	278,334
Geoff Marshall				1,900,002
David Fisher	396,726	250,000	146,726	547,700
	59,110,726	6,750,000	52,360,726	2,726,036

francial into professor

¹ Vendor sales relates to part of the Vendor Shares to be sold by the Vendor Shareholders. Refer Note 1t(ii).

$\frac{3}{2}$ Includes indirect interests in 28,552,000 ordinary shares held by Bernie Stang.

Full details of the Director's interests in the company are set out in Section 13 of this prospectus.

(b) Directors - Related Parties

Transactions between related parties during the financial period ended on 31 December 2006 were on normal commercial terms and conditions no more favorable than those available to other parties unless otherwise stated.

Service fees pursuant to a Service Agreement with Medi-Consumables Pty Limited for the provision of IT, accounting, HR and administration, etc. Total fees paid during the 6 month period to 31 December, 2006 were \$185,575 (30/6/06; \$161,699) Medi-Consumables is a company controlled by Maurie Stang and Bernie Stang, both of whom are substantial shareholders of Nanosonics.

Consultancy and payroll services were paid to Novapharm Research (Australia) Pty Ltd during the 6 month period to 31 December, 2006 of \$34,772 (30/6/06; \$129,515). Novapharm Research is a company controlled by Maurie Stang, Bernie Stang and Steve Kritzler all of whom are substantial shareholders in Nanosonics

Lease costs are paid to Ramlist Pty Ltd for the premises at Unit 24, 566 Gardeners Road, Alexandria. During the 6 month period to 31 December, 2006 the rent paid was \$46,693 (30/6/06; \$76,654) With effect from April 2007, a new lease is being negotiated. Ramlist is a company controlled by Maurie Stang and Bernie Stang both of whom are substantial shareholders of Nanosonics.

Further details of Directors remuneration and transactions with the Directors and their related entities are set out in the following sections of this Prospectus:

Employee Share Option Scheme Section 12.2:
Section 12.6: Executive Director Agreement

Section 12.12: Non Executive Director Terms of Appointment

17. Capital Commitments

Under the terms of the Federal Government R&D Start grant (\$1.88m) and the Commercial Ready grant (\$2.4m), the Company has an obligation to expend \$4.28m in approved eligible R&D expenditure by 30 September 2007. As at 31 December, 2006 the Company had expended a total of \$3,067,690 under these grants.

Capital Expenditure Commitments	S
Future operating lease commitments not provided for in the financial statements and payable
Within one year	87,143
One year or longer but no later than five years	45,444
More than five years
	132,587

8. independent technical
expert's report

Innovation Dynamics Pty Ltd

1 Central Avenue, The Australian Technology Park, EVELEIGH NSW 1430, ABN 77-109-316-949

Phone: 61 2 9209 4231 Fax: 61 2 9209 4242 Email: [email protected] www.innovationdynamics.com.au

29 March 2007

The Directors. Nanosonics Limited, Linit 24 566 Gardeners Road. Alexandria. NSW 2015.

Dear Sirs,

Nanosonics Limited ("Nanosonics" $\alpha$ $+$ na "Company"), which intends to develop and commercialise its technologies, is proposing to effect on initial public offering of a minimum of 54,000,000. shares at a price of AU\$0.50 to raise a minimum of AU\$27,000,000 ("IPO") and also apply for official quotation of its shares on the ASX Limited.

This report has been prepared and provided to the Directors of Nanosonics in order to provide an independent opinion on the technologies for disinfecting objects and spaces that comprise the portfolio of Nanosonics, for inclusion in the Prospectus to be issued by Nanosonics in connection with the IPO.

To complete our analysis we have assessed the fechnologies licensed in and developed by Nanosonics, its business strategy, the markets addressed by the fechnologies and the Company's ability to access these markets and satisfy their needs within a reasonable time.

Nanosonias is focussed on the development of novel sterilisation and disinfectant technologies that are to be applied to devices, as well as the supplyof related consumables and other products that are suitable for entry into a range of international markets, mainly in the medical and allied fields. The Company has purchased the core platform fechnologies from Novapharm Research Pty Ltd ("Novapharm"), and has used its innovative research and development capability to progress the development of several disinfectant approaches. The lead product, for disinfection of intracavity ultrasound probes, is in the final stages of system. design and integration and Nanosonics intends to

take the product to market in the first half of 2008. A second product for the washing and disinfection of flexible endoscopes has been produced as an advanced working prototype.

The stated strategy and business model for the Company is to create and develop new products, outsource their manufacture and manage the marketing and distribution of those products by third parties to different aeographic markets. This model has proved to be successful for other similar companies in Australia.

Nanosonics' technology

Nanosonias' portfolio addresses a broad spectrum of objects and spaces that require disinfection and sterilisation in the medical, food and industrial sectors. These include medical instruments such as uitrascund probes and endoscopes, spaces such as reems in medical, dental, veterinary and industrial facilities, and other spaces such as ambulances. The portfolio is based on the NanoNebulant platform technology.

NanoNebulant

Nanosonias has developed a platform technology for rapid, cost-effective ambient temperature disinfection and sterilisation of objects and spaces. Known as NanoNebulant, it relies on the generation of nanoparticles of concentrated hydrogen peroxide, the disinfecting agent, and their subsequent destruction. The starting material is a hydrogen peroxide solution that will be produced. in sealed disposable cartridges with a shelf life of approximately 1 year. These cartridges will be sold as consumable products and assist in underpinning an income stream for the Company.

EQIMPOS TREDGES

To begin the disinfection procedure, the hydrogenperoxide solution is nebulised with an ultrasonic transducer to produce microparticles. A proprietary concentrator then reduces the microparticles further to nanoparticles, forming a biocide with the diffusion properties of a gas, although it still retains the properties and form of a liquid. The nanoparticles are then applied to the objects to be disinfected. Finally the nanoparticles of hydrogen peroxide are passed through a proprietary catalytic destructor. This destroys its biocidal properties by converting it to oxygen and water.

The biocide produced by the process described above distributes aujokiv, penetrates easily and is much less corrosive than many current liquid blocidal agents, including aqueous hydrogen peroxide solutions, in addition, the gaseous properties of the NancNebulant biodide mean that the disinfectant can be held in a chamber or cycled through if and as such, may be used to disinfect either the space in which it is held or an object in that space. A major advantage of this system is that the end products of the procedure, oxyden and water, are harmless and inerf. NanoNebulant fechnology therefore leaves no toxic or corresive residue on objects that have been treated and does not damage the environment.

target markets

Nanosonics' NanoNebulant technology can potentially address a wide range of markets. These include the disinfection and sterilisation of medical instruments, reprocessing of medical items such as cardiac catheters which are currently single-use items and the disinfection of rooms and spaces. The markets targeted by the products that are most advanced in the Company's pipeline are addressed below. Nanosonics' lead products are directed at the high level disinfection of medical instruments and devices, specifically intracavity ultrasound probes and flexible endoscopes. Products sfill in the early development stage include a dedicated disinfection device for echocardiogram detectors, a generalpurpose steriliser and a space disinfection system.

overview of the medical instruments and devices disinfection market

The global market for the disinfection and sterilisation of medical instruments and devices is large and growing strongly. Growth is driven by the need to adequately disinfect devices used in minimally invasive surgery and diagnostics, and is mainly due. to the increasing use of medical devices in such

procedures and the growing general awareness of the threat of disease transmission. Despite these sianificant drivers, a recent analysis has claimed that the size of the US sterilisation and disinfectants market is currently limited by the lack of major technological advancement and significant new products. This limitation represents a major opportunity for Nanosonics. The Company's current lead products do not target sterilisation, which renders a device free of all viable microorganisms and is mandatory for medical devices that penetrate sterile body cavities. They address the less stringent requirement of High-Level-Disinfection (HLD), which destroys all microorganisms with the exception of high numbers of bacterial spores. HLD is required for devices that contact infact non-sferile mucosal surfaces and areheat-sensitive and therefore cannot be sterilised by steam-based autoclaving. Such devices are used in large numbers of procedures and include uttrasound probes, endoscopes and anaesthesial equipment such as reusable pulse oximetry probes.

Liquid-based systems accounted for more than 65% of the 2004 low temperature sterillsation and HLD market. However, most of the liquid HLD solutions currently available are associated with major health and safety issues, and require the use of large volumes of rinse water. The safe use of most of the gaseous HLD approaches requires complex and expensive equipment. The market is made up of two product streams, disinfection equipment and disinfectant consumables, which can be independent or linked through proprietary. chemicals or chemical delivery systems. In this sector, the margins on proprietary consumables are significantly greater than on hardware.

Nanosonias aims to optimise potential cash flow in this market through the linking of devices with consumables in the form of disposable disinfectant cartridges. Industry analysts estimated the total interrational market for HLD systems, components and consumables at US\$1.8 billion in 2003, and arowth was profected to be at feast 6% per annum. This corresponds to a market value of \$U\$2.4 billion. by 2008. In emerging markets, ethylene oxide and the low cost glutaraldehyde are the most widely applied disinfectants.

advantages of the

NanoNebulant technology

Nanosonios claims several significant advantages in the use of the NanoNebulant technology for disinfecting medical devices over available products and methodologies, these being:

The technique is safe for patients and medical personnel.The disinfectant is effectively destroyed in the enclosed disinfectant device, and no toxic residuals remain on the medical device.
The fotal and operating costs are relatively low, with low cost devices and consumables as well as significantly reduced water use. Additionally the devices generally require no plumbing or fume extraction making them more cost-effective than many of the competing alternatives.
Relatively short process avale times have major implications for the medical industry. with the opportunity for much more rapid reuse of instruments and devices as a significant cost saving alternative to maintaining longer reprocessing times and using an increased number of expensive ultrasound probes, endoscopes or other medical devices.
Processing occurs at ambient temperatures and the disinfectant is compatible with a widerange of materials, with a low risk of damage to expensive devices.
The process is environmentally friendly, Because no hydrogen peroxide is released there is no chemical contamination of air or water, and the removal of the rinsing step required with other disinfectants saves large volumes of water as well as removing a risk of recontamination or the need for sterile water.
Devices are dry at the end of the process, removing the need for drying and leading to a much lower risk of recontamination.
The disinfectors are small, deskfop devices that can be located conveniently.
The technology is expected to meet increasingly stringent standards and requiations requiring lower environmental and OH&S impacts.

In our opinion these are legitimate advantages that will distinauish Nanosonics in this market. Furthermore we are not aware of any other competing processes. that provide the full range of these benefits.

the major competing technologies are as follows.

Glutaraldehyde was previously the method of choice for HLD processing of medical devices and is still widely used. It is effective, non-corrosive and inexpensive at about AU\$6 per cycle. However, the cycle time is relatively long and manual HLD at room temperature is inconvenient, involving washing, immersion for up to 45 minutes in

diutaraldehyde, thorough rinsing and drying. Its use in automated endoscope reprocessors (AER). is more convenient, importantly, glutaraidehyde is toxic. If is a primary skin irritant and its use as an HED chemical has caused significant numbers of cases of occupational asthma among physicians. and other healthcare workers. Repeated use can also result in the deposition of fixed debris on the device with associated risks to patients. Because of these safety issues, glutataldehyde is increasingly becoming unacceptable to regulatory authorities. It is being phased out of use for HLD purposes in Europe, its use is presently banned in the United Kingdom and the United States market is increasingly requiring glutaraldehyde-free chemical solutions. The NancNebulant HLD fechnology is expected to be more expensive than glutaraldehyde, but it is safe, rapid and convenient and does not leave residues on the device.

Ortho-phthalaldehyde (OPA) is also an effective, fast-acting high level disinfectant with excellent materials compatibility. It is less toxic than alutaraldehyde, though its use has been associated. with anaphylaxis-like reactions and it stains skin. Manual HLD processing can be completed in 12 minutes at room temperature, and HLD in an AER takes 5 minutes at 25oC. OPA is about 3 times more expensive than glutaraldehyde, but is associated with lower reprocessing costs such as soak time and devices/litre.

Peracetic acid is another commonly used and effective liquid disinfectant. Its application in sealed automated systems is an improvement on giutaraldehyde use as personnel are less exposed. to toxic risk. However, direct contact with peracetic acid can result in burns. Disinfection is conducted at low temperatures and can be complefed in 30 minutes. The system is claimed to sterilise the channels of endoscopes. Atthough consumable costs are inexpensive, the capital cost is fairly high, and users incur additional plumbing costs for filtered water and waste removal to meet environmental standards. Importantly, disinfection with some peracetic acid products has been reported to damage flexible endoscopes and other instruments.

Inebread

SORUSO

street's

Rotion

Hypochlorite solution is used in Australia for disinfection of medical devices. It is very inexpensive but its efficacy is doubtful in the absence of use. standards and the product is not registered as an HLD chemical. Moreover, most chlorine based products have significant material incompatibility for a range of polymers used in medical devices.

Chlorine dioxide generation is a recent addition to the range of HLD chemicals. It features in a range of sterilants produced by Tristel Solutions Ltd (UK). The sterilant is effective, fast-acting and inexpensive. and is being widely adopted in UK hospitals as a replacement for aldehyde-based disinfectants. Although chlorine dioxide is an irritant of skin and mucous membranes, its generation in the Tristel products is claimed to be safe. Chlorine dioxide is a common means of water disinfection, and its use is therefore not associated with environmental concerns.

Ethylene oxide is a gasebus sterilant that is used at room temperature and is compatible with delicate medical instruments. However, if does not effectively disinfect narrow channels such as endoscope lumens. In addition it is highly toxic and its safe use requires sealed vessels, expensive instrumentation and a evole time of more than 8 hours followed by long post-exposure aeration times. This method of HLD decontamination is losing market share in the developed world.

Hydrogen peroxide gas plasma (STERRAD, Johnson & Johnson) disinfection is the closest to the NanoNebulant technology. It is used at room temperature and is safe and compatible with delicate instruments. The cycle time is complete in 40-50 minutes, but its use requires complex fechnology and the need to draw a deep vacuum. and its capital and cycle costs are high.

Super-oxidised water and ozone are both new steriliant technologies. In the super-oxidised water system, hypochlorous ions are aenerated by electrochemistry. Its efficacy is not universally accepted at dosages that are compatible with instrument materials and there may be issues of patient safety. Nevertheless applications include the disinfection of endoscopes. Ozone sterilisation has the major disadvantage of cycle times of 4 to 5 hours. Moreover, although ozone ultimately breaks down into oxygen, the gas itself is extremely toxic. Both these options are relatively expensive.

Nanosonics products

Nanosonics' lead and second products target the markets for HLD of intra-cavity ultrasound probes and flexible endoscopes. There is also identified market interest in disinfection of additional medical devices. Generation and maintenance of a strong

product pipeline is underpinned by Nanosonics' policy of working with leading device manufacturers to conduct engoing materials testing programs. Other faraets in the development pipeline address aeneral-purpose disinfection and sterilisation, and the disinfection of rooms and spaces.

ultrasound probes

Ultrasound probes are used for general topical or intracavity examination. As the former are used on intact skin they have very little probability of transmitting infection. They require only general cleaning and low level disinfection unless they have been used where there is a high risk of disease. transmission, infracavity ultrasound probes, on the other hand, are used to visualise internal body. cavities and in most cases should be HLD after use. except when they have been used invasively such as during surgery, when they require sterilisation.

Industry analysts report that there were more than 500,000 installed ultrasound units worldwide in 2005. and we understand from Nanosonics that about 65% of these include intracavity probes. In 2005 in Australia there were about 600,000 intracavity scans and approximately 110 million such procedures worldwide. The arowth in the market for intracavity examination systems is estimated at about 4% per annum, and annual growth in the number of procedures at approximately 8% per annum. As the specifications for all ultrasound probes are very similar, a disinfection device can have universal application across the entire market. Moreover, threemanufacturers, Siemens, Philips and General Electric, control 70% of the world market in ultrascund probes. However, it is very difficult to estimate the size of the real market for disinfection of ultrasound probes, largely because practitioners frequently do not use. best practice. A recent study of UK hospitals, where glutaraldehyde is no longer permitted, described a range of ineffective procedures including dry paper. towels, ethanol wipes and soap and water. The study identified the lack of a suitable sterilant as one of the main reasons for this situation, and chiarine dioxide. has since been adopted by many centres.

development status

Nanosonics' ultrasound probe disinfector, the Company's lead product, is a desktop device incorporating disposable cartridges of a liquid formulation of hydrogen peroxide that will be sold. as consumables. It can be form HLD on ultrasound probes within a 4-6 minute avaie. This device is at an advanced stage of development, and includes Nanosonios' proprietary membrane concentrator. nebuliser catalytic destructor peroxide sensor and peroxide cartridge, as well as a means for ensuring that only the Nanosonics cartridge can be used in the device. The disposable cartridges are designed so that they connot be refilled and reused. We understand that the technology and configuration specifications for the device have now been completed in order to enable final product development and manufacturing, and the full product development cycle has commenced. Nanosonics' ultrasound orobe clisinfactor's microbiological efficacy has been confirmed by an independent Australian laboratory.

We understand that the Company aims to complete design verification and validation in the third quarter of 2007. Manufacturing will be outsourced; selection of the manufacturing company is in process and is expected to occur in the second quarter of 2007. with manufacturing to commence in the third quarter, in the second quarter of 2007 the Company. intends to initiate the regulatory approval process. in Europe, where the device is designated Class lia and Australia where it is Class IIb. Nanosonics does not expect approval to take longer than 5 months. in the European Union.

competitive advantage

The Nanosonics ultrasound probe disinfector is very well placed to capture a significant share of the market for disinfecting these devices. Nanosonics has combined the intrinsic advantages of the NanoNebulant technology with high quality design and engineering and a proactive approach to marketing into a specialist environment. End-user requirements such as small size and ease of use have been incorporated in the device, and ultrasound probe manufacturers have been consulted throughout its development. An advanced prototype was recently displayed in association with Philips and Siemens at a major international conference showcasing medical devices. In Europe manufacturers of medical devices are now required to recommend methods for disinfection and sterilisation and the apparent interest that this meeting generated was significant for Nanosonics.

marketina

We understand that Nanosonias aims to take its ultrasound probe disinfector to market in Europe and Australia in the first half of 2008, using distributorships in which Nanosonics will partner with established agents. The apents, who will both sell and service the devices. will be appointed in the third or fourth auarter of 2007. We believe that these timetables are realistic, Interest in distributing Nanosonics' disinfector has been expressed by all major probe manufacturers and seweral smaller players in the market. Major Purppean and Australian end-users have also confirmed the market opportunity for this product.

automatic endoscopes reprocessors (A.E.R.)

Another early target market is the need for automated reprocessing and disinfection of flexible endoscopes. Both bacterial and viral diseases have been transmitted during endoscopy, and regulatory authorities require that flexible endoscopes must be at least HLD. Sterillsation is required for rigid endoscopes used for percutaneous interventions, and this is not therefore an immediate target market for the Nanosonics device. Flexible endoscopy and laparoscopy is a rapidly growing field, with major applications in colonoscopy and bronchoscopy as well as diagnosis and treatment of the upper gastrointestinal(GI)tract.Theinstrumentsusedinthese treatments are extremely difficult to disinfect. They are sensitive to both heat and corrosive chemicals. as well as being physically delicate. Moreover, they have multiple small channels or lumens, some of which have blind endings that cannot be inspected or microbiologically sampled, are difficult to access with liquid HLDs and are hard to dry. Because of the difficulty of disinfecting lumens, many endoscopy users and infection control practitioners consider current methods of disinfecting these instruments to be inadequate.

The global market for flexible endoscopes was approximately US\$900 million in 2005, and is growing rapidly in both first world and developing countries. Three Japanese companies, Olympus with about 60% of the market. Pentax with a 15-20% market share and Fullnon with around 10-15%, dominate this market. The recent adoption by Olympus of a preferred automatic endoscope special-purpose

EQSORES

SORUSO

stperts

ROCK

disinfectant for its Chinese market is estimated to be worth US\$8-10 million per annum to the disinfectant manufacturer. Endoscope usage is arowing briskly, and a 2002 analysis of the US market trends indicated bright prospects for AER systems. In 2003-4 the device sales for A.E.R. was estimated by industry analysts to be worth US\$91. million annually, with the consumables market valued at US\$258 million per annum. The annual arowth rate for the market was profected at 9%. This corresponds to a market of US\$500 million by 2007-8. The US has 53% of this market. Europe 9%. Australia and New Zealand 6%. Asia 6% and the rest of the world 26%. Nanosonics has estimated that in 2005 approximately 960,000 procedures were carried out using flexible endoscopes in Australia and 45 million such procedures were performed world-wide.

development status

Nanosonics has commissioned the production of a proof-of-concept prototype for an automated endoscope reprocessor. This device incorporates both washing and HLD disinfection of endoscopes. in a fully automated ovcle. It also incorporates leak testing and channel moniforing and complies with the most recent ISO standards. The ability to achieve HLD in each of the endoscope channels. which represents a major challenge, has been confirmed. The device can disinfect endoscopes within 35-20 minutes.

We understand that the Company is in discussions. to partner with a major endoscope manufacturer to progress the development of this device, which is expected to proceed in the third quarter of 2007.

Competitive advantage

From our analysis, we believe that a significant competitive advantage of Nanosonics' endoscope washer/disinfector is its efficacy, which results from the ability of the NanoNebulant technology to disinfect endoscope lumens. The number of lumens (or hollow channels) in new generation endoscopes is increasing, and their adequate disinfection is a significant problem. In Nanosonics' washer/disinfector, the initial liquid washing cycle incorporates an enzymic process for destroying prions. This process is licensed exclusively from Novapharm on a royalty-free basis. Nanosonics has reported to us that proof of concept of prionicidal activity was demonstrated in collaboration with a

major Australian university. Prions are of increasing concern in relation to re-use of medical devices. particularly in Europe, and are very difficult to inactivate. We think that this aspect of the washer/ disinfector, if widely validated, represents an important advance and a competitive advantage in the market. The washing cycle has now been integrated with the NanoNebulant technology in a single device prototype, which optimises both effective disinfection and ease of use. Moreover, norinse water is required after disinfection, a significant advantage over existing systems.

marketina

Nanosonias aims to commercialise its endoscope washer/disinfector through a major manufacturer and supplier of endoscopes. It targets completion of this arrangement in the third quarter of 2007.

echocardiography probes

Echocardiography using specialised uttraspund probes is one of the most widely used diagnostic tests for heart disease. The standard procedure uses a non-invasive probe placed on the chest wall, but clearer images are obtained with a transpesophageal probe. This approach is required when conditions such as obesity interfere with noninvasive echocardioaraphy and it is also used intraoperatively in both adults and children. The probeis inserted into the patient's besophagus and the procedure is regarded as invasive. Transcesophageal probes require HLD after use.

There is interest from two major manufacturers of these probes for Nanosonics to develop a dedicated device for the disinfection of their respective devices. The fundamental technology is already in place at Nanosonics, and we understand reaures only detailed fifting to the probe materials and structure. Nanosonics aims to propose a development program that would be funded by the probe manufacturers.

general-purpose disinfection and sterilisation

The Nanosonics technology is applicable in other areas such as dentistry, centralised sterilisation departments, laboratories and pharmaceutical and chemical industries, industry analysts report that the alobal market for general-purpose sterilisation systems and equipment in 2005 was estimated to be

over US\$2.6 billion, and arowing at 4% per annum. Although a very large market, this will be more difficult to penetrate than the specialised medical device sector for which NanoNebulant has clear maior advantages over competing fechnologies.

development status

Nanosonios has limited resources to focus on any application other than its lead products and accordingly is not currently focusing on development of general-purpose disinfection and sterifisation systems.

disinfection of rooms and spaces

There is a broad market for bio-decontamination of rooms, spaces and equipment contained therein, including applications in hospitals, ambulances, other medical, dental and veterinarian premises. pharmaceutical manufacturing, food production, storage and processing as well as such areas as aircraft cabins and military applications. The market also includes countering or responding to threats of bioterrorism. Whilst the diffuse nature of these dooliedrians makes it difficult to auantify the market they nevertheless represent potential opportunities for Nanasonias. Nanasanias' market share will depend critically upon the advantages offered by Its product over competing approaches such as ultraviolet irradiation, air fiftration and a range of chemical disinfectants that are already available.

development status

These applications are nominated for future development by Nanosonics.

infellectual property

Nanosonios relies on a combination of patents. trademarks, trade secrets and in-house knowledge to protect its technologies. The Company's patentportfolio is held in Saban Ventures Pty Ltd ("Saban"), a wholly-owned subsidiary of Nanosonics Limited, which will assign or license the intellectual property. to Nanosonics on a royalty-free basis. Saban holds all the patents protecting the key embodiments of Nanosonics' technology. One patent is issued in jurisdictions covering the major markets worldwide. and several others are progressing through the international review stade. In addition, Nanosonics is building a comprehensive patent portfolio to protect

improvements, developments and applications for its inventions. The Company monitors its freedom to operate in its market by examination of potentially competing patents through its patent aftorneys.

regulatory approval

Nanosonics' products will be classified as Class II by the US Federal Drug Administration, CE Mark Class Ita in Europe and Class Itb by the Australian Therapeutic Goods Administration. These are relatively low risk categories and are not associated with any requirement for clinical trials although they do require some clinical assessment. This has a major impact on the cost of development, and in addition, regulatory approval is expected to be relatively rapid, which Nanosonics expects will take between 5-9 months, in our view this is a reasonable expectation.

conclusions

Nanosonics has used its research and development capability to create an innovative platform technology with broad potential applications in the area of disinfection and sterilisation. Nanosonics either owns or has exclusive access to this intellectual property. The lead and second products will apply the novel NanoNebulant technology to the high level disinfection of ultrasound probes and endoscopes. These medical devices are used in large and increasing numbers of procedures throughout the developed world, and important high-growth rearkets are emerging in developing countries especially India and China. Disinfection of these devices represents an attractive and growing market apportunity, with a clearly identified need for novel approaches and differentiated products.

Nanosonics' lead product is a high level disinfector for intracavity ultrasound probes, which has entered the final stage of development for manufacture. We understand that Nanosonics aims to fake this device to market in the first half. of 2008. The second product is an automated endoscope reprocessor for flexible endoscopes, combining washing that includes prionicide treatment and high level disinfection. A proof-ofconcept prototype has been produced and will be completed in association with a major endoscope. manufacturer. These products combine high level disinfectant devices with dedicated consumables that optimise the commercial opportunity.

metrecident

SORUSO

shedve

Rotion

In our coinion use of the NancNebulant fechnology has several important competitive advantages over existing techniques and products, being safefor patients and operators, compatible with a widerange of materials and environmentally friendly. Short processing times represent an important advance with potential major cost savings for the customer, and the total and operating costs are low in comparison with those of several competing. approaches. In our view, the endoscope washer/ reprocessor may also be more effective than existing products and techniques.

Nanosonies' product pipeline includes a dedicated high level disinfection device for fransoesophageal echocardiography probes, room and space disinfection and a general medical steriliser all based on the NanoNebulant technology. At presentthese products are intended to effect disinfection. If the technologies can be developed as sterilants, the potential market size for the product range will be greatly increased.

The Company's timelines are demanding, but it has a good track record and in our pointon they are realistic. The lead product is well advanced, and the Nanosonics team is expected to deliver. It and subsequent products to market on time. Nanosonics' marketing strategy optimises the potential for endorsement of its products by major device manufacturers and its opportunity for capturing market share. These collaborations and endorsements will play a significant part in the success of the Company.

disclaimer

This report is provided solely for inclusion in the prospectus issued by Nanosonics on or about April 2007. All comments, forecosts and recommendations made in this report are made in good faith on the basis of information available to the consultants at the time including information from Nariosonics. Nariosonics has given permission to include the information provided by the Company as oresented.

Innovation Dynamics has preadred this independent report occording to the Policy Statements and Proctice Notes from Australian Securities and Investments Commission (ASIC) and the ASX Listing Rules, Innovation Dynamics holds an Australian Financial Services Licence from ASIC (No. 298107).

This report does not make ony recommendations regarding ourchase of shares in Nonosonics.

There are multiple risks in bringing Nanosonios' technologies to market where they can generate revenues, innovation Dynamics does not guarantee that the actions noted here will actually come. to possibecause of possible alfficulties in finalising the production of devices, abtaining FDA and other regulatory approval to morket the Company's products, failure to secure recommendations from major manufacturers of uthasound probes and endoscopes, changes in the morkets and general business environment and actions by Nanosonias, which eccur subsequent to this report and are outside our control to know fenovation Dynamics has not audited any ficancial forecasts of Nanosonics and has not analysed the lead! status of adreements Nanosocias has epireted iblo or agreems field. However, in our independent assessment we have not identified. onything that would indicate that this is materially misstated. A draft report was issued to the due diligence committee of Nanceonics to confirm factual accuracy and changes were mode in the final report to reflect these.

We have aiven our written consent to the inclusion of this report as appealing in the Prospectus in the form and context in which if oppears, and the references to this report and the inclusion of quotes from this report elsewhere in this Prospectus. We have been involved only in the preparation of this Report and not in any other part of this Picspectus, and specifically disclaim liability to any person.
In respect of any signements included elsewhere in this Prospectus other than references to this report or audies from this report. We have not, other than as set out above, authorised or caused the Issue of this Prospectus.

Innovation Dynamics has acted independently in preparing this report and neither its directors nor staff has any pecuniary or other interest in Nanosonias, or their associates, that could reasonably be regarded as affecting its ability to give an unbiased opinion. Incovation Dynamics will receive normal professional fees for the due dilgence and preparation of this report, irrespective of whether or not the PO is successful With the exception of these fees, innovation Dynamics will not receive any other benefits, either directly or indirectly, from the preparation of the report.

Yours faithfully, INNOVATION DYNAMICS FTY LTD

Joan Dawes MA DPhil Senior Consultant

Kelvin Hopper PhD Executive Chairman

9. patent attorney's report

PATENT ATTORNEYS REPORT IN RESPECT OF NANOSONICS LTD.

Sydney

Level 2 1. 6 0 Margaret Street Sydney, NSW 2000 Australia

Telephone +61 2 9777 1111 Facsimile +6% 2 9241 4666

Brishano Lovel 3. Waterfront Place

1 Eagle Street Brisbane, OLD 4000 Telephone +61 7 3360 0299 Telephone +61 2 4921 7366 Facsimile +61 7 3360 0222

Newcastle Level 1, IDC House University Inive Callaghan, NSW 2308

Facsimile +61 2 4921 7367

General DX 10339 Sydney Stock Exchange

fra: engiliShektorPun internet: www.Shekstariff.com

Australian and New Zealand Patent and Trade Mark Attorneys in association with Shelston 2P Lawyers

$-2-$

$\blacksquare$ INTRODUCTION

This Patent Attorney Report has been prepared by Shelston IP. Patent and Trade Mark Attorneys, for inclusion in a prospectus of Nanosonics Ltd, of Unit 24, 566 Gardeners Road, Alexandria, NSW 2015, Australia to be dated on or about 2nd April 2007 relating to the offer of 54,000,000 shares at AU\$0.50 to raise AU\$27,000,000 and also apply for official quotation of its shares on the ASX Limited.

Shelston IP currently manages the intellectual property portfolio on behalf of Nanosonics Ltd. Neither Shelston IP nor any of its partners has any entitlement to any securities in Nanosonics Ltd., or has any other interest in the promotion of Nanosonics Ltd.

$2₁$ ABOUT SHELSTON IP

Shelston IP is a well established. Sydney based, firm of patent and trademark attorneys, formerly known as Baldwin Shelston Waters (Australia). Shelston IP is a leading Australasian intellectual property firm providing high quality, commercially relevant, intellectual property advice and services. Shelston IP currently has over 120 professional and support staff, and in excess of 100 years of experience in intellectual property practice.

Shelston IP can and does offer a full range of professional advice in all areas of Intellectual Property law including Patents, Designs, Trademarks, Copyright and Fair Trading. The firm offers a wealth of technical and intellectual property expertise and experience across all disciplines, and has specialist teams practicing in the fields including, inter alia, infection control and medical devices.

$3.$ INTELLECTUAL PROPERTY PROTECTION - BACKGROUND

Intellectual property is a valuable and tangible asset which needs to be carefully and diligently protected. It encompasses statutory and common law rights which provide protection in relation to products, processes, trade names, designs, drawings, plant breeders rights and circuit layouts in industry, science or commerce. Patents for inventions are one important type of Intellectual property which protects inventors of a product or process for a period sufficient for them to enjoy the returns of their investment.

A patent is a statutory monopoly which confers on the owner of the patent the exclusive right to make, use, or sell the invention as defined in the patent claims throughout the territory of the country granting the patent.

The grant of a patent in one country does not confer any rights in any other country. A patent has a fixed term, which in most countries is 20 years from the date of filing of the patent application, and in many countries, including Australia, the United States, Japan, and the countries of the European Patent Convention, extension of term is available for patents for pharmaceutical substances.

A patent right is obtained by filing a patent application together with a patent specification, which describes the invention and includes a set of claims which define

$-3-$

the monopoly which is sought. In Australia and the United States it is possible to file a provisional application in order to establish a priority date in respect of the invention. The priority date so established will be recognised in most industrialised countries and Australia's major trading partners as long as a corresponding complete application is filed within 12 months from the date of filing of the provisional application. The complete application is examined by the relevant patent office before it can proceed to grant.

Each country has its own national patent laws and there is unfortunately no such thing as a "world" patent. Generally, in order to obtain patent protection overseas, it is ultimately necessary to file separate patent applications in each country of interest. There are, however, a number of international conventions and treaties which can be used to facilitate or defer this procedure.

International conventions enable a provisional patent application to be used as the first step in obtaining patent rights in other countries, which claim priority from the initial provisional patent application. Most commonly a single international patent application is lodged under the provisions of the Patent Cooperation Treaty (PCT), which designates the countries in which the applicant may subsequently wish to proceed. A PCT application is subject to an international search, and if desired, to International Preliminary Examination. The PCT system serves not only to obtain an initial prior art search for the inventions concerned, but also as a cost deferral mechanism. That is, the filing of a PCT application allows the Applicant to reserve its right to seek protection in the countries and regions designated in the PCT application (see Appendix), without having to incur for a further eighteen months the substantive costs of having separate national patent applications filed.

If the application is to proceed, it must be entered into the "National Phase" in each of the desired countries. Alternatively, under another international convention (Paris Convention), patent applications may be filed in individual desired countries within 12 months of the priority date. All of the major industrialised countries belong to these conventions.

Further, a single patent application may be lodged in respect of the countries of the European Patent Convention (currently 30 countries). This is called a European patent application and it may also be extended to certain other countries which are not yet full signatories to the European Patent Convention. A European patent application is examined by the European Patent Office, and once granted, must be registered and maintained in each individual country in which it is desired to have a patent.

In our experience it is largely commercially unjustifiable to seek patent protection in every available jurisdiction. Accordingly, there is a risk to be managed when determining which countries or jurisdictions protection is to be sought. This risk is generally best managed by the Applicant seeking protection in jurisdictions that correspond to the major markets for their products, and or by protecting new developments by filing provisional applications and subsequent PCT applications to maintain for longer the option to seek protection in a larger number of jurisdictions.

$-4-$

Examination of a patent application can be quite rigorous, and may require amendment or limitation of the claims. In some countries, once the application has been allowed by the Examiner the grant of a patent may be opposed by a competing party. For example in Australia there is a pre-grant opposition in Europe there is post-grant opposition. Opposition may result in refusal or revocation of the patent, or may result in further limitation of the claims.

Patents and patent applications are property rights which can be sold, licensed. mortgaged etc. Patents and patent applications may be lodged in the name of one or more applicants. In the absence of a specific agreement to the contrary, it is generally assumed that joint applicants hold equal shares in the rights to the invention

Trade Marks are similarly tradable property rights that are particularly important and valuable once a product or a process enters the market. Procedurally their registration is not unlike that for patents. However, functionally the role of a Trade Marks is quite different. A Trade Mark is, for example, a word or symbol used to denote the trade source of goods or services. The exclusive right of Trade Mark owners serves the function of consumer protection as well as protection of interests of traders in both the goodwill associated with their Trade marks and the value of a registered Trade Mark as a property right.

NANOSONICS I TD - OUTLINE OF THE PATENT PORTEOLIO $\Delta$

The current patent portfolio of Nanosonics Ltd. consists of six patent families, which relate to six different inventions

All but one of the patent families are owned by Saban Ventures Pty Limited, which is a wholly owned subsidiary of Nanosonics Ltd. Title in the inventions has been transferred from the actual inventors either by virtue of the employment status of the inventors (under Australian law, employers are entitled to have inventions assigned to them, if the inventors are employed for such a purpose) or by assignment, or both. The other patent family is owned directly by Nanosonics Ltd.

The details of the patent portfolio are summarised in Schedule I, and each of the applications and application families is discussed in more detail in Section 7 of the Report.

5. SCOPE OF THIS REPORT

In compiling this Report, in respect of each patent application the filing particulars have been confirmed and the current status ascertained. The patent specification has been reviewed, and any prior art cited during examination considered where applicable. For all patent families, novelty searches have been conducted by at least the Australian Patent Office (an International Patentability Search, or in the case of provisional patent applications or recently filed PCT applications International-type Patentability Search) and any relevant prior art reviewed. We have formulated our opinion as to the patentability or otherwise of each invention in light of all known prior art

$-5-$

Trade Mark registrations and applications are also included as part of this Report (see Schedule II) but considering the relatively straightforward nature of Trade Mark prosecution and registration, the Report will predominantly focus on patent portfolio matters.

As far as possible, the information in this Report is current as at 19 March 2007.

6. OVERVIEW OF PATENTABILITY ANALYSIS

Analyses performed for the purposes of this Report focus on the assessment of novelty and inventive step criteria for patentability, as set out in the Patents Act 1990. On the whole, our opinion on the patentability of each invention in the portfolio, as far as those for which patentability searches have been completed are concerned, is favourable. There are no aspects of the prior art reviewed thus far that give cause for serious concern in terms of the pending applications having some patentable subject matter. This opinion should, however, be read in the light of Section 9 of the Report, entitled "Limitations, Disclaimers and Caveats".

$\overline{7}$ . DETAILED REPORT

In general, Nanosonics Ltd, has developed a novel nebulant which in preferred embodiments consists of droplets of liquid hydrogen peroxide in a gas stream. The liquid droplets are characterised in that they are both much smaller and of much higher concentration than prior art hydrogen peroxide nebulants, being typically of less than one micron diameter and of around 60% peroxide concentration. The nebulant is produced by a novel process.

It is envisaged that the nebulant and the process and apparatus for producing it have substantial advantages for use in sterilization and disinfection. These include:

1. relatively short sterilization cycles:
1. economical and efficient penetration into lumens and mated surfaces at low temperatures:
1. elimination of the need for vacuum systems; and
1. eliminating the need for washing or drying steps.

It is also envisaged that the nebulant and process for its production will be useful for space disinfection, e.g. in chambers and ducts including operating theatres, whole buildings, storage silos, aeroplane cabins, or the like. The method may also have application $e.g.$ in the manufacture of hydrogen peroxide and other concentrates.

Previously known peroxide nebulants, consisting of particles of liquid in a carrier gas, had particles of diameter greater than 5 microns, and typically greater than 20 microns, and covered a range of concentrations up to 35%. Such nebulants were ineffective at sterilizing mated or shadowed surfaces, much slower in treating exposed surfaces, and required neutralization or washing for removal of residuals. Consequently, the use of nebulants was superseded in the sterilization field by the use of vapour and plasma technology which in turn suffers major drawbacks, in part at least due to the need for high vacuum, with associated high capital and running costs.

$-6-$

$7.1$ "IMPROVED DISINFECTION" PATENT FAMILY

7.1.1 Outline Of The Technology

The technology relates to a method of disinfection comprising ultrasonication, typically at 2.4 MHz or above of solutions comprising a disinfectant, particularly hydrogen peroxide and a surfactant. The resultant small particle size renders the resultant nebulant highly efficacious in carrying out high level disinfection, to the point where the nebulant is sporicidal.

The improved disinfection technology has been largely superseded by Nanosonics subsequent developments, which are the subject of applications detailed in sections 7-3-7.6. The application continues being prosecuted for strategic reasons.

7.1.2 Validity Opinion

A patent has been granted or accepted in many jurisdictions, including China, Israel. India, New Zealand, Singapore and South Africa.

The Australian patent was granted and is subsequently undergoing re-examination because the patent office has become aware of prior art cited in other jurisdictions which it had not previously considered. It is anticipated that this will result in claim narrowing to bring the Australian claims into correspondence with those in other jurisdictions.

Applications are still pending in many jurisdictions, including Europe and the US. The case has reached the "final rejection" stage with the US examiner, and the rejection has been appealed to the USPTO'S Board of Interferences and Appeals for further consideration

The "Improved Disinfection" patent family includes a number of patent applications which are in the process of being examined. There are known barriers to the automatic granting of patent on those applications, including prior art documents that have been cited as anticipatory, and other more formal objections and rejections. Other barriers may also arise. Once an objection arises, it is usual to enter into correspondence with the respective patent examiners and submit both arguments to highlight distinctions between the invention and any cited prior art, and amendments to the patent specification. This has already occurred in respect of several cases in the "Improved Disinfection" family and in all likelihood there will be the need to enter into further such correspondence for some of the other patent applications of Nanosonics in the "Improved Disinfection" family (as well as for other patent families). Whilst it is not possible to guarantee the outcome of the examination procedure we do not take the view that there exists any insurmountable barrier to the applications supporting some claims that satisfy the requirements of novelty and inventive step.

Shelston D

$-7 -$

7.1.3 Notes on Title

This family was originally filed in the name of Novapharm Research (Australia) Pty Limited, a related entity to Nanosonics Ltd. Deeds of Assignment in favour of Saban Ventures Pty Limited for all the cases in the series have been executed. Recordal of the change of name across the jurisdictions is being carried out in a cost effective manner, so some cases may still be listed on foreign Official Registers as proceeding in the name of Novapharm Research (Australia) Pty Limited. When recordal is complete, Saban Ventures Pty Limited will be the owner of record in all cases, as well as beneficial owner

$7.2$ "METHOD AND COMPOSITION FOR HIGH LEVEL DISINFECTION EMPLOYING QUATERNARY AMMONIUM COMPOUNDS" PATENT FAMILY

7.2.1 Outline Of The Technology

This technology is aside from Nanosonics core ultrasonic technology, but is still related to the field of high level disinfection. The technology relates to a method of achieving high level disinfection of a surface using a composition including a quaternary ammonium compound in excess of 1% w/w at temperatures of from 30°C to 80°C. The method disclosed and claimed can achieve a log 6 reduction in Mycobacterium terrae or Mycobacterium tuberculosis, if any, on the surface in less than 10 minutes.

7.2.2 Validity Opinion

The International Preliminary Examining Authority has issued an International Preliminary Examination Report in respect of the PCT application. On the basis of that search report we believe this patent application includes commercially relevant subject matter that can be validly patented over the prior art of which we are presently aware.

7.2.3 Notes on Title

The applications are currently in the name of Nanosonics Pty Ltd.

"IMPROVED AEROSOL" PATENT FAMILY $7.3$

7.3.1 Outline Of The Technology

This application broadly describes the improved aerosol and the general methods by which it could be manufactured, as well as its application and advantages for use in disinfecting or sterilizing surfaces in general - and medical instruments in particular. It is possible that the application, or progeny applications, may be divided prior to grant into applications relating to the packaging industry and those relating to the health care industries.

$-8-$

7.3.2 Validity Opinion

This patent application has only recently been filed as a PCT application and in Taiwan. An International-type search and an associated Written Opinion has issued for the PCT application from the Australian Patent Office. On the basis of that search report we believe this patent application includes commercially relevant subject matter that can be validly patented over the prior art of which we are presently aware.

7.3.3 Notes on Title

The applications are currently in the name of Saban Ventures Pty Limited.

$7.4$ "MEMBRANE STERILIZATION" PATENT FAMILY

7.4.1 Outline Of The Technology

This application is an extension of the technology described in the improved aerosol application, above, and focuses on a preferred method and apparatus for production of the aerosol which is of enhanced efficacy at low temperatures. Specific improvements relating to this method are more particularly described in the "Membrane Concentrator" application discussed below.

This application also describes a variation of the method which enables an article to be sterilized within a sealed container having a wall of which at least part is a semipermeable membrane, which allows vapour to pass out without allowing microorganisms to enter. Novelty resides in that the method allows sterilization at or above atmospheric pressure, i.e. without requirement for vacuum. In preferred embodiments, the container would be suitable for storage or handling in commerce.

7.4.2 Validity Opinion

This patent application has only recently been filed as a PCT application and in Taiwan. An International-type search and an associated Written Opinion has issued for the PCT application from the Australian Patent Office. On the basis of that search report we believe this patent application includes subject matter that can be validly patented over the prior art of which we are presently aware. On the basis of that search report we believe this patent application includes commercially relevant subject matter that can be validly patented over the prior art of which we are presently aware.

7.4.3 Notes on Title

The applications are currently in the name of Saban Ventures Pty Limited.

$-9-$

7.5 "SPACE DISINFECTION" PATENT FAMILY

$7.5.1$ Outline Of The Technology

This application is directed to specific variants of the invention the "Improved" Aerosol" application above, which are more specifically optimised for use in disinfection of surfaces or spaces such as, for example, those that occur in hospital wards or operating theatres, a shipping container, an aircraft interior, a shopping mall, subway system, warehouse, silo, or other enclosed or semi-enclosed space which may be infected with bacteria, fungi, viruses, or the like. Exposed surfaces may be exemplified by surfaces of walls or partitions defining the space, or work surfaces, machinery surfaces, air conditioning ducts, or other surfaces that are interior or can be enclosed or partly enclosed, at least temporarily, for the purpose.

An International-type search and an associated Written Opinion has issued for the PCT application from the Australian Patent Office. On the basis of that search report we believe this patent application includes commercially relevant subject matter that can be validly patented over the prior art of which we are presently aware.

7.5.2 Validity Opinion

This patent application has only recently been filed as a PCT application and in Taiwan. An International-type search has been carried out on the provisional application by the Australian Patent Office. On the basis of that search report we believe this patent application includes subject matter that can be validly patented over the prior art of which we are presently aware.

7.5.3 Notes on Title

The applications are currently in the name of Saban Ventures Pty Limited.

"MEMBRANE CONCENTRATOR" PATENT FAMILY $7.6$

7.6.1 Outline Of The Technology

This application is an elaboration of some aspects of the Membrane Sterilization application above, insofar as it relates to a specific embodiment which it is proposed to market (a high level disinfector for diagnostic ultrasound probes). Specifically, this application provides a more detailed description of the specific embodiment of the membrane concentrator unit. It is envisaged that prior to launch of this product, further applications will be lodged relating to an instrumentation for monitoring the liquid peroxide concentration, a method of certifying sterilization, and certain design features.

This application may have broader application wherever the concentration of aerosols is required.

$-10-$

7.6.2 Validity Opinion

7.6.3 Notes on Title

The applications are currently in the name of Saban Ventures Pty Limited.

$7.7$ RELATIONSHIP BETWEEN THE APPLICATIONS

The "Improved Disinfection" and "Method And Composition For High Level Disinfection Employing Quaternary Ammonium Compounds" series are unrelated, in a formal patent sense, to each other or to any other applications. The other four applications do have a formal relationship with one another. The priority applications for "Improved Aerosol", "Membrane Sterilization" and "Space Disinfection" were filed simultaneously, and prior to the filing of "Membrane Concentrator". Complete applications for "Improved Aerosol", "Membrane Sterilization", "Space Disinfection" and "Membrane Concentrator" were filed simultaneously, and all four complete applications, claim priority from all four provisional applications. This strategy was deliberately adopted to remove as far as possible the situation whereby one or more of these four applications may render another of the applications unpatentable for want of novelty or inventive step.

8. INFRINGEMENT

The nature of right-to-market searching is to assess the risk that the intended product or process might infringe an existing patent right granted to another party. Because of inherent limitations on searching for these documents and on predicting the outcome of court proceedings, it is important to understand that any opinion in relation to an unfettered right to market is not definitive.

In order to manage the risk of possible infringement of other's patent rights, Nanosonics had commissioned infringement searches in the USA, Europe and Japan in the period December 2005-May 2006 in respect of its principal process. Attorneys in those jurisdictions concluded that the process is of little risk of being held to infringe any unexpired patent in force. Where relevant, Australian equivalents were considered by us and we are similarly of the opinion that the Nanosonics principal process as described to us is not likely to be found to infringe.

Subsequently. Nanosonics has commissioned updated searches in the aforesaid jurisdictions in March 2007. Attorneys in these jurisdictions again concluded that the

$-11 -$

process is of little risk of infringing any unexpired patent in force in these jurisdictions. Where relevant, the Australian equivalent was considered. Additionally, where relevant, documents revealed in the International Search Reports discussed in preceding sections 7.3 to 7.6 were considered. We are of the opinion that the Nanosonics principal process as described to us is not likely to be found to infringe any unexpired patent in force revealed during these searches.

9. OTHER OBSERVATIONS AND INTELLECTUAL PROPERTY

Nanosonics also has a number of registered and pending Trade Marks in Australia, and which are capable of being registered overseas (see Schedule II). Nanosonics are actively using these Trade Marks in the course of their business.

Nanosonics undertakes considerable research and development activity. This activity gives rise to a pool of knowledge, some of which provides a basis for formalised protection (such as patents) and some of which is retained confidentially for internal use to aid subsequent development activities.

That is, in our opinion. Nanosonics has a degree of "know-how" that extends beyond the formalised protection described above.

Further, in addition to the above, it is our observation that Nanosonics takes steps to prevent leakage of IP through a combination of:

Physical security measures at their Alexandria site. $\bullet$
Confidentiality clauses in employment agreements
Entering into confidentiality agreements with potential collaborators prior to disclosure of detailed technical information

$10.$ LIMITATIONS, DISCLAIMERS AND CAVEATS

$10.1$ SEARCH LIMITATIONS

10.1.1 Limitations Due To Time Period and Geographical Coverage

The initial validity searches conducted by the Australian Patent Office and the results of which are in part relied upon in this Report, would have been substantially computer based and as such, would have been limited in terms of the time periods and the geographical areas covered. Thus, databases used by the Australian Patent Office may not include older published documents and may not cover certain jurisdictions. All searches are subject to the accuracy and scope of the records searched as well as to the indexing and classification of those records. Moreover, any search strategy will inevitably involve some compromise between scope and cost.

$-12-$

10.1.2 Limitations Due to Unpublished Documents

Additionally, searches cannot reveal potentially relevant patent documents which have not been officially published at the time of conducting the search. In most countries, publication of patent applications does not occur until 18 months from the earliest priority date and consequently, patent searches would not normally reveal applications filed in the preceding 18 months. The United States is an exception where certain older patent applications are not published until grant, which typically occurs between two to four years from the U.S. filing date. There may also be delays between official publication and the implementation of information onto the relevant databases

10.1.3 Limitations Due To Forms of Prior Art Other Than Patent Documents

It should also be appreciated that no novelty search can ever be entirely conclusive because some forms of prior art such as prior public use, prior commercial exploitation and prior publication in non-patent literature, cannot be systematically searched.

10.1.4 Search Results Indicative But Not Conclusive

The searches conducted by different patent offices provide a reasonable indication of the patentability or otherwise of the inventions in the patent portfolio. However, the above and other factors make it impossible to quarantee that every conceivably relevant prior art record has been revealed. Any conclusions on validity based on these or any other searches should therefore be regarded as indicative, and not conclusive

10.1.5 Novelty Searches Provide No Guarantee of Non-Infringement

The present searches do not provide any quarantee that the subject inventions may be commercially exploited without risk of infringement of earlier patents.

$10.2₁$ OTHER IMPORTANT NOTES AND CAVEATS

10.2.1 Examination Reports In One Country Not Binding In Other Countries

In most countries, patent applications undergo an independent search and examination by the local Patent Office, the results of which are not binding in other jurisdictions. Similarly, international PCT search and examination reports are not binding on national patent applications during subsequent examination in the national phase. Such reports should therefore be regarded as indicative only and not determinative of patentability. It should also be appreciated that the grant of a patent in one country provides no quarantee that patents will grant in other jurisdictions.

$-13-$

10.2.2 Scope of Claims May Vary during Examination

It is often necessary during the examination of a patent application to define the invention more specifically by amendment of the claims, so as to distinguish relevant prior art. As a result of this process, there may be variations in the claims between countries, reflecting in part the different examination procedures and threshold requirements for patentability, according to national laws. Whilst this is relatively standard procedure, in certain circumstances, such amendments may affect the scope and hence the commercial significance of the resultant patent protection.

10.2.3 Grant of Patent Provide No Guarantee of Validity

A granted patent provides no guarantee of validity. In most jurisdictions, a patent application undergoes a substantive examination process before proceeding to grant which confers an initial presumption of validity. However, the validity of a patent may be challenged at any time after grant, by way of revocation proceedings filed in a Court of competent jurisdiction.

10.2.4 Grant of Patent Provides No Guarantee of Non-Infringement

The grant of a patent provides no quarantee that the patentee is entitled to commercially exploit the patented invention, since the working of an invention, even if validly patented, may infringe an earlier patent or other intellectual property rights.

$10.3$ LIMITATIONS ON INFRINGEMENT OPINIONS

Infringement is, by its very nature, a contentious issue. There are no certainties, and as such advice any advice in this regard should be regarded as an indicator of the risk involved rather than as a definitive answer. Infringement searches are subject to the same limitations as other patent searches, in that for a variety of reasons, relevant documents may not be ascertainable. Further, in practice, infringement matters are decided by Courts on the basis of applicable law and available evidence. Moreover, the applicable law may change over time.

SHELSTON IP

Ivan Rajkovic, PhD Partner

SCHEDULE I PATENT PORTFOLIO NANOSONICS LTD.

Family 1

Title: IMPROVED DISINFECTION Priority Date: 23 June 1998 (from provisional Appl. No. PP4273) OWNER: Saban Ventures Pty Limited

Country/Region	Official No.	Case Status
Argentina	990102998	Awaiting Examination
Australia	741580	Granted; Undergoing Re-examination
Australia
	2006249279	Filed
Brazil	PI9911993-5	Awaiting Examination
Canada	2335974	Accepted
People's Republic of China.	ZL99807646.5	Granted
Europe	99927605.8	Response Lodged to Examiner's Report
Hong Kong	1036762	Awaiting Examination
Israel	140431	Granted
India	IN/PCT/2000/00442DEL	Accepted
Japan	2000-555647	Awaiting an official action
Republic of Korea	2000-7014767	Response Lodged To Examiner's Report
Mexico	000074	Response Lodged To Examiner's Report
New Zealand	509050	Granted
Singapore	77778	Granted
United States of	09/720330	Lapsed. Continued as 10/151139
America
United States of	10/151139	Examiner's Report issued (Under Appeal
America		to USPTO Board of Interferences and
		Appeals)
Patent Co-	PCT/AU99/00505	Completed and Closed
Operation Treaty
South Africa	2000/7680	Granted

Family 2

Title: METHOD AND COMPOSITION FOR HIGH LEVEL DISINFECTION EMPLOYING QUATERNARY AMMONIUM COMPOUNDS Priority Date: 9 July 2004 (from provisional Appl. No. 2004903796) OWNER: Nanosonics Ltd.

Country	Official No.	Case Status
Argentina	050102841	Awaiting Examination
Malaysia	PI 20053141	Awaiting Examination
Thailand	102175	Awaiting Examination
Patent Co-	PCT/AU2005/000997	National Phase Entry
Operation Treaty

sivent attempts

recort

83.

SCHEDULE I PATENT PORTFOLIO NANOSONICS LTD.

Family 3

Title: IMPROVED AEROSOL Priority Date: 4 August 2005 (from Australian Provisional Patent Application No. 2005904181, 2005904196 and 2005904198 filed 4 August 2005 and 2006900748 filed 15 February 2006) OWNER: Saban Ventures Pty Limited

Country/Region	Application No.	Status
PCT	тва	Filed
Taiwan	тва .	Filed

Family 4

MEMBRANE STERILIZATION Title:

Priority Date: 4 August 2005 (from Australian Provisional Patent Application No. 2005904196, 2005904181 and 2005904198 filed 4 August 2005 and 2006900748 filed 15 February 2006)

Saban Ventures Pty Limited OWNER:

Country/Region	Application No.	Status
PCT	твд	Filed
Taiwan	тва	Filed

Family 5

SPACE DISINFECTION Title: Priority Date: 4 August 2005 (from Australian Provisional Patent Application No. 2005904198, 2005904181 and 2005904196 filed 4 August 2005 and 2006900748 filed 15 February 2006)

OWNER: Saban Ventures Pty Limited

Country/Region	Application No.	Status
DOT w.	твд	Filed
Taiwan	TBA	™leo

Family 6

Title:

MEMBRANE CONCENTRATOR

Priority Date: 4 August 2005 (from Australian Provisional Patent Application 2006900748 filed 15 February 2006 and 2005904198, 2005904181 and

2005904196 filed 4 August 2005)

OWNER: Saban Ventures Pty Limited

Country/Region	Application No.	Status
PCT	ТВА	Filed
Taiwan	ТВА	Filed
Provisional	2007900503	Filed

SCHEDULE II
TRADE MARK PORTFOLIO NANOSONICS PTY LIMITED

Registered Trade Marks

Nanosonics - Word

Country	Number	Class	Description
Australia	833932	10	Medical, dental or veterinary apparatus
			for the application of disinfectants using
			high frequency ultrasound
		11	Apparatus for the application of
			disinfectants using high frequency
			ultrasound

Nanosonics - Word + Device

Country	Number	Class	Description
Australia	1062094		Chemicals used in industry, science, medicine and disinfection
		5	Pharmaceutical, medical, veterinary and sanitary preparations for medical use; dental wax, disinfectant
		9	Scientific apparatus and instruments
		10	Surgical, medical, dental and veterinary apparatus and instruments
		11	Apparatus for sanitary purposes
		42	Scientific and technological services and research and design relating to industrial analysis and research services

Nanonebulant - Word

Country	Number	Class	Description
Australia	1061524		Chemicals used in industry, science, medicine and disinfection
		5	Pharmaceutical, medical, veterinary and sanitary preparations used for medical use, dental wax and disinfectants
		9	Scientific apparatus and instruments
		10	Surgical, medical, dental and veterinary apparatus and instruments
		11	Apparatus for sanitary purposes

Eccles s'yennotto ineito.

SCHEDULE II
TRADE MARK PORTFOLIO NANOSONICS PTY LIMITED

Micronebulant - Word

ුර

Country	Number	Class	Description
Australia	1061522		Chemicals used in industry, science, medicine and disinfection
		5	Pharmaceutical, medical, veterinary and sanitary preparations used for medical use, dental wax and disinfectants
		9	Scientific apparatus and instruments
		10	Surgical, medical, dental and veterinary apparatus and instruments
		11	Apparatus for sanitary purposes

APPENDIX PCT COUNTRIES NANOSONICS LTD.

United Arab Emirates, Antigua & Barbuda, Albania, Armenia, African Regional Industrial Property Organisation (ARIPO), Austria, Australia, Azerbaijan, Bosnia And Herzegovina, Barbados, Bulgaria, Brazil, Botswana, Belarus, Belize, Canada, Switzerland, People's Republic Of China, Colombia, Costa Rica, Cuba, Czech Republic, Germany, Denmark, Dominica, Algeria, Eurasia, Ecuador, Estonia, Egypt, Europe, Spain, Finland, United Kingdom, Grenada, Georgia, Ghana, Gambia, Croatia, Hungary, Indonesia, Israel, India, Iceland, Japan, Kenya, Kyrgyzstan, Comoros, Saint Kitts And Nevis, Democratic People's Republic Of Korea, Republic Of Korea, Kazakhstan, Saint Lucia, Liechtenstein, Sri Lanka, Liberia, Lesotho, Lithuania, Luxembourg, Latvia, Libyan Arab Jamahiriya. Morocco, Republic Of Moldova. Madagascar, The Former Yugoslav Republic Of Macedonia, Mongolia, Malawi, Mexico, Mozambique, Namibia, Nigeria, Nicaragua, Norway, New Zealand, African Intellectual Property Organisation (OAPI), Oman, Papua New Guinea, The Philippines, Poland, Portugal, Romania, Russian Federation, Seychelles, Sudan, Sweden, Singapore, Slovakia, Sierra Leone, San Marino, Syrian Arab Republic, Tajikistan, Turkmenistan, Tunisia, Turkey, Trinidad And Tobago, United Republic Of Tanzania, Ukraine, Uganda, United States Of America. Uzbekistan, St Vincent And The Grenadines, Viet Nam, Serbia And Montenegro, South Africa, Zambia, Zimbabwe, African Regional Industrial Property Organization (ARIPO): (Designating: Botswana, Ghana, Gambia, Kenya, Lesotho, Malawi, Mozambique, Namibia, Sudan, Sierra Leone, Swaziland; United Republic Of Tanzania, Uganda, Zambia And Zimbabwe). Eurasia: (Designating: Armenia, Azerbaijan, Belarus, Kyrgyzstan, Kazakhstan, Republic Of Moldova, Russian Federation, Tailkistan, Turkmenistan). Europe: (Designating: Austria, Belgium, Bulgaria, Switzerland And Liechtenstein, Cyprus, Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Hungary, Ireland, Iceland, Italy, Lithuania, Luxembourg, Latvia, Monaco, Netherlands, Poland, Portugal, Romania, Sweden, Slovenia, Slovakia, Turkey). African Intellectual Property Organization (OAPI) (Designating: Burkina Faso, Benin, Central African Republic, Congo, Cote D'ivoire, Cameroon, Gabon, Guinea, Guinea-Bissau, Equatorial Guinea, Mali, Mauritania, Niger, Senegal, Chad, Togo)

10. investigating
accountant's report

RSM Bird Cameron Corporate Pty Ltd

Level 12, 60 Castlereagh Street Sydney NSW 2000
GPO Box 5138 Sydney NSW 2001
T +61 2 9233 8933 F +61 2 9233 8521 www.rsmi.com.au

30 March 2007

The Directors Nanosonics Limited Unit 24, 566 Gardeners Road ALEXANDRIA NSW 2015

Dear Sirs

Investigating Accountant's Report

ĭ Introduction

This report has been prepared at the request of the directors of Nanosonics Limited $11$ ("Nanosonics" or "the Company") for inclusion in a Prospectus to be dated on or about 2 April 2007 relating to the proposed offer to raise \$27,000,000 by the issue of 44,000,000 fully paid ordinary shares in the Company and 10,000,000 Vendor Shares to be sold by Vendor Shareholders at an issue price of 50 cents per share.
$1.2$ This report has been prepared in accordance with the general disclosure requirements of the Corporations Act 2001 to assist investors make an informed assessment of the financial performance and the financial position of the Company.
1.3 The future prospects of the Company, other than the preparation of a pro forma Balance Sheet for the Company, assuming completion of the proposed transactions, are not addressed in this report. This report also does not address the rights attaching to the shares to be issued pursuant to this Prospectus, nor the risks associated with the investment.

Macintosh T0x40a160.tmp.90vJAJ:Nanosonics IAR_Final 300307.doc Liability limited by a scheme aporoved under Professional Standards Legislation

RSM Bird Cameron Corporate Pty Ltd ABN 82 050 508 024 Licensed Investment Adviser No.255847

Major Offices in: Perth, Sydney, Ahashoume Adelaide and Canberra

HD:orivate:var:tmp:folders.501:Temporaryttems:com.apple.mail.drag-

RSM Bird Cameron Corporate Pty Ltd is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms.

PAIL AND TRAINING

SURFACTION

BOOT

$\overline{2}$ Scope of Examination

$2.1$ You have requested RSM Bird Cameron Corporate Pty Ltd to prepare an Investigating Accountant's Report on the following:
The reviewed consolidated income statement for the half year ending 31 December 2006 and audited consolidated income statements for the years ended 30 June 2005 and 30 June 2006 for the Group.
the reviewed consolidated Balance Sheet of the Group as at 31 December 2006; and
the unaudited consolidated pro-forma Balance Sheet of the Group as at 31 December 2006, $\infty$ assuming completion of the capital raising and the transactions summarised in Note $1(t)$ to the financial statements (the "Pro-Forma Financial Information").
$2.2^{\circ}$ The financial information has been extracted from the consolidated half year financial report ended 31 December 2006 and consolidated audited financial report for the year ended 30 June 2006 of Nanosonics.
$2.3$ The half year financial report was reviewed by UHY Haines Norton and the review opinion issued was unqualified. The financial reports for the year ended 30 June 2006 and 30 June 2005 were audited by UHY Haines Norton and the audit opinion was unqualified.
$2.4^{\circ}$ The directors of Nanosonics are responsible for the pro-forma financial information included in Section 7 of the Prospectus.
$2.5^{\circ}$ Our review has been conducted in accordance with Australian Auditing Standards AUS 902 "Review of Financial Reports". We made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances including:
an analytical review of the financial information;
review of the application of accounting standards and policies; $\sim$
examination of financial records; and
enquiries of management.
2.6 These review procedures were substantially less in scope than that would be required in an audit examination conducted in accordance with Australian Auditing Standards, thus the level of assurance provided is less than that given in an audit. We have not performed an audit and accordingly, we do not express an audit opinion.

$\overline{\mathbf{3}}$ Subsequent Events

Apart from the matters dealt with in this report, having regard to the scope of our work, to the $3.1$ best of our knowledge and belief, no material transactions or events outside the ordinary business of the Company have come to our attention that are not otherwise disclosed in this Prospectus, which require further comment upon or adjustment to, the information referred to in this report, or which would cause the information in this report to be misleading.

$\overline{\mathbf{4}}$ Opinion on historical and pro-forma financial information

In our opinion, based on our review, which is not an audit, nothing has come to our attention $4.1$ that causes us to believe that the financial information set out in Section 7 of the Prospectus does not present fairly:
the reviewed consolidated income statement for the half year ended 31 December 2006 $4.1.1$ and audited consolidated income statements for the years ended 30 June 2005 and 30 June 2006;
$4.1.2$ the reviewed consolidated Balance Sheet of the Group as at 31 December 2006; and
$4.1.3$ the unaudited pro-forma consolidated Balance Sheet of the Group as at 31 December 2006 adjusted to include funds proposed to be raised pursuant to the Prospectus and the completion of the transactions summarised in Note 1(c) to the financial statements.

$\overline{\mathbf{5}}$ Declaration

$5.1$ RSM Bird Cameron Corporate Pty Ltd is a licensed investment adviser under the Corporations Act 2001 and is beneficially owned by the partners of RSM Bird Cameron, a large national firm of chartered accountants.
5.2 Mr A J Gilmour CA is a director and authorised representative of RSM Bird Cameron Corporate Pty Ltd and a director of RSM Bird Cameron. He has professional qualifications and experience appropriate to the advice offered.
5.3 RSM Bird Cameron Corporate Pty Ltd has acted as Investigating Accountant for the Company but has not been involved in the preparation of any other part of this Prospectus. Accordingly, we make no representations as to the completeness and accuracy of the information in any other part of this Prospectus. RSM Bird Cameron Corporate Pty Ltd has not made and will not make any recommendation, through the issue of this report, to potential investors in the Company as to the merits of the investment
RSM Bird Cameron Corporate Pty Ltd will receive a fee for the preparation of this report based 5.4 on actual hours spent on the assignment at normal professional rates. With the exception of the above fee, neither Mr A J Gilmour, RSM Bird Cameron Corporate Pty Ltd nor RSM Bird Cameron will receive any other benefits, either directly or indirectly, from the preparation of this report and have no pecuniary or other interest which could be regarded as affecting the ability to provide an unbiased opinion in relation to the proposed transaction.
RSM Bird Cameron Corporate Pty Ltd has consented to the inclusion of this report in the 5.5 Prospectus in the form and context in which it appears. At the date of this report, this consent has not been withdrawn.

Yours faithfully

Andrew Gilmon

A J GILMOUR Director

11. risk factors

The purchase of Shares involves a high dearee of risk $\cdot$ and should be undertaken only by persons who are financially able to undertake such an investment. Prospective Investors should carefully consider the following risks and should consult with their own legal or financial advisers prior to supmitting an Application for Offer Shares.

The future performance of the Company and the future investment performance of the Shares will be influenced by a range of factors, many of which are outside the control of the Company and the Directors. The future level of dividends (if any) and the value of the assets may be reduced by any of these factors.

The financial prospects of any araanisation are also sensitive to the underiving nature of its business and. the nature and extent of the risks to which the entity is exposed. The Directors are responsible for ensuring that appropriate policies and procedures are in place to identify and monitor the risks faced by the Company from time to time and to ensure that such risks are managed within a level determined by the Directors to be prudent. In addition, there are a number of risks specific to the Company and the industry in which it operates.

Set out below is a summary of the material risk factors to be considered in the event the Transaction proceeds before deciding to make an Application.

11.1 risks relating to Nanosonics²business

commercialisation

To idate, Nanosonias has funded its Company's activities through the issue of Shares, from payments received. under R&D careements and Thom government grants. Nanosonics has not completed the development of any of its Disinfection devices and does not currently have any commercial agreements to manufacture or distribute devices or consumables. Nanosonics' ability to generate revenues in the future will be subject to a number of factors, including:

. whether Nanosonics is successful in completing product validation and obtaining requisitory clearance for the ultrasound Disinfection device
. The successful development, product validation and regulatory clearance of other products in Nancsonics' development pipeline
· whether Nanosonics is able to conclude commercially acceptable arrangements with third party manufacturers and distributors
the success of sales and marketing efforts and adequate market uptake of Nanosonics' products
. In the event that any of the products being developed by Nanosonics are commercialised. the ability of Nanosonics to continue to selfproducts, will depend on its ability to mainfain requiatory compliance, pass requiar qualits and respond to any issues that are raised by regulators from time to time.

regulatory risks, policy and legislation.

The Company's intended business is likely to be. subject to various regulations in the jurisdictions in which it operates and proposes to operate. Inthe event that any relevant licences or approvais were not granted, or renewed, or that they were withdrawn, or made subject to conditions that were onerous or unacceptable to the Company. the Company and its business could be materially adversely affected. Changes in government policy or statutory changes may also materially adversely affect the Company and the value of an investment in the Company.

reliance on manufacturers and distributors. Nanosonics Intends to Identify audit and engage manufacturers of sub-systems and for final assembly, as well as specialists in design and development, engineering and the marketing and distribution of its. products, By the nature of its products, the Company will be required to source its supply of manufactured products from a limited range of small volume and specialised manufacturers.

The interruption of such services, if extended over a material period of time, could materially and adversely affect the Company's business,

.income and capital risk.1

Ne assurances can be given in relation to the future earnings or working capital requirements of the Company. This is particularly the case alven that the Company does not currently have any products that generate revenues or have received the required regulatory approvals. This investment is speculative in nature and neither the Company, its officers nor any other person quarantees the maintenance in value of, or any returns from, any capital invested in or by the Company. The speculative nature of the investment poses a risk that no income will be generated and capital may be lost. It is likely that the Company will record losses and is unlikely to pay a dividend for a number of years.

III.RX ROCES

alliances and endorsements.

If will be crifical to the commercial success of the Company's product offering that those products are acceptable to medical device manufacturers, In order to ensure that potential end-users do not risk voiding any warranty entitiements or service contract oblications, in respect of the medical devices that If owns or proposes to acquire. The Company has developed its fechnology and products in close collaboration with a number of major medical device manufacturers, most of whom have been very supporfive of the Company's platform fechnology and product development to date. However, the Company cannot guarantee that any of those manufacturers will regard the Company's products as acceptable for the abovementioned purposes.

additional financing requirements

Care to the Company's growth will be the continued development of fechnologies and products that will. reautre a commitment of funds to further research and product development and improvement. Nanosonics anticipates that the funds raised through this Offer, coupled with its existing cash reserves and grants will be sufficient for the Company to meet its current capital requirements. However, no assurance can be diven that the Company will in fact, have sufficient funds to complete all of its current and future plans or that the Company will be able to raise further funds should the need arise.

existence of significant Shareholders ;

On completion of the Offer, Maurie Stang and Bernard Stang will hold or control a maximum of approximately 27.4% of the Shares and will refain a significant influence over the direction of the Company. In addition, Steve Kritzler will also hold or control a maximum of approximately 13.2% of the Shares after the close of the Offer. The interests of these significant Shareholders -which in aggregate will amount to a maximum of approximately 40.6% of the Shares after the close of the Offer - could conflict with those of the Company or the other Shareholders.

Following the expiry of the respective escrow periods referred to in Section 3.10, Shares held or controlled by the abovementioned Shareholders will be able to be freely fraded on ASX without restriction. Sales of substantial numbers of Shares by any of those Shareholders or any of the other First Round Shareholders or any of the other Second Round Shareholders or the perception that such sales have occurred or might occur, could adversely

affect the market price for the Shares. Alternatively, the absence of any sales of Shares by any of the abovementioned Shareholders - particularly during the period in which their respective Shares and Options are classified as restricted securities - may cause or at least contribute to a diminution in the Bauldity of the market for the Shares.

restricted securities and options

At the close of the Offer, approximately 76.7 million Shares and 2.2 million Options (collectively 39% of the fully diluted capital) will be restricted from sale. unfil the second anniversary of the Quotation Date. A further 7.2 million Shares (3.6% of the fully diluted capital) will be restricted from sale until 12 months. from the date of the issue of those Shares. These restrictions may also contribute to the illiquidity in the market for the Shares.

11.2 general risks associated with an Investment in Nanosonics

competition and market.

The Company expects that if will achieve the requisite requiatory approvals for its initial products. However, the attainment of these requidiory approvals provides no guarantees that the said. products will be successful in the market place. In addition, because the Company's technology is. novel, and yet to be proven in the market place, it may not find ready acceptance amongst potential

end users.

No assurances are given in respect of the Group's ability to compete successfully in the competitive markets in which it operates. Amongst other things, competition will affect the Company's marketing. sales and distribution of products, manufacturing and developing products for existing and new markets. Competition, new fechnologies and new manufacturers can reduce the product prices and profit margins and decrease the financial value of products and manufacturing operations and render costly R&D obsolete.

intellectual property and patent infringement

Even when patents are filed, there can be no guarantee that other competitive patents are not also in the patent "pipeline" or that the patent applied for will if granted, prevent others from developing competitive products using related technologies.

In addition, product counterfeiting by means of patent infringement is an increasing problem, particularly in countries that either do not have or do not reliably enforce, intellectual property and patent protection taws.

In light of the global application of the Company's product offering and technology applications, these problems $\pi$ if unable to be remedied $\sim$ could have. a material and adverse effect on the value of the Company and its businesses.

ability to attract and retain key personnel. Nanosonics is dependent on the skills of the principal members of its scientific and management team. In addition, the Company relies upon consultants to lassist in formulating (development strategies) and outsourcing some key development activities. Attracting and refaining suitably qualified personnel and consultants is critical to the Company's success. The Company faces competition to employ and retain the services of qualified individuals.

management and staff development

As the Company grows and broadens its focus from pure R&D to include product development, outsourced manufacturing and sales, significant management and staff development will be needed. A combination of internal promotion and external recruitment will be used to refain, develop and affract suitable personnel. These requirements will be difficult to satisfy particularly in light of a current shortage of personnel who are skilled in the areas of operation intended to be conducted by the Company.

risk of product liability claims.

Nanosonias may be exposed to the risk of product. liability claims that is inherent in the manufacturina. testing and marketing of its Disinfection products. However product liability claims may damage Nanosonics reputation and if insurance proves inadequate, the product liability claims may harm Nanosonias' business, in addition, defending a suit, regardless of its merit, could be costly and could divert management attention.

share market risk

There are a number of risks associated with a stock rearket investment. The market price of the Shares is subject to general movements in local and. international stock exchanges, economic conditions and interest rates. The Shares may trade at a price

below the Offer Price depending on a range of factors including the performance of the market generally market perceptions of the Company and the performance of the Company generally.

other risks

The Directors have afternoted to address relevant risks. However, there are other general factors which are not specific to the Company, which may impact on the Company, including:

government economic policies and legislation; economic conditions, including interest rate charges and inflation;
taxation policies:
exchange rate changes;
business confidence and consumer sentiment;
changes in investors' attitudes towards the life sciences sector;
the state of world stock markets, and
inthe state of the Australian economy and global economies.

Wikk dolor

12. material contracts

$97²$ $[12.1 - \text{constant}]$ 12.2 employee share option $-98$ $\mathsf{plan}\left(\text{``esop''}\right) \mathbb{Z}$ 12.3 general option terms and conditions $\dot{\gamma}$ $100 \lceil \mathsf{100} \rceil$ $-12.4$ founder options $\mathbb{L}$ $100 -$ 12.5 underwriting agreement 12.6 employment agreement for geoff marshall [1111] Prof

2.7.	- confidentiality and intellectual property.
	deed with geoff marshall	101
281	SM agreement	101
2.9	research services agreement between Nanosonics and novapharm research (australia) pty limited	102
	2.10 novapharm prion licence	102
	2.11 : service agreement between : Nanosonics and medi-consumables pty limited	102
	2.12 "terms of appointment of" non-executive directors	103
	2.13 deeds of access and indemnity	103
	2.14 lease of alexandria premises	-103

The Directors consider that the contracts described below in this Prospectus are those which an investor. would reasonably reaard as material and which they. and their professional advisers would reasonably require to make an informed assessment of the Offer. This section only contains a surrimary of the material. contracts and their substantive terms. Any Shareholder or their representative who wishes to inspect a complete copy of a material confract is invited to attend at the offices of the Company during normal business hours and he or she will be provided with a complete copy of the material contract to review. However, no Shareholder or representative will be permitted to receive or make a copy of any material contract (other than the ESOP or the Constitution).

12.1 constitution

The material terms attaching to the Shares are:

voting

Subject to any rights or restrictions attaching to any class or classes of Shares, at meetings of Shareholders every Shareholder present in person or by proxy. attainey or representative has one vote on a show of hands and on a poll has ane vote for each Share held. The number of votes to which a holder of parfly paid Shares is entitied on a poli is equivalent to the proportion that the amount paid on the Share is of the issue price of the Share (Ignoring amounts paid in advance).

dividends and reserves

The profits of the Company which the Directors from time to time determine to distribute by way of dividend are divisible amongst the Shareholders in proportion to the amounts paid up on the Shares held by them. The Directors are authorised to adopt and amend share-plans such as bonus-share plans, employee share plans and dividend re-investment plans and dividend selection plans.

issue of further shares.

The Directors may (subject to the Constitution, the Listina Rules and the Corporations Act) allot or otherwise issue further shares in the capital of the Company on such. terms and conditions as they see fit.

transfer of shares.

Shareholders may transfer Shares by:

1) a proper ASX Settlement and Transfer Corporation Ply Limited ("ASTC") transfer or any other method of transferring or dealing in Shares Introduced by ASX or operated in accordance with the ASTC

Business Rules or Listing Rules and in any such case recognised under the Corporations Act; or °∭ an instrument of fransfer in writing in any usual form or in any other form approved by the Directors.

The Directors may refuse to realster a fransfer (other than a proper ASTC transfer) where the Company is permitted or required to do so underthe Listing Rules or where the fransfer is of restricted securities and the transfer may be in breach of the Listing Rules or an escrow agreement entered into by the Company.

general meetings and notices.

Any Director may call a general meeting of Shareholders and a general meeting may also be convened in the manner provided for in the Corporations Act.

Each Shareholder entitled to vote at a general meeting is entitled to receive notice of and, except in certain circumstances, to attend and vote at general meetings of the Company and receive all financial statements, natices and other documents required to be sent to members under The Constitution or the Corporations Act.

winding up

If the Company is wound up, the liquidator may, with the authority of a special resolution, divide among the Shareholders the property of the Company and may determine how the division is to be carried out as between the Shareholders or different classes of Shareholders.

Subject to any special or preferential rights attaching to any class or classes of Shares and the prior ranking. rights of creditors of the Company, Sharehalders will. normally be entitled on a winding up to share in any surplus assets of the Company in proportion to the Shares held by them less any amounts which remain unpaid on their Shares at the time of distribution.

inumber of and changes in directors :

The number of Directors must be not less than three and the maximum is to be fixed by the board of Directors but may not be more than 12 unless the Company passes a resolution varying that number. The composition of the Directors is subject

to Shareholder approval. All nominations for appeintment to the Company's board of Directors are reviewed by the Directors, At each annual general meeting, one third of the board of Directors (apart from the Executive Chairman and the Chief Executive Officer) will retire and each retiring Director, if he or she so chooses, can offer themself for re-election.

remuneration of directors.

The remuneration and terms and conditions of employment for the Non-Executive Chairman and other senior executives are reviewed by the Remuneration Committee that will be comprised of three Directors, including at least two Non-Executive. Directors. After iseeking independent professional advice, the Remuneration Committee will make recommendations to the board of Directors for consideration and approval if deemed appropriate.

Non-Executive Directors have the right to seek Independent professional advice in the furtherance of their duties as Directors at the Company's expense. The Chairman's prior approval of any expenditure is required....

The remuneration of the Chief Executive Officer, or any other Director appointed to an executive office, is fixed by the Directors.

The sum fixed for payment of the total Non-Executive Directors fees is \$500,000 until and unless the Shareholders, by an ordinary resolution, approve some other fixed sum.

Directors' indemnity

The Company must to the extent permitted by law indemnify each officer of the Company and each officer of a Related Body Corporate of the Company against any liability incurred by that person in that capacity, including but not limited to liability for nealigence or costs incurred in defending proceedings in which judgment is given in favour of the person or in which the person is acquifted.

The Directors are also empowered to pay premiums In respect of a contract insuring a person who is an officer of the Company against a liability incurred by the person as such an officer or as an officer of a Related Body Corporate. However, the liability insured against must not include that which the law prohibits. Any such premium in relation to a Director is in addition to, and not regarded as part of, the remuneration approved by members under the Constitution.

proportional takeover provisions

The Constitution contains provisions for Shareholder .
approval in relation to any proportional takeover scheme. The provision will lapse unless it is renewed. by special resolution of Shareholders within three years from the date of its adoption.

alteration of the constitution The Constitution can only be amended by a

special resolution passed by at least three quarters of Shareholders present and voting at a general meeting of the Company.

The Company must aive at least 28 days written notice to the Shareholders (unless consent to shorter notice is obtained in accordance with the provisions of the Corporations Act.) to propose a special resolution.

ishare buv backsi

The Company may buy back Shares in Itself in accordance with the provisions of the Corporations Act. The above summary does not purport to be exhaustive or to constitute a definitive statement of the rights and liabilities of the Shareholders. These can involve complex questions of law and fact arising. from an interaction of the Constitution with statutory. and common law rights and duties. For a Shareholder, or potential acquirer of Shares, to obtain a definitive assessment of the rights and liabilities which attach to shares in any specific circumstances, the Shareholder should seek lead) advice.

12.2 employee share option plan $\langle$ "ESOP") -

The material terms of the ESOP are:

offers

Under the ESOP the Directors may offer Options, such offer being in a form determined by the Directors.

exercise

No Option can be exercised until the relevant performance condition (if any) has been met orwaived by the Directors, after which each Option may be exercised only during the exercise period specified at the time of issue of the relevant Options. orice.

The Directors have the discretion to grant Options for a fee, set the exercise price and term of the Options.

exercise of options

Unless otherwise defermined by the Directors:

.
⊯. . thirty three per cent. (33%) of the number of Options granted at any one fime under the ESOP. will be able to be exercised on or after the first anniversary of the later to occur of the date of Official Quotation and the date of issue of those Options ("First Exercise Date");

Culturing thirty three per cent (33%) of the number of Options granted at any one time under the ESOP will be able to be exercised on or after the first anniversary of the First Exercise Date; and
. the final thirty four per cent. (34%) of the number of Options aranted at any time under the ESOP will be able to be exercised on or after the second anniversary of the First Exercise Date.

Subject to the foregoing, and unless otherwise determined by the Directors, an Option may be exercised at any time prior to the first to occur of:

. The expiry of the exercise period relative to that Option:
the expiry of thirty (30) days after termination of the employment of a participant in the ESOP ("Participant"), without cause; and
· immediately upon termination of the Participant's employment with cause.

in maria performance conditions

The Directors may impose such performance conditions (if any) as it considers appropriate.

In the event that a performance condition set by the Directors is not met on or in respect of a particular exercise date, the performance condition may be satisfied on a cumulative basis so that if satisfied on any following date during the exercise period. the Option holder will be able to exercise the applicable number of Options in respect of which the performance condition was not satisfied on any previous date upon which those Options would have otherwise become available to be exercised.

maximum number ...

In accordance with the Corporations Act, the ESOP provides that the Company will not grant Options under the ESOP if the total number of Shares the sublect of those Options would exceed 5% of the total number of Shares.

loans:

The Company may provide foans to facilitate Participants acquiring the Shares to be issued pursuant to the exercise of the Options under the ESOP Liability to repay the loan may be limited to the value of the Shares acquired with the relevant loan funds.

The Directors have the discretion to provide Participants with a lean, on ferms and conditions to be determined by the Directors. The Directors have the discretion to determine any interest rate and the ferm of such loan.

Participants will not be able to dispose of any Shares until the loan is repaid, or if the Shares are disposed of the proceeds must first be applied to repay the loan. Participants will be required, unless the Directors. determine otherwise, to apply a proportion of any dividends received from Shares fowards repayment of the loan.

The loan must be repaid if a Participant ceases employment with the Company or the Company. acrees to dispose of the Shares subject to a loan at the Participant's request if the loan is not repaid in accordance with the terms of the ESOP the Participant is deemed to have appointed the Company Secretary as the Participant's agent and atterney to do all acts necessary to self the Shares subject to a loan and repay the loan.

rights of options.

If the Company makes any bonus issue and a Participant holds Options pursuant to the ESOP when those Options are exercised in accordance. with the ESOP rules, the Participant will be entitled to receive the number of Shares that the Participant would have been entitled to secure under a bonus issue as if the Option had been exercised and the Shares allotted before that record date.

If there is a rights issue, the exercise price of an Option. will be adjusted in accordance with the Listing Rules in order to provide the Participant with the bonus element which may be present in a projrata rights issue. There is to be no change in the number of Shares to which the Participant is entitled.

In the event of any reconstruction of the issued ordinary capital of the Company, the entitlement to Shares attaching to each Option will be reconstructed in the same proportion as the issued ordinary capital of the Company is reconstructed, and in a manner which will not result in any additional benefits being conferred on the Participant which are not conferred on Shareholders.

All rights and entitlements attaching to an Option under the ESOP will be changed or amended to the extent necessary to comply with the Listing Rules that apply to a reorganisation of the capital. of the Company at the time that the reorganisation. becomes effective. Any rearganisation of the capital of the Company must not be done in a manner or with the effect that will prejudice the rights or interest, or the value of the rights or interest, of the Participants in the Options they hold immediately prior to the time of such reorganisation.

Ramphon Discription

Suspension of the ESOP.

The Directors may resolve at any time to amend, terminate or suspend the operation of the ESOP.

12.3 general option terms. and conditions

As noted in Section 13.7, the Company has agreed to offer collectively 1,825,000 General Options to various contractors, suppliers and associates of the Company. The material terms and conditions upon which the General Options will be issued are:

a) issue price nil cash consideration
b) exercise price A\$0.20 per General Option;
c) : timing of exercise unless otherwise defermined by the Directors:
. Thirty three per cent. (33%) of the number of General Options granted at any one time under these Terms and Conditions will be able to be exercised on or after the first anniversary of the later to occur of the date of Official Quofation and the date of Issue of those Options ("First Exercise Date");
a further thirty three per cent. (33%) of the number of General Options granted at any one time under these Terms and Conditions will be able to exercised on or after the first anniversary of the First Exercise Date; and $\mathbb{Z} \subset \mathbb{Z}^n$
the final thirty four per cent. (34%) of the number of General Options granted at any one time under these Terms and Conditions will be able to be exercised on or after the second anniversary of the First Exercise Date,

Subject to the foregoing, and unless otherwise determined by the Directors, a General Option may be exercised at any time prior to the fourth anniversary of the later to occur of the first anniversary of the Quotation Date and the Issue date of these General Options. Any General Options not exercised after that expliy date will terminate. and be of no force or effect.

The terms and conditions upon which the General Options are to be issued do not contain any provisions that enable the Directors to set performance conditions that must be satisfied before any General Option can be exercised or allow for the provision by the Company for loans to any General Option holder, In an analogous manner to those provisions as they appear in the ESOP in all other respects, the terms. and conditions upon which the General Options are to be issued are identical with those summarised in connection with ESOP in Section 12.2.

12.4 founder options:

Each of Maurie Stang, Bernard Stang and Steve Kritzler have each agreed to Issue 688,340 Options over an equivalent number of Shares that they personally hold te a total of 2.065.020 Options to various current and past employees of Nanasanics on the following material terms and conditions:

a) Exercise price \$0.20 per Founder Option;
b). Exercise period for ninety days after the earlier to accur of:
the second anniversary of the Quotation. $\langle \hat{v} \rangle$ Date: and
(ii) receipt by the Directors of a takeover offer for all the Shares that a majority of Directors recommend in the absence of any superior offer.

In addition, if the employment by Nanosonics of any grantee, or the employment of any Manosopics employee nominated by a corporate graptee, terminates for any reason, prior to the permitted exercise of any Founder Option, that Founder Option will thereupon be cancelled and of no further value, unless the grantors intheir absolute discretion elect otherwise.

c) The Company will not apply for the Official Quotation of any of the Founder Options and, because of the fact that none of the Founder-Options can be exercised prior to the second anniversary of the Quotation Date or the date of receipt of a recommended takeover bid, the Directors believe that none of the Founder Options will be classified as restricted securities.

12.5 underwriting agreement

Nanosonics. The Underwriter and the Vendor Shareholders have entered into the Underwriting Agreement for the underwriting of the Offer Under that agreement, the Company must pay the Underwriter an underwriting fee of 4% of the total funds raised through the Offer, other than funds raised from subscribers to the Offer who have been (dentified by the Chairman (subject to a cap of \$3,500,000) of which the Company must pay a 1% fee. In addition, the Company may in its discretion pay to the Underwriter an incentive fee of up to 1% of the total funds raised through the Offer, based on the performance of the Underwriter in relation to the Offer.

Further, each of the Company and the Vendor-Shareholders agree to indemnify the Underwriter from all losses incurred directly or indirectly, including lesses arising out of or in connection with the preparation for or involvement in investigations conducted by ASIC as a result of or in connection with the Prospectus and the Offer.

The Underwriting Agreement contains various representations and warranties made by each of Nanosonics and the Vendor Shareholders to the Underwriter. In addition, the Underwriting Agreement imposes various obligations on Nanosonias and the Vendor Shareholders, including that they must offer the Shares in accordance with the Underwriting Agreement and this Prospectus and that the Company must apply for the Shares to be quoted on the ASX.

As is normal for agreements of this nature, the Underwriter may terminate its obligations under the Underwriting Agreement on the occurrence of a number of events, which may accur before the Issue and allotment or transfer of Shares under the Offer. If certain termination events occur, the Underwriter may not terminate unless it reasonably believes that the event has or is likely to have a materially adverse effect on the outcome of the Offer, the likely price at which the Shares may frade on ASX or could give rise to a material liability for the Underwriter under any law or regulation.

12.6 employment agreement for Geoff Marshall

The Company has enfered into an agreement to employ Geoff Marshall full-time, as the Chief Executive Officer of the Company, on the following material terms: di Ma

a) base salary of \$240,000.00 per annum including statutory superannuation entitlements and motor vehicle expenses;
b) annual bonus payment of up to 25% of his base salary upon achievement of specified performance targets during the preceding 12 months:
c) upon the commencement of this agreement, Geoff was issued with 1,500,000 Options with an exercise price of \$0.20 per Option which expire on the fourth anniversary of the later to occur of the first anniversary of the Quatation Date and the issue date of those Options and a further 150,000 Options with an exercise price of \$0.75;
d) Geoff Marshall is entitled to:
$\mathbb{C}$ be $\mathbb{C}$ considered for an unscheduled. G). discretionary bonus based on extra ordinary achievements beyond those in the Company's business plan of an amount up fo.20% of his base salary; and

(ii) a fully maintained motor vehicle and cost of his accommodation paid by the Company until 30 June 2007.

From time to fime, the Board may determine that Geoff is entitled to an unscheduled discretionary bonus based on extraordinary achievements. beyond those contemplated in the Company's business plan.

The Company will review Geoff's performance and his achievement of key performance indicators during each preceding financial vear at the same itme as the key performance indicators for the new. financial year are determined in the Company's business plan.

The Company may terminate Geoff's employment If he is in material breach of a provision of his employment agreement. The Company may also terminate Geoff's employment for any or no reason by giving at least 6 manths notice or payment of remuneration benefits in lieu of such notice. Geoff. may ferminate his employment with the Company by giving no less than 3 months written notice to the Company.

12.7 confidentiality and intellectual property deed with Geoff Marshall

In addition to the abovementioned employment agreement, Geoff has entered into a Confidentiality and Intellectual Property Deed with the Company. Pursuant to this deed. Geoff has acreed to maintain the Company's confidential information and not to use any of the Company's confidential information In a way that is detrimental to the Company. Geoff has also agreed to assign to the Company all of his right, title and interest in any confidential information of the Company with effect from and at all times after the date of creation of such confidential information.

$12.8$ $\degree$ 3M agreement $\degree$

On or about 29 December 2001, the Company entered sinto an investment agreement with Minnesota Minina and Manufacturina Campany (now known as 3M Company) ("3M") and 3M Innovative Properties Company ("3M BC") ("Investment Agreement"), Pursuant to the Investment Agreement, the parties have agreed -that upon the Company being listed on the ASX, the Company will issue 3M with that number of Shares equal to \$2 million divided by the issue price of the Shares on listing (i.e. 4 million Shares), provided that the total number of Shares issued to 3M will not exceed 10% of Nanosonic's issued share capital.

The Investment Agreement also aranted certain licence and distribution rights to 3M. However, on or about 24 January 2007, the parties agreed that 3M and 3M IPC no langer have (i) any right to receive any income or reimbursement or (ii) licence or distribution rights (including any right of negotiation or refusal, under the Investment Agreement.

12.9 research services agreement between Nanosonics and Novapharm Research (Australia) Pty Limited

The Company has enfered info a Research Services .
Agreement with Novapharm Research (Australia) Pty Limited ("Novapharm") under which Novapharm will undertake research projects on behalf of the Company and also provide research services to the Company, when requested, on an ad-hoc basis. The initial term of the agreement is for 3 years and will be automatically renewed for further consecutive periods of 36 months, unless the careement is terminated by either party.

In return for providing the research services under this agreement, the Company will pay service fees to Novapharm which will include the wages of Novapharm's employees, material costs, laboratory rental and occupancy costs, administrative costs and project management costs. Novapharm will only seek to recover actual costs incurred in providing these services.

Ether party may terminate this agreement Immediately in certain circumstances including where the other party breaches a term of the agreement which remains unremedled after 14 days notice. Either party may also terminate without cause by giving 3 months prior notice to the other. during the initial term or any other period during which the agreement is in force.

No infellectual property rights of either party will be transferred under this agreement. Further, ownership of all Company materials provided to Novapharm in connection with this agreement will remain vested in the Company.

12.10 Novapharm prion licence

The Company has entered into a Formulation Access Agreement with Novapharm ("Novapharm Prion Licence(1) which allows the Company to use Novapharm's formulation and method of enzymatic prion deactivation ("Formulation") in any device manufactured by the Company for reprocessing medical equipment.

Subject to certain exceptions, the Company must purchase its requirements for the Formulation in Australia and New Zealand from Novapharm. The price for the Formulation to be paid by the Company will be Novapharm's direct manufacturing cost price, plus a margin for overheads of 15% and any applicable goods and services fax or similar taxes. However, the Company is permitted to use a sub-contractor to supply the Formulation if the sub-contractor will supply the Formulation in similar quantities to those ordered by the Company from Nevapham and at a price less than that payable by the Company to Novapharm, but only if Novapharm. is not willing to match that price.

The Company will also be liable to pay for certain registration costs of the miellectual property associated with the Formulation. Whilst the Company is the only licensee of the infeliectual property its obligation will be to pay half of the registration costs of the intellectual property.

12.11 service agreement between Nanosonics and Medi-consumables Ptv Limited

The Company has entered into a Services Agreement dated 1 July 2005 with Medi-Consumables Pty Limited ("Medi-Consumables"). Under this agreement. Medi-Consumables has agreed to provide various services to the Company including accounting, it caministration, property, human resources and PA services.

The initial term is for 3 years and will be automatically renewed for further consecutive periods of 36 months, unless the agreement is terminated by either party.

Either party may ferminate this agreement. immediately in certain circumstances including where the other party breaches a term of the agreement which remains unremedied after 14 days notice. Either party may also ferminate without. cause by giving 3-months prior notice to the other. during the initial term or any other period during which the agreement is in force.

In return for providing the abovementioned services, the Company is required to pay service fees. In the current year, the Company has paid to Medi-Consumables \$227,013, in the future, it is expected that this amount will be significantly reduced.

No intellectual property rights of either party will be transferred under this agreement. Further, awnership of all Company materials provided to Medi-Consumables in connection with this agreement will remain yested in the Company

Medi-Consumables is a company controlled by Maurie Stana and Bernard Stana, both of whom are Substantial Shareholders in Nanosonics (see Section 13.8). Maurie Stang is also the non-executive chairman of Nanosonics.

12.12 terms of appointment of nonexecutive directors

The Company has entered into agreements with each of Maurie Stang, Bill Widin and David Fisher detailing their duties and obligations as nonexecutive Directors.

Each of the appointments, if not terminated earlier, will end on the later of the third anniversary of their appointment date or the conclusion of the third annual general meeting of the Company after their appointment or subsequent re-election.

A non-executive Director's appointment may be terminated or temporarily suspended pending a motion for fermination before a general meeting.

Non-executive Directors are expected to:
attend all Board meetings, meetings of Board Committees of which they are members of and general meetings of the Company;
must act in appd falth and in the best of interests of the Company;
. serve upon one or more of the Nomination Committee, Remuneration Committee and Audit and Compliance Committee.

The Chairman will receive a salary of \$50,000 per. annum inclusive of superannuation contributions and each other Non-Executive Director will receive a salary of \$36,000 per annum inclusive of superannuation Contributions. No Non-Executive Director will receive any equity based or incentive based remuneration without prior Shareholder consent given in accordance with the Listing Rules. The Chief Executive Officer will not receive ony additional remuneration for serving on the Board.

The Board will regularly assess the independence of the non-executive Directors to ensure that they do not have any relationship or interest that may interfere with their unfettered and independent judgment. The non-executive Directors must tell the Board about anything that may lead to a conflict of interest.

The Directors must keep all of the Company's confidential information, acquired during their .
appointment, confidential and must comply with the ongoing disclosure requirements of the ASX. $^{\circ}$

12.13 deeds of access and indemnity.

The Company proposes to enter into a Deed of Access and indemnity with each of the Directors. Each -Deed will provide each respective Director, during the period of his directorship and for a period of at least seven years after that directorship ceases, with:

. a right to access certain documents of the Company:
a right to directors and officers insurance; and
an indemnity in respect of liability he may incuras a result of being a Director and in respect of the payment of all that Director's reasonable defence costs in relation to any claim alleging any liability on the part of that Director as a result of being a Director.

12.14 Tease of Alexandría premises

The Company currently leases the premises at Unit 24, 566 Gardeners Road, Alexandria, New South Wales. The Company leases the premises from Ramlist Pty Limited ("Ramlist"). The lease commenced on 1 .
September 2004 and terminates on 31 August 2007. There is an option for the Company to renew the lease for a period of 3 years provided that sufficient inotice is given to Ramiist. The Company pays rental costs of \$63,800 per annum payable in monthly instalments.

The permitted use of the premises includes warehouse, offices, showroom and laboratories.

The lease requires the Company to maintain public risk insurance of \$20 million. The Company is liable to pay all operating expenses.

The Company must not sublet, assign, transfer or part with the possession of the premises or the lease to any person without the lessor's prior consent which must not be unreasonably withheld.

Ramlist is a company controlled by Maurie Stang and Bernard Stang, both of whom are Substantial Shareholders in Nanosonics (see Section 13.8). Maurie Stang is also the Non-Executive Chairman of Nanosonies.

Revision controcts

13. additional information

$-13.1$ incorporation	[105 : 13.10 - r&d gra
13.2 balance sheet	$-105 - 13.11 -$ interests
13.3 - tax status i	105 13.12 consent
13.4 Issued capital	[105 13.13] ciuthoris
[13.5] expenses of the offer.	105
$\sim$ 13.6 $\,$ Iffigation $\,$	106
$13.7$ -existing options on issue .	106
$-13.8$ interests of directors $-$	106
13.9 remuneration	ា 67

$\frac{1}{2}$ 13.10 $\frac{1}{2}$ r&d grants. ومعاونا والانتجاب والمراوي والمحافظ والمتواطئ المتعاون
$\sim$ 13.11 $\,$ interests of experts and advisers $\,$ 107
13.12 ~ consents =
$-13.13$ cuthorisation $-\frac{1}{2}$

13.1 Incorporation

The Company was incorporated on 14 November, 2000.

13.2 balance sheet

The Company's balance date is 30 June.

13.3 stax status

The Company is taxed as a public company.

13.4 issued capital

The issued capital of the Company on campletion of the Offer will be as shown in the table at Section 3.3. In addition, as noted in the Company's annual report, the Company has on issue unlisted Options as set out in Section 13.7.

13.5 expenses of the offer

.
The expenses of the Offer (excluding GST and disbursements) are estimated as follows:

and the plant of the state $\operatorname{\mathsf{det}}\nolimits$ deficilis $\ \cdot\ $ . Then
Underwritting Commission
Legal Fees [publ	250,000
entry except, emity a Accounting and Expert Fees
the Contract of the Contract of the Design, printing and distribution of Prospectus	42,500
Promotion of Offers (with a state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the state of the	arteko hamakin hamar gazten zuen. Alteratuak
[ASX and ASIC Fees -	100,000
$\label{eq:2} \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L}^{(N)}(t) \leq \mathcal{L$ $\cdot$ Registry costs $\cdot$ : $\cdot$ :	.
e Mariji ya Miji wa msen Miscellaneous	15,000
total

is, additional information

$\sqrt{105}$

These expenses have been paid or will be payable by the Company.

13.6 Iltigation

The Company is not involved in any litigation, whether actual or threatened.

13.7 existing options on issue

The Company has 16,685,940 Options on Issue, being made up of the Seed Options (7,358,400), Brandon Capital Management Options (547,700), Senior Management Options (154,840), ESOP Options issued for the 2005/06 financial year (5,085,000), ESOP Options issued for the 2006/07 financial year (1,815,000) and the Contractor Options (1,725,000). The material terms of each of these different classes of Options are:

category	number of Options	exercise price	expiry date
Seed Options	1,358,400	\$0.30	second anniversary of Cruotation
Brandon Capitat . Management Options	547.700	\$0.20	Date 31 October, 2007
Senior Management Options -	- 154.840.	- SO 20	second anniversary of Quotation.
			Date
ESOP Options - 2006 - see Seclion 12.2	5,085,000	\$0.20	Fourth anniversary of the later to occur of first anniversary of the Quotation Date and the issue date of these Options
ESOP Options - 2007- see Section $12.2$	1.815.000		-Fourth anniversary of the later to . occur of first anniversary of the Quotation Date and the issue date of these Options.
	1,725,000	\$0.20	Fourth anniversary of the later to occur of first anniversary of the Quotation Dafe and the issue date of these Options

-At the date of this Praspectus, 1,725,000 Options ("Contractor Options") were on issue to contractors of or other persons who had provided services to the Company None of the Contractor Options have been exercised. The Contractor Options were purportedly. issued pursuant to an employee incentive scheme, despite the fact that the recipients of the Contractor Options were not employees or qualifying contractors (under the terms of ASIC Policy Statement 49) of the Company at the time of issue of those Contractor Options. Accordingly, the Company is in the process of cancelling all the Confractor Options and replacing them with an equal number of General Options. The General Options are being offered to the recipients of the Contractor Options, subject to the prior cancellation of their respective Contractor Options, pussiant to this Prospectus and to the terms and conditions of the General Option plan referred to in Section 12.3. An additional 50,000 General Options will be issued to each of Carolyn Hewson and to Sangerchi Ply Ltd promptly after the close of the Offer.

13.8 Interests of Directors

"As at the date of this Prospectus, the relevant interests of the current and proposed Directors in Shares and Options are shown in the table immediately below.

Shares	DĬions
$-56,929,000$	.
1,785.000	278,334
. . Nii .	,900,002
396,726 @දී ∂. → . → . → .	547,700	the country of

106

Maurie Stana holds 28,377,000 Shares directly but also has a televant interest" in Bernard Stang's holdings of another 28,552,000. Shares as they are associates of each other, for the purposes of the Corporations Act. However, the number of Shareholdings in which Maurie Stand holds a "relevant interest" after the close of the Offer oould be reduced by:
.
up to 6,500,000 Shores as a result of both Majure Stang and Bernard Stang each being a Vendor Shareholder in respect of up to a maximum of 3,250,000 Vendor Shares, as part of the Offer Spares: and [11]
iup to 1,376,689 Shares as a result of Maurie Stang and Bernard . Stang each granting 688.340 Founder Options (See Section $12.4$ : in an anglis has.
The Options of Mr Marshall include 1,500,000 ESOP Options for the -2005/06 financial year, 250,002 Founder Opticas and 150,000 ESOP Options for the 2006/07 financial year....
David Fisher is the sale director of Brancion Capital Management Ply United ("Brandon"), which manages three investment funds independent of Brandon (each a "Fund") that in aggregate, hold \$.713,330 Shares. Whilst Exandon is expected to and does moke recommendations to the baards of management of these Funds, neither David Fisher nor Brandan is able to control decisions regarding any Fund's Shares. Accordingly, the Directors advise that Brendon does not have any relevant interest in any of the Shares held by any Fund. However, Brandon is a Vendor Shareholder of up to a maximum of 250,000 Vendor Shares, as part of the Offer Shares.

None of the Directors has decided whether they will rapply for Shares in the course of the Offer.

Apart from those listed above, none of the Directors thas any relevant interest in securities of the Corgoany or in securities of any entity associated with the Company.

13.9 remuneration

Under the Constitution, each Director may be paid remuneration for services performed as a Director.

The aggregate maximum amount of remuneration that may be paid to all Non-Executive Directors is set at \$500,000. This remuneration may be divided among the Non-Executive Directors in such fashion as the Directors may determine.

Under the Listing Rules, the maximum fees payable to Directors may not be increased without prior approval from the Company at a general meeting. Directors will seek approval from time to time in reigtion to fees as they think appropriate.

No Directors' fees will be paid to Geoff Marshall in addition to his remuneration package as provided in his proposed employment agreement.

The Directors may be paid all reasonable travelling and other expenses properly incurred by them in connection with the execution of their duties as Directors.

In addition, any Director who is called to perform extra services or to make special exertions on behalf of the Company or its business, may be remunerated for such services or exertions either inaddition to or in substitution for his remuneration for ordinary services.

Except as set out above or elsewhere in the Prospectus:

no amount has been paid or agreed to be paid and no benefit has been given or agreed to be .
Igiven to a Director to induce him to become or to qualify as a Director or for services provided in connection with the formation or promotion of the Company or the Offer, and
no Director has, or in the last two years has had, on interest in the formation or promotion of the. Company in property to be acquired by the Company in connection with its formation or promotion or in the Offer.

$13.10 - r$ &d arants

The Company is in the process of obtaining the consent of Ausindustry to this Offer as readired under terms and conditions of the r&d grant agreements. Whilst it is not expected that such consent will be given prior to the close of the Offer, the Directors are confident that such consent will be given.

13.11 interests of experts and advisers : l

Addisons has acted for the Company as Solicitors. to the Offer, and has performed work in relation to: certain of the material confracts, preparing the due diligence programme and assisting the Company. with due diligence enquiries on legal matters. The Company estimates that it will pay amounts totalling approximately \$250,000 (excluding disbursements) and GSD to Addisons in respect of this work.

Wilson HTM Corporate Finance Limited ("WHTM") has acted for the Company as the Underwriter to the Offer WHIM will receive up to 5% of the Offer proceeds received by the Company in connection with valid Applications, less any proceeds received. from Applicants identified by the Chairman (up to \$3,500,000), for which WHTM will receive a fee of 1%. See Section 12.5 for further details.

RSM Bird Cameron has prepared the investigating Accountant's Report, reviewed the pro-formal statement of financial position of the Company as at 30 June 2006 and has also performed work in relation. to the due diligence enquiries on financial matters. The Company estimates that it will pay approximately \$18,000 (excluding disbursements and GST) to RSM. Bird Cameron in respect of this work.

ζö.

TOHORUS EXPERIENCE

Innovation Dynamics Pty Limited has prepared the Independent Jechnical Expert's Report for the purpose of the Offer. The Company estimates that it will pay approximately \$43,000 (excluding disbursements and GST) to Innovation Dynamics Pty. Limited in respect of this work. Shelston IP has prepared the Patent Afforney's Report for the burbose of the Offer. The Company estimates that it will pay approximately \$55,000 (excluding disbursements and GST) to Shelston IP in respect of this work.

Computershare investor Services Pty Ltd will act as Share Reaistry for the Company and has reviewed drafts of the Application Form. The Company estimates that it will pay approximately \$5,000 to Computershare Investor Services Pty Ltd in connection with the Offer.

$13.12$ $\,$ consents

Each of the Directors have aiven and before lodgement of this Prospectus has not withdrawn his written consent to be named in this Prospectus.

Addisons has given and before lodgement of the Prospectus has not withdrawn its written consent to be named in the Prospectus as Solicitors to the Offer In the form and context in which it is named. Addisons has only been involved in the preparation of that part of the Prospectus where they are named as Salicitors to the Offer. Addisons specifically disclaims liability to any person in the event of any omission. from, or any false or misleading statement included elsewhere in, the Prospectus. While Addisons has provided advice to the Directors in relation to the issue of the Prospectus and the conduct of due diligence enquiries by the Company and the Directors, Addisons has not authorised or caused the issue of the Prospectus or any part thereof and. fakes no responsibility for its contents.

Wilson HTM Corporate Finance Limited ("WHTM") has only been involved in the preparation of that part of the Prospectus where it is named as Underwriter and assisted and advised the Company in relation to drafting of this Praspectus. WHIM specifically disclaims liability to any person in the event of any omission from, or any faise or misleading statement Included elsewhere in the Prospectus. WHTM has not authorised or caused the issue of the Prospectus or any part thereof and fakes no responsibility for its contents other than references to being named as Underwriter to the Company.

R\$M Bird Cameron has given and before lockgernent of the Prospectus has not withdrawn its written consent to being named in the Prospectus as Investigating Accountant for the Company in the form and confext in which it is named. RSM Bird Cameron has only been involved in the preparation of the Investigating Accountant's Report in Section 10 and any other part of the Prospectus where it is inamed as investigating Accountant, RSM Bird Cameron specifically disclaims liability to any person . in the event of any omission from, or any talse or misleading istatement included elsewhere in the Prospectus, RSM Bird Cameron has not authorised orcaused the issue of the Prospectus or any part thereof other than the Investigating Accountant's Report In Section 10 and any other part of the Prospectus where it is named as investigating Accountant and takes no responsibility for its contents other than the Investigating Accountant's Report in Section 10 and any other references to being named as Investigating Accountant.

Innovation Dynamics Pty Limited has given and before lodgement of the Prospectus has not withdrawn its written consent to being named in the Prospectus as the Independent Technical Expert for the Company in the form and context in which it is named. Innovation. Dynamics has only been involved in the preparation of the Independent Technical Expert is Report in Section 8 and any other part of the Prospectus where If is named as the independent Technical Expert for the Company, Innovation Dynamics specifically. discidims liability to any person in the event of any omission from, or any false or misleading statement included elsewhere in, the Prospectus Innovation Dynamics has not authorised or caused the issue of the Prospectus or any part thereof other than the Independent Technical Expert 's Report in Section 8 and any other part of the Prospectus where It is named as the independent Technical Expert-and takes no responsibility for its contents other than the -Independent Technical Expert's Report in Section 8 and any other references to being named as the Independent Technical Expert."

Sheistan IP has alven and before loagement of the Prospectus has not withdrawn its written consent to being named in the Prospectus as the Patent Aftorney for the Company in the form and context in which it is named, Shelston IP has only been involved In the preparation of the Patent Attorney's Report in Section 9 and any other part of the Prospectus where it is named as the Patent Attorney for the Company.

Shelston IP specifically alsolaims liability to any person in the event of any omission from, or any false or misleading statement included elsewhere in, the Prospectus. Shelston (P has not authorised or caused) the issue of the Prospectus or any part thereof other than the Patent Attorney's Report in Section 9 and any other part of the Prospectus where it is namedas the Patent Attorney and takes no responsibility for its contents ather than the Patent Attamey's Report In Section 9 and any other references to being hamed as the Patent Attorney.

Computershare Investor Services Pty Ltd has given and before lodgement of the Prospectus has not withdrawn its written consent to being named in the Prospectus as Share Reaistrar for the Company In the form and context in which it is named. Computershare Investor Services Pty Ltd has not been involved in the preparation of any part of the. Prospectus other than assisting in the design of the Application Form and recording its name as Share Registrar to the Company. Computershare Investor Services Pty Ltd specifically disclaims liability to any person in the event of omission from, or a false or misleading statement included in the Prospectus. Computershare Investor Services Pty Ltd has not authorised or caused the issue of the Prospectus or any part thereof, and takes no responsibility for its contents other than the references to its name.

13.13 cuthorisation

This Prospectus is dated 2 April, 2007 and is issued by. Nanosonias Limited. As at the date of the Prospectus, to the best of their knowledge and belief and after due inquiry, the Directors have not become aware of any matters not disclosed in this Prospectus that in their opinion materially affect or are likely to affect In the future, the financial position or prospects of the Company.

The lodgement of this Prospectus was consented to In writing by every Director. -

is, ordinari landinaro, si

109

14. glossary

\$ or Doilar	Australian dollars
Applicant	an applicant for Offer Shares to be issued pursuant to this Prospectus.
Application	an application for Offer Shares pursuant to this Prospectus
Application Form	the application form that accompanies this Prospectus.
Application Money	the number of Offer Shares that are the subject of an Application multiplied by the Offer Price
ASIC	Australian Securities and Investments Commission
Associate	has the meaning ascribed to that term in Section 12(2) of the Corporations Act
ASTC	ASX Settlements and Transfer Corporation Pty Limited (ABN 49 008 504 532)
ASX	ASX Limited (ACN 008 624 693) or any market operated by it
Autoclave	The most commonly-used device for sterilisation. Uses high-temperature steam under vacuum to sterilise and usually operates at 121°C.
blocide	killing of biological life forms
Board	the board of Directors
CE mark	Conformité Europeéne (European Regulatory Body)
CHESS	the Clearing House Electronic Sub-register System
Closing Date	the date on which the Offer closes
Company or Nanosonics	Nanosonios Limited ABN 11 095 076 896
Constitution.	the constitution of the Corppany
Corporations Act	the Corporations Act 2001 (Cth)
Director	a director or proposed director of the Company
Disinfect ^-	High-Level-Disinfection.
Employee Share Option Plan or ESQP.	the terms and conditions of an employee share option plan to be adopted by the Company, the terms of which are summarised in \$ection 12.2
'Endoscope or Endoscopy'.	Delicate medical devices used for diagnostic or interventional medical procedures, largely in the colon or branchial fracts
EN ISO, 33485:2003 standard	ISO, 1,3485:2003, `Qualify Systems - Medical devices - System requirements for regulatory purposes' is an international standard for the development, manufacture, quality control and commercialisation of medical devices
ESOP Option	an Option issued pursuant to the terms and conditions of the ESOP
EIO -	Ethylene Oxide
Existing Shareholders	the holders of Shares on Issue at the date of the Prospectus
FDA	Federal Drug Administration (US Regulatory Body)
First Round*	the first round capital raising by the Company in April 2006 and pursuant to which 22,071,150 Shares at an offer price of \$0.30 per Share, together with 1 Option for every 3 Shares subscribed and exercisable at \$0.30 per Option, were issued."
First Round Shareholder	an Existing Shareholder who subscribed for Shares and Options in the First Round -

Founder Options	the Options more particularly referred to in Section 12.4
General Options	Options that are issued in accordance with the terms and conditions summarised in Section 12,3
Glutaraldehyde	The most commonly used liquid disinfectant which is being slowly. phased out because of its foxicity.
Group	the Company and every Related Body Corporate of the Company, at any time and from time to time
HLD	High-Level-Disinfection - the process that utilises a steritant for a shorter contact time than that used for sterilisation and that kills all microbial organisms but not necessarily large numbers of bacterial spores. (AAM! TIR7:1999, Chemical sterijants and high level disinfectants: A guide to selection and use).
Infra-Cavity Transducers (Probes).	Radiology ultrasound fransducers (probes) which are used in inferior cavities of the body
Issue Date	the date upon which the Offer Shares allotted or fransferred in accordance with the terms of the Offer
Listing Date	the first day upon which the Shares are Officially Quoted by the ASX
·Listing Rules	any rules of ASX which are applicable while the Company is admitted to the Official List including pursuant to the appendices and guidance notes of these rules
NanoNebulant	very small liquid particles of hydrogen peroxide - in the 10-100. Nanometre range
New Shares	44,000,000 Shares to be issued and allotted to Applicants under the Offer
QEM	originat equipment manufacturer
Offer	the offer to acquire 44,000,000 New Shares and 10,000,000 Vendor Shares, each at the Offer Price and otherwise pursuant to this Prospectus
Offer Period	the period commencing on the date the Offer opens and ending on the Closing Date [
Offer Price	\$0.50 per Offer Share
Offer Shares	the Shares to be issued and allotted, or transferred, to Applicants under, the Offer the Community والمستأنية والمستحدث والمستعمل والمستعمل والمستعمل والمستحدث
Official List	the official list of companies whose securities are Officially Quoted.
Official Quotation	official quotafion on the markets conducted by ASX
Opfion	an option to acquire a Share .
Prospectus	this prospectus j was a the common
Quotation Date,	the first date upon which the securities of the Company commence. Official Quotation
Related Body Corporate	has the same meaning as is ascribed to that term in Section 50 of the Corporations Act.
R&D.	research and development
relevant interest	has the same meaning as is ascribed to it in Sections 608 and 609 of the Corporations Act

÷.

Second Round	the second round capital raising by the Company in January 2007 and pursuant to which 13,783,593 Shares at an affer price of \$0.375 per Share were issued,
Second Round Shareholder	an Existing Shareholder who subscribed for Shares in the Second Round
Share,	a fully paid ordinary share in the Issued capital of the Company and includes the Offer Shares.
Shareholder	a sharehalder of the Company
Share Registry	Computershare investor Services Pty Ltd.
Sterilisation	Validated process used to render a product free from all forms of micro-organisms. The Sterility Assurance Level (SAL) is the probability of a viable micro-organism being present on a product unit after sterilisation. A SAL of 10-6 means that there is less than or equal to one chance in a million that a single, viable arganism is present on a sterilised item. It is generally accepted that a SAL of 10-6 is appropriate for items intended to come in contact with compromised tissue (AAM! TIR7:1999, "Chemical sferilants and high level disinfectants: A guide to . selection and use)
Surface transducer (probe).	Radiology ultrasound fransducers (probes) that are only used for the exterior of the body
TGA	the government authority currently known as Therapeutic Goods Administration
TÜV	:TÜV Rheinland Product Safety GmbH is a "Notified Body" for all medical products, if certifies products and quality management systems for the European market and also serves as a Certification Body for non- European countries
Underwriter	Wilson HTM Corporate Finance Limited (ACN 057 547 323).
US Person	a person who usually resides in the United States of America or otherwise subject to the application of the US securities legislation
Vendor Shareholder	any one of Maurie Stang, Bernard Stang, Steve Kritzler and Brandon. Capital Management Pty Ltd
Vendor Shares	10,000,000 Shares to be transferred to Applicants under the Offer-

. The number of Shares and Options issued pursuant to the First Round, and their respective offer price and exercise price, as referred to above, are the numbers and corresponding offer price and exercise price after the 1 for 10 split in the Company's capital as agreed to by Shareholders on 19 September, 2006.

de en James III (1999).
Geboortes

NA, NGC 2008 NA KATILIRAN

$\begin{split} &\mathbb{E}\left[\begin{array}{c} \mathbb{E}{\mathbf{u}_1,\mathbf{u}_2} & \mathbb{E}{\mathbf{u}2,\mathbf{u}_3} & \mathbb{E}{\mathbf{u}3,\mathbf{u}_4} \ \mathbb{E}{\mathbf{u}2,\mathbf{u}_3} & \mathbb{E}{\mathbf{u}3,\mathbf{u}_3} & \mathbb{E}{\mathbf{u}3,\mathbf{u}_4} & \mathbb{E}{\mathbf{u}3,\mathbf{u}_4} & \mathbb{E}{\mathbf{u}3,\mathbf{u}_4} \ \mathbb{E}{\mathbf{u}_3,\mathbf{u}_4} & \math$

$\lambda$ Developed

$113$

15 corporate directory

Board of Directors Mr Maurie Stana Mr Geoff Marshall Dr David Fishert Mr. Bill Widin

Company Secretary Mr Robert Waring

Auditor erretta.
2002-luvullar

UHY Haines Norton Chartered Accountants Leyel 11, 1 York Street Sydney NSW 2000 Ph; 61 2 9256 6600 Fox: 61-2.9256-6611.

Advisory Board

Dr Ron Weinberger Steve Kritzler Carolyn Hewson Dr Phil Stricker Dr.Ron Penny Dr Ian Ernst DicPeter Spencer Dr Arthur Brandwood,

Underwriter and Lead Manager Wilson HTM Corporate Finance Limited Level 9, 56 Pitt Street Royal Exchange Building Sydney NSW 2000

Share Registry

Computershare Investor Services Pty Ltd Level 2, 45 St Georges Terrace Perth WA 6000

.
Registered Address Unit 24 $^{\circ}$ 566 Gardeners Road Alexandria NSW 2015 Tel + 61.02.9313 4399 Fax +61 02 9317 5010 [email protected] www.hanosonics.com.au

Legal Adviser

Addisons, Level 12 60 Corrington Street Sydney, NSW, 2000 Teb+61.28915.1000 Fax:+61 2 8916 2000

Investigating Accountant RSM Bird Cameron Level 12,60 Castereagh Street SYDNEY NSW 2000 GPO Box 5138 SYDNEY NSW 2001

Patent Attorney Shelston IP. $Low@21$ 60 Margaret Street Sydney NSW 2000 Tel+61,029777,1111. Fax +61 02 9241 4666

$14 -$

Nanosonics Limited ABN 11 095 076 896

Application Form

This Application Form is important. If you are in doubt as to how to deal with it, please
contact your stockbroker or professional adviser without delay. You should read the entire prospectus carefully before completing this form. To meet the requirements of the Corporations Act, this Application Form must not be distributed unless included in, or accompanied by, the prospectus.

I'we apply for					B	I/we lodge full Application Money
						W.						Ø
Number of Shares in Nanosonics Limited at \$0.50 per Share or such lesser number of Shares which may be allocated to me/us
Individual/Joint applications - refer to naming standards overleaf for correct forms of registrable title(s) Title or Company Name		Given Name(s)				Sumame

Joint Applicant 2 or Account Designation

Joint Applicant 3 or Account Designation


Enter your postal address - Include State and Postcode
Unit	Street Number		Street Name or PO Box /Other Information




City / Suburb / Town								State			Postcode

Enter your contact details
Contact Name								Telephone Number - Business Hours / After Hours

CHESS Participant
Holder (dentification Number (HIN)
Χ						Please note that if you supply a CHESS HIN but the name and address details on your form do not correspond exactly with the registration details held at CHESS, your application will be deemed to be made without the CHESS HIN, and any securities issued as a result of the IPO will be held on the Issuer Sponsored
					subregister.
Cheque details - Make your cheque or bank draft payable to Nanosonics Limited
Drawer			Cheque Number	BSB Number			Account Number			Amount of cheque
									A\$
Drawer			Cheque Number	BSB Number			Account Number			Amount of cheque
									A\$

By submitting this Application Form, live declare that this application is completed and lodged according to the Prospectus and the declarations/statements on the reverse of this Application form and I/we declare that all details and statements made by me/us (including the declaration on the reverse of this Application Form) are complete and accurate. I/we agree to be bound by the Constitution of the Company. See back of form for completion guidelines

Registry Use Only

Broker Code

Adviser Code

How to complete this form

Shares Applied for $\overline{A}$

Enter the number of Shares you wish to apply for. The application must be for a minimum of 4,000 Shares. Applications for greater than 4,000 Shares must be in multiples of 1,000 Shares

Application Monies B I

Enter the amount of Application Monies. To calculate the amount, multiply the number of Shares by the price per Share.

Applicant Name(s) l C I

Enter the full name you wish to appear on the statement of share holding. This must be either your own name or the name of a company. Up to 3 joint Applicants may register. You should refer to the table below for the correct forms of registrable title. Applications using the wrong form of names may be relected. Clearing House Electronic Subregister System (CHESS) participants should complete their name identically to that presently registered in the CHESS system.

Postal Address D.

Enter your postal address for all correspondence. All communications to you from the Registry will be mailed to the person(s) and address as shown. For joint Applicants, only one address can be entered.

Contact Details E

Enter your contact details. These are not compulsory but will assist us if we need to contact you.

CHESS F

Nanosonics Limited (the Company) will apply to the ASX to participate in CHESS, operated by ASX Settlement and Transfer Corporation Pty Ltd, a wholly owned subsidiary of Australian Stock Exchange Limited. In CHESS. the company will operate an electronic CHESS Subregister of security holdings and an electronic issuer Sponsored Subregister of security holdings. Together the two Subregisters will make up the Company's principal register of securities. The Company will not be issuing certificates to applicants in respect of Shares allotted. If you are a CHESS participant (or are sponsored by a CHESS participant) and you wish to hold Shares allotted to you under this Application on the CHESS Subregister, enter your CHESS HIN. Otherwise, leave this section blank and on allotment, you will be sponsored by the Company and allocated a Securityholder Reference Number (SRN).

Payment $|G|$

Make your cheque or bank draft payable to Nanosonics Limited in Australian currency and cross it Not Negotiable. Your cheque or bank draft must be drawn on an Australian Bank.

Complete the cheque details in the boxes provided. The total amount must agree with the amount shown in box B.

Cheques will be processed on the day of receipt and as such, sufficient cleared funds must be held in your account as cheques returned unpaid may not be re-presented and may result in your Application being rejected. Pin (do not staple) your cheque(s) to the Application Form where indicated. Cash will not be accepted. Receipt for payment will not be forwarded.

Before completing the Application Form the applicant(s) should read this prospectus to which this application relates. By lodging the Application Form, the applicant agrees that this application for Shares in Nanosonics Limited is upon and subject to the terms of the prospectus and the Constitution of Nanosonics Limited, agrees to take any number of Shares that may be allotted to the Applicant(s) pursuant to the prospectus and declares that all details and statements made are complete and accurate. It is not necessary to sign the Application Form.

Lodgement of Application

Application Forms must be received at the Perth office of Computershare Investor Services Pty Limited by no later than 5.00pm Sydney time on 4 May 2007 Return the Application Form with cheque(s) attached to:

Computershare Investor Services Pty Limited OR GPO Box D182 PERTH WA 6840

Computershare Investor Services Pty Limited Level 2 45 St Georges Terrace PERTH WA 6000

Privacy Statement

Personal information is collected on this form by Computershare Investor Services Pty Limited ("CIS"), as registrar for securities issuers ("the issuer"), for the purpose of maintaining registers of securityholders, facilitating distribution payments and other corporate actions and communications. Your personal information may be disclosed to our related bodies corporate, to external service companies such as print or mail service providers, or as otherwise required or permitted by law. If you would like details of your personal information held by CIS, or you would like to correct information that is inaccurate, incorrect or out of date, please contact CIS. In accordance with the Corporations Act 2001, you may be sent material (including marketing material) approved by the issuer in addition to general corporate communications. You may elect not to receive marketing material by contacting CIS. You can contact CIS using the details provided on the front of this form or E-mail [email protected]

If you have any enquiries concerning your application, please contact the Computershare Investor Services Pty Limited on 1300 557 010

Correct forms of registrable title(s)

Note that ONLY legal entities are allowed to hold Shares. Applications must be made in the name(s) of natural persons, companies or other legal entities in accordance with the Corporations Act. At least one full given name and the surname is required for each natural person. The name of the beneficial owner or any other registrable name may be included by way of an account designation if completed exactly as described in the examples of correct forms of registrable title(s) below.

Type of Investor	Correct Form of Registration	Incorrect Form of Registration
Individual - Use given name(s) in full, not initials.	Mr John Alfred Smith	3 A Smith
Joint - Use given name(s) in full, not initials.	Mr John Alfred Smith & Mrs Janet Marie Smith	John Aifred & Janet Marie Smith
Company - Use company title, not abbreviations.	ABC Pty Ltd	ABC P/L ABC Co
Trusts - Use trustee(s) personal name(s) - Do not use the name of the trust	Ms Penny Smith	Penny Smith Family Trust
Deceased Estates - Use executor(s) personal name(s) - Do not use the name of the deceased	Mr Michael Smith	Estate of Late John Smith
Minor (a person under the age of 18) - Use the name of a responsible adult with an appropriate designation	Mr John Alfred Smith	Peter Smith
Partnerships - Use partners personal name(s) - Do not use the name of the partnership	Mr John Smith & Mr Michael Smith	John Smith & Soft
Clubs/Unincorporated Bodies/Business Names - Use office bearer(s) personal name(s) - Do not use the name of the club etc.	Mrs Janet Smith	ABC Tendis Association
Superannuation Funds - Use the name of trustee of the fund - Do not use the name of the fund	John Smith Pty Ltd	John Smith Pty Ltd Superannaation Fund

Unit 24, 566 Gardeners Road Alexandria NSW 2015 Australia Tel: +61 2 9313 4399 Fax +61 2 9337 5010 www.nanosonics.com.au

AI assistant

NANOSONICS LIMITED — Capital/Financing Update 2007

65405_rns_2007-04-23_901ab1fd-1c24-477d-9258-2b5a85925b12.pdf

NANOSONICS LIMITED

Important information

E COLORED DE L'A

Maria Bara

Gotober Walle

Definitions doct Astore defions

Industry and market data

Environment

This Prospectus is dated 2 April, 2007.

contents

CRECQUSE intection control IS O SCIENCE 33

dear prospective investor,

key Offer statistics

notes

66 Infection control

indicative key dates

2. investment overview

2.1 key investment highlights

Guberculosis (TB) has re-emerged as a major global threat - the HIV pandemic & various strains of TB are now resistant to major anti-TB drugs. Two million people die every year from TB 39

2.2 platform technology

indicative timeline for product development and commercialisation

2.4 competitive advantages of Nanosonics technology

2.5 global market overview

estimated global market for the disinfection of medical instruments

2.6 commercialisation strategy

manufacturing

distribution

$2.7\;$ key risks

3. the Offer

3.2 underwriting

3.3 capital structure

3.4 use of funds

3.5 when to apply for Offer Shares

Application Forms must be received no later fhan 5.00 pm (AEST) on the Closing Date.

3.6 how to apply for Offer Shares

3.7 acceptance of Applications and allocation of Offer Shares

3.8 application for admission to asx and official auptation of Shares

3.9 no issue of Offer Shares after 13 months

3.10 restricted securities

$3.11 \cdot$ CHESS

3.12 foreign investors

3.13 financial prospects

3.14 dividend policy

3.15 investor's questions

4. the market need

4.1 current sterillisation and Disinfection requirements

levels of disinfection

4.2 current Disinfection and sterilisation practices for medical instruments

4.3 ultrasound market

ultrasound in medicine

ultrasound transducers (probes)

disinfection of ultrasound transducers

ultrasound market size and growth

summary of market opportunity Current trends in the ultrasound market have been characterised by the following:

4.4 endoscope market

flexible endoscopy in medicine

flexible endoscopes

Disinfection of flexible endoscopes

a. automatic endoscope reprocessors (A.E.R.'s)

b. manual cleaning and Disinfecting

endoscopy market size and arowth

customer characteristics

summary of market opportunity

5. the Companyand its technology

5.1 The Company

5.2 Nanosonics platform technology

NanoNebulant technology

5.3 competitive advantages of NanoNebulant technology

5.4 product overview and development plan

Nanosonics ultrasound probe Disinfector

Nanosonics automated endoscopic reprocessor

5.5 quality management system

5.6 regulatory approval process

5.7 intellectual property

patent portfolio

r&d and additional intellectual property

6. board and senior management

NANOSONICS LIMITED Capital/Financing Update 2007

5. the Company
and its technology