Safety Medical Products Limited

ACN 007 817 192

PRELIMINARY FINANCIAL REPORT 12 MONTHS ENDED $30^{\text{th}}$ JUNE 2006

Statement of Financial Performance Year Ended 30 June 2006

Overall Operations:

Statement of Financial Position As at 30 June 2006

Statement of Changes in Equity
Year Ended 30 June 2006

Statement of Cash Flows Year Ended 30 June 2006

Notes to the Financial Statements Year Ended 30 June 2006

NOTE 1. BASIS OF PRESENTATION

The year financial statements are a general purpose financial report prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standard AASB 134: Interim Financials Reporting. Urgent Issues Group Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board.

It is recommended that this financial report be read in conjunction with the annual financial report for the year ended 30 June 2005 and half yearly financial report for the six months ended 31^st December 2005 and any public announcements made by Safety Medical Products Limited during the half-year in accordance with continuous disclosure requirements arising under the Corporations Act 2001.

The full year report does not include full disclosures of the type normally included in an annual financial report.

Accounting Policies

$(a)$ Cash and Cash Equivalents

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

Employee Benefits $(b)$

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

Contributions made to employee superannuation funds are charged as expenses when incurred.

Notes to the Financial Statements Year Ended 30 June 2005

NOTE 1. BASIS OF PRESENTATION

$(c)$ Property, Plant and Equipment

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

Plant and Equipment

Plant and equipment are measured on the cost basis less depreciation and impairment losses.

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

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset. as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation

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

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

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

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

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

Notes to the Financial Statements Year Ended 30 June 2006

NOTE 1. BASIS OF PRESENTATION

$(d)$ Income Tax

The charge for current income tax expenses 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 income tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account in the financial statements or which may be realised in the future is based upon the belief that no adverse change will occur in income tax legislation and the expectation that the company will derive sufficient future assessable income to enable the benefit to be realised and comply with conditions of deductibility as imposed by the law.

$(e)$ Research and Development

Research and development costs are charged to profit from ordinary activities before tax as incurred.

$(f)$ Impairment of Assets

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

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

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

Notes to the Financial Statements Year Ended 30 June 2006

NOTE 1. BASIS OF PRESENTATION

$(g)$ Revenue

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

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

$(h)$ Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of an asset or as part of an item of the expense.

Receivables and payables in the balance sheet are shown inclusive of GST.

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

Notes to the Financial Statements Year Ended 30 June 2006

NOTE 2. SEGMENT INFORMATION

The company operated during the year in one geographical segment, being Australia. The company operated in one business segment being the development and commercialisation of medical devices for use in global markets. At this stage of development, the company has not commenced sales of its products.

NOTE 3. CONTINGENT LIABILITIES

There has been no change in contingent liabilities since the last annual reporting date.

SUBSEQUENT EVENTS NOTE 4.

There are no known matters or circumstances that have arisen since the end of the period which significantly affect or may significantly affect the company's operations, the results of those operations or the state of affairs of the company in subsequent periods.