LARK DISTILLING CO. LTD — Annual Report 2004

Oct 14, 2004

annualreport2004

ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2004

ACN 104 600 544

Table of Contents

Chairman's Letter	ſ
Managing Director's Report	2
Corporate Governance Statement	5
Directors' Report	8
Statement of Financial Performance	16
Statement of Financial Position	取
Statement of Cash Flows	18
Notes to the Financial Statements	19
Directors' Declaration	44.
Independent Audit Report	45
Additional Information	46

Chairman's letter

Dear Shareholder

I would like to congratulate and acknowledge the efforts and the enthusiasm shown by Mr Malcolm Campbell and his team in the commercialisation on the international scene of Montec International Limited's ("Montec" or the "Company") technology rights to monounsaturated dairy products in Asia.

Within the first seven months as a public company Montec was having its products produced and sold in China. The Company has also developed other monounsaturated dairy products to add to the Montec distribution channels being created in China, and is investigating approaches being made to the Company from within China and other parts of Asia regarding distributing the Company's products.

The revenue from the Australian market has not shown any real growth and is a disappointment to Montec's board and management. This issue is currently being addressed by the Company.

I would also like to acknowledge the efforts of the Company's first Chairman of the board Mr Jim Grant whose guidance will be missed by management and the board of directors.

Montec has a sound financial base to extend its product range and take advantage of its proven products in a number of other Asian markets.

On behalf of the board of directors and management, I would like to thank all stakeholders in the Company for their support during Montec's first year as a public company.

Yours faithfully

Terry Cuthbertson Chairman

Montec International Limited

Managing Director's report

Dear Shareholder

Intraduction

The Board of Montec International Limited ("Montec" or the "Company") is pleased to present the first annual report for the Company following a successful listing on the Australian Stock Exchange on 12 November 2003. The directors' are delighted with the Company's progress to date and believe solid business foundations are being laid for the benefit of shareholders in future years.

The Company's net operating loss before tax of \$2.464 million reflects the early stage of the Company's development.

Consistent with the objectives presented in the Company's listing prospectus, Montec has sought to leverage its monounsaturated dairy technology through both geographic and product extension based initiatives. Valuable progress has been achieved since listing and I trust the following report will demonstrate this.

China

Qinqdao

The city of Qíngdao was selected as a pilot market due to its close proximity to Beijing as Beijing is the next major advance in Montec's growth plan. Further, the demographics of consumer purchasing profiles in Qingdao were considered ideal for testing the marketing and merchandising programs that form part of Montec's overall business planning. As Montec is focused as a sales and marketing company it was imperative to test the various initiatives that would educate consumers on the healthier dairy foods that are available as a consequence of Montec's monounsaturated dairy technology. Montec generates royalty income from China through raw material consumption by Chinese dairy companies that licensed Montec's proprietary dairy technology.

Qingdao has excellent port facilities. Accordingly this city was utilised to introduce Montec's mono-premix and other ingredients that were entering China for the first time and therefore needed substantial regulatory approval and certification.

Montec has developed a number of product extensions and is enjoying strong commercial interest in these products as a consequence of ASX announcements since listing. Qíngdao will continue to offer a market and provide a suitable entry point for the wider China market place notwithstanding the Company's activities and growth is now focused on major cities such as Beijing and Shanghai. Montec is not only entering the regular retail distribution channels but is also focused on niche vertical markets such as fast food consumption that utilise dairy products and ingredients. These niche vertical markets are in themselves experiencing substantial growth.

Also of great importance in building the China business is the relationship with a dairy company such as Qin Paì (Qíngdao Dairy General Corporation). This partnership has proven to be beneficial with Qingdao city serviced efficiently and professionally with Montec's monounsaturated milk from the products inception. Further, Montec has by virtue of this relationship saved considerable expense through producing smaller sample runs on full scale production equipment in-order to test the Company's new product extensions.

Whilst the sales volumes from Qíngdao have been modest, although growing, they have been sufficient in quantum to attract the attention of many major China dairy companies. Accordingly, the financial measurement of our performance in Qingdao should in fact be measured over the next few years as Qingdao has in effect become the springboard for the anticipated rapid expansion through major cities within China.

Raw material inventories that were initially held to establish the Company's product in the Qingdao market have been reduced through production and inventory transfer to dairy processing partners. Montec will not be required to invest in raw material inventory for the Beiling and Shanghai expansion. Existing stocks held for Qingdao will be absorbed in this expansion. That said, Montec may continue to maintain packaging inventory as there are trademark and brand ownership considerations and potential implications that must be considered.

Meng Tai Brand

The registration of "Meng Tai" as a brand and trademark reflects our company vision of making dairy foods healthier naturally. The name Meng Tai is a reference to "the "Mountain Tai' in the Shandong Province and it is revered by Chinese as being symbolic in the context of "good health and long-life". Montec will continue to build intrinsic value via branding as Montec product extensions start to propagate the healthy dairy cabinet.

National Agency Network (NAN)

NAN is an acronym used by Montec to describe a national co-operative of agents that co-ordinate a vast amount of business via this channel throughout China. Agents feature prominently in the Chinese business culture. Agents do not just arrange sales but also finance retail expansion through their network. In grocery for example, agents will generally pay the supplier of the products and/or merchandise on a cash on delivery basis and then place that stock on consignment with a smaller supermarket with say 30 to 45 day trading terms. As the agents within the network are experienced in what will sell and what will not, the retailer backs the judgment of the agent and buys accordingly. Further, agents cooperate to centralise warehousing as a shared resource and this facility will often border two or more territories to reduce overhead and rotate stock to balance shelf life cycles. These territories then form cells that have a system of co-ordinators that feed new opportunities into the network. The potential scope of sales achieved from entry via this medium is substantial as the take up is generally aggressive.

Most dairy companies including the majors such as Mengnui either started with the agency channel, utilised the channel during their growth or new product entry, or have consistently used the channel without the need to develop their own distribution platform.

For example, Inner Mongolía-based Mengníu recorded a 184 million yuan (US\$22.2 million) net profit ín the first half of this year, representing a 142 per cent increase when compared with 76 million yuan (US\$9.2) million) for the same period a year earlier. The net profit accounted for 61 per cent of the forecast profit of 300 million yuan (US\$36.1 million) for the full year (source -- China Daily).

Montec has secured contract processing and a raw milk guota to permit the processing of 1 million litres per month of Meng Tai milk growing to 3 million litres per month at the end of the first 12 months after NAN entry. This was an essential qualification for NAN's acceptance of Montec, as was the ability for Montec to provide multiple monounsaturated dairy products from day one. All of these criteria were met expeditiously and without substantial cost due to the strength of Montec's business relationships in China established over a number of years including ongoing support from the Central Dairy Project Office of the Ministry of Agriculture in Beijing.

Non Grocery Channels

Since the announcement by Montec concerning the development of monounsaturated dairy product extensions such as premium and soft-serve ice cream, Montec has held commercial meetings to address opportunities within major Chinese cities. These opportunities centre on the application of Montec's technology to a range of dairy foods sold through fast food outlets and restaurants.

Managing Director's report (continued)

Australia and New Zealand

The Company is currently committed to the Dairy Farmers brand 'Farmers Best'. Montec is endeavoring to renegotiate its existing arrangements for its product extensions. Montec will discuss working with Dairy Farmers on opportunities in other countries throughout Asia pacific where Dairy Farmers has existing channels for distribution.

Product Extension and Development

Montec's work in product extension has been developed in accordance with the plan outlined in the Company's listing prospectus. Led by Montec's Product Development Director, Dr Xuegin Du and in collaboration with Montec's global partners such as International Specialty Products and Danisco, a series of dairy products including yoghurt, drinking yoghurt and ice cream have been successfully developed using healthy monounsaturated fat. Flavored milk and drinking yoghurt will be launched in China soon. Montec monounsaturated milk powder should be available following a factory trial scheduled for later in this calendar year. All these Montec product extensions have been developed to meet consumer requirements in health and nutrition. For example, a low carbohydrate monounsaturated version has been created.

It is expected that the 'Healthy Dairy Cabinet' will be displaying an extended range of Montec healthy dairy products next year. It is also important to note that the progress made in product extension and development coincides with the establishment of relationships with non grocery channel food manufacturers and retailers.

Other Matters

Montec, and all associated with the company were saddened with the untimely death of Mr Jim Grant. Mr Grant was a fine inaugural Chairman and contributor and will be missed. The Company is very fortunate to have the services of an eminently qualified Chairman to replace Mr Grant, in Mr Terry Cuthbertson. The Company is well placed to continue its progress under Mr Cuthbertson's wise counsel.

The Company has recently re-developed its website in an effort to provide an investor friendly interface via this medium. The upgrade is planned as an iterative process with further website functionality that is relevant to our shareholder base, to be implemented.

The period since listing has been an exciting and challenging time for all concerned. Montec prides itself on running a lean team, and I would like to acknowledge on behalf of the board the efforts of management and staff in developing the business with the goal of delivering value for all shareholders. We have made encouraging progress to date and look forward to continuing the valuable work to deliver these rewards in the future.

Yours faithfully

ana ang kabupatèn Kabupatèn Kabupatèn Jawa Bandaré Kabupatèn Jawa Bandaré Kabupatèn Jawa Bandaré Kabupatèn Jaw

Malcolm Campbell Managing Director Montec International Limited

* Farmers Best*M is the registered trademark of Dairy Farmers Cooperative.

Unless discussed below, all the best practice recommendation of the ASX Corporate Governance Council have been applied for the period from the Company's listing until 30 June 2004.

rioorate governance statement

Board Composition

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

The names of independent directors of the Company were:

Jim Grant - deceased Terry Cuthbertson Peter Herd

Mr Grant was an independent director of the Company for the period from 22 September 2003 until his untimely death on 4 July 2004.

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

• . Less than 5% of Company shares are held by the director and any entity or individual directly or indirectly associated with the director;
• . No sales are made to or purchases made from any entity or individual directly or indirectly associated with the director; and
• . None of the directors income or the income of an individual or entity directly or indirectly associated with the director is derived from a contract with any member of the economic entity other than income derived as a director of the entity.

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

The names of the members of the nomination and remuneration committee and their attendance at meetings of the committee are detailed in the directors' report.

Trading Policy

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

Corporate governance statement (continued)

Audit Committee

The names and qualifications of those appointed to the audit committee and their attendance at meetings of the committee are included in the directors' report. We note that for the financial year ended 30 June 2004 the board and audit committee were chaired by different independent directors. With Mr Grant's passing on 4 July 2004, Mr Herd assumed the role of Chairman of the Audit Committee following signing of the Financial Report in September 2004. Mr Cuthbertson assumed the role of Chairman of the Audit Committee between the date of Mr Grant's death and signing of the Financial Report.

The Company is committed to ensuring that the most efficient and effective service is derived from the external audit function and has determined it will tender audit services on a three year cycle rather than automatically re-appointing the incumbent. The Company recognises the importance of audit partner rotation and has adopted a policy requiring lead audit partner rotation every five years.

Performance Evaluation

An annual performance evaluation of the board and all board members will be conducted by the Chairman in December 2004, as this will be approximately one year since the Company's listing. The Chairman will speak to each director individually regarding their role as director. The outcomes of these discussions will be implemented and the performance criteria and goals for the next year will be established.

Remuneration Policies

The remuneration policy, which sets the terms and conditions for the Chief Executive Officer and other senior executives, has been reviewed by the remuneration committee and approved by the board. Executives receive a base salary, superannuation and fringe benefits. The remuneration committee reviews executive packages annually by reference to Company performance, executive performance, comparable information from industry sectors and other listed companies and independent advice. The policy is designed to attract the highest calibre executives and reward them for performance which results in long-term growth in shareholder value.

Executives may also be invited to participate in the employee option arrangements.

The amount of remuneration for all directors and the highest paid executives, including all monetary and non-monetary components, are detailed in note 5 to the financial report. All remuneration paid to executives is valued at the cost to the Company and with the exception of options is expensed. Options are valued using the Black-Scholes Option Pricing Model.

The board expects that the remuneration structure implemented will result in the Company being able to attract and retain the best executives to run the economic entity. It will also provide executives with the necessary incentives to work to grow long-term shareholder value.

Corporate governance statement (continued)

The payment of share options and other incentive payments are reviewed by the remuneration committee annually as part of the review of executive remuneration and a recommendation is put to the board for approval. All options and incentives are linked to predetermined performance criteria. The board can exercise its discretion in relation to approving incentives and options and can recommend changes to the committee's recommendations. Any changes must be justified by reference to measurable performance criteria.

Nomination and Remuneration Committee

The names of the members of the remuneration committee and their attendance at meetings of the committee are detailed in the directors' report.

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

Other Information

As the Company's website was in the process of being developed during the financial year no corporate governance material was displayed. Information relating to the Company's corporate governance practices and policies is to be made publicly available on the Company's website at www.montec-international.com.au.

This material will include:

• A description of the procedure for selection and appointment of new directors to the board, and the charters for both the remuneration and nomination committee and the audit committee. Along with the audit committee charter will be the Company's policy on lead audit partner rotation and the policy for appointment of external auditors;
• . The Company's share trading policy and an outline of its focus and principles of corporate governance. These principles of corporate governance are designed to promote ethical and responsible decision making;
• . The Company's approach to compliance with ASX Listing Rule disclosure requirements; and
• . A description of the Company's risk management policy and internal compliance and control systems.

The Company is committed to the recognition of the legitimate interests of all shareholders and complies with legal and ethical frameworks to deliver this outcome.

Directors' report

Your directors present their report on the Company and its controlled entities for the financial year ended 30 June 2004.

Directors

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

Jim Grant	Non Executive Chairman, appointed 22 September 2003; deceased 4 July 2004.
Malcolm Campbell	Managing Director, appointed 27 May 2003.
Terry Cuthbertson	Non Executive Director, appointed 22 September 2003; Appointed Non-Executive Chairman from 4 July 2004.
Peter Herd	Non Executive Director, appointed 19 September 2003.
Dr Xueqin Du	Executive Director, appointed 27 May 2003.
Spiro Lymberatos	Executive Director, appointed 27 May 2003; resigned 22 September 2003.

The term of office for each director is three years from the date of appointment, at which time they may offer themselves for re-election. Directors were in office from the start of the financial year to the date of this report unless otherwise stated.

Principal Activities

The principal activity of the economic entity during the financial year was the marketing and licensing of monounsaturated dairy technology.

There was no significant change in the nature of the economic entity's principal activity during the financial year.

Operating Results

The consolidated loss of the economic entity after providing for income tax and eliminating outside equity interests amounted to \$2,463,917 (2003: NIL).

Dividends Paid or Recommended

No interim dividend was declared or paid during the current financial year. The directors are recommending that no final dividend be paid in respect of the year ended 30 June 2004.

Review of Operations

The directors are pleased with the Company's progress against the objectives set out in the listing prospectus. Central to these objectives was having the Company's monounsaturated milk product on retail shelves and selling in Chína. This has been achieved through our pilot marketing program within the test market of Qingdao. This initiative has been very successful and has prepared the Company for market entry into major cities such as Beijing and Shanghai.

A list of the milestones achieved since listing include:

• . Exercise of the Asia Pacific Call Option and other contractual arrangements to secure the intellectual property for monounsaturated dairy;
• . The first shipment of monounsaturated dairy premix to Qingdao, China;
• . Completion of Montec's 'Meng Tai' trademark application, finalisation of the milk packaging designs, receipt of Chinese statutory approvals and 'Meng Tai' milk packaging developed;
• . Point of sale merchandising and in-store promotional materials developed and the launch media advertising campaign finalised;
• . Full production trials completed and supermarket entry approval gained for both UHT (long life) and Fresh milk products;
• . Montec's 'Meng Tai' milk on sale in Qingdao, China through supermarkets (direct entry), wholesale and vendor networks (convenience stores) and through agents who specialise in servicing other cities within the Shandong province; and
• . Official launch of the 'Meng Tai' product and commencement of the media campaign.

The pilot launch in Qingdao has provided the Company with valuable intelligence. As a direct result of the experience in the Qingdao market the benefits of the agency channel for product distribution are apparent.

Product extension development work has been undertaken since listing with valuable progress made. The company has developed the following extensions to add to its existing liquid milk offering:

• · Drinking yoghurt;
• . A range of flavoured milks; and
• · Monounsaturated ice-cream (both premium and soft serve).

These are the beginning of Montec's 'Healthy Dairy Cabinet' range of products and secure Montec's advance towards 'functional foods' classification. This classification will further reinforce Montec's technology and ingredients as a valuable requirement for dairy processors seeking to meet consumer requirements.

Significant Changes in State of Affairs

The only significant change in the state of affairs of the parent entity that occurred during the financial year was that on the 12th November 2003 the Company listed on the ASX. The Company raised gross proceeds of \$10 million through the issue of 20 million new shares at \$0.50 per share.

After Balance Date Events

The board notes with deep regret the death of Mr Jim Grant in early July 2004. With Mr Grant's untimely death Mr Terry Cuthbertson has been appointed by the board as Chairman of the Company.

There are no other matters or circumstances that have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity in future financial years.

Future Developments

The likely developments in the operations of the economic entity and the expected results of those operations in future financial years are as follows:

i. As previously advised the Company is in negotiation with a network of agents throughout China called the National Agency Network. Under current discussion is the requirement for Montec to commit to delivering one million litres of milk per month initially, with this volume moving to three million litres per month by the end of the first 12 months. As the Beijing and Shanghai markets combined represent 50 percent of China's urban dairy consumption, the opportunity to establish distribution not only in these centres but also throughout greater urban China is attractive.

Environmental Issues

The economic entity's operations are not subject to significant environmental regulation.

information on Directors

lim Grant
Qualifications
Experience
nterest in Shares and Options
Special Responsibilities
Malcolm Campbell
Qualifications
Experience

Interest in Shares and Options

Special Responsibilities

Chairman (Non-executive) - Deceased

FCA, FAICD.

Appointed Chairman in 2003. Board member since 2003. Former CEO and Chairman of Deloitte Touche Tomatsu. Former directorships include Chairman of Co-operative Farmers and Graziers Direct Meat Supply Límited, Citistate Corporation, Midware Limited, Pízzey Limited, ZK Securities Limited, Deputy Chairman of ARAB Bank Australia Limited, Integral Energy Limited, Sydney Water Corporation, Permewan Wright Limited, Anderson Meat Industries Limited, Hecla Rowe Limited, Australian Graduate School of Management, The Royal Institute for Deaf and Blind Children and Citistate Aviation Pty Limited.

10,000 ordinary shares in Montec International Limited.

Mr Grant was a Member of the Audit Committee.

Managing Director

B. Comm, MAICD.

Managing Director of Montec International Limited from May 2003. Previous roles have included General Manager with Woolworths and Chief Business Analyst with Provest Limited. Malcolm Campbell's former directorships include Integrated Marketing and Business Services Pty Limited, Workforce Technologies Limited and Australian Healthy Dairy Corporation Pty Limited.

12,615,000 Ordinary Shares of Montec International Limited and options to acquire a further 5,000,000 shares in Montec International Limited.

Mr Campbell as Chief Executive Officer has overall management responsibility for Company operations and performance. Mr Campbell also holds the position and responsibility of Chief and Legal Representative of Montec International Limited within the People's Republic of China and is appropriately certified by the Chinese Government in respect of the office of these positions.

Terry Cuthbertson	Director (Non-executive); Appointed Non-Executive Chairman from July 2004
Qualifications	B. Bus, ACA.
Experience	Non-Executive Chairman of Austpac Resources N.L. and Non-Executive Director of Open Telecommunication Limited, previously a Partner of KPMG and Director of KPMG Corporate Finance and NSW Partner in Charge of Mergers and Acquisitions, Group Finance Director of Tech Pacific Holding Limited, Director for Tech Pacific Holding Limited's businesses in Malaysia, Hong Kong, Singapore, India, Philippines, Indonesia and Thailand.
Interest in Shares and Options.	10,000 ordinary shares of Montec International Limited.
Special Responsibilities	Mr Cuthbertson is the Chairman of both the Audit Committee and the Nomination and Remuneration Committee.
Peter Herd	Director (Non-executive)
Qualifications	B. Ec (hons), FAICD.
Experience	General Manager of Dairy Farmers' Milk and Beverage Division, Regional Director Australasia for Coca-Cola South Pacific, Division President for Coca-Cola Far East in the Philippines and Country Manager for Hong Kong, Taiwan and Indonesia.
Interest in Shares and Options	10,000 ordinary shares of Montec International Limited.
Special Responsibilities	Mr Herd is a member of the Nomination and Remuneration Committee, and the Audit Committee from July 2004.
Xuegin Du	Executive Director (Product Development)
Qualifications	Bachelor of Medicine from Harbin University of China, International Master's degree in food and nutrition planning from the University of the Philippines and a PhD degree from the Department of Food Science and Technology from the University of New South Wales.
Experience	Vice Director of the Beijing Institute of Food Hygiene Inspection and Examination, Professional and Administrative Official of the Department of Nutrition and Food Hygiene within the Ministry of Public Health China and Research Fellow with the University of Sydney.
Interest in Shares and Options	10,000 ordinary shares and 100,000 options over ordinary shares of Montec International Limited.
Special Responsibilities	Technical review and development of all product extensions.

Spiro Lymberatos	Executive Director - Resigned 22 September 2003
Qualifications	Dip. Bus.
Experience	Director of Ricor Solutions Pty Ltd.
Interest in Shares and Options	405,000 ordinary shares of Montec International Limited.
Special Responsibilities	Corporate Administration.

Directors' and Executive Officers' Emoluments

Disclosure relating to directors' and executive officers' emoluments has been included in note 5 of the financial report.

Meetings of Directors

During the financial year, 26 meetings of directors (including committees) were held. Attendances were:

					Committee Meetings - Discourse and the
	Directors' Meetings			Andit Committee	Nomination and Remuneration Committee
	Eamor etame to aurna	Republica atumico	Number exame as au noi	Nastricks anombed 99. UM	Mumber citorie to altaml	Waarree atterded
Jim Grant	11	11	з	3
Makolm Campbell	22	21
Terry Cuthbertson	11	10 1	Э	3	4
Peter Herd	13	11			11	1
Xuegin Du	22	16
Spiro Lymberatos	44	11

Photograph above shows members of the Board as at September 2004. From Left :: Peter Herd, Xueqin Du, Makokn Campbell and Terry Cuthbertson.

· Malcolm Campbell

· Xuegin Du

Indemnifying Officers or Auditor

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

The Company has paid premiums to insure each of the following directors and executives against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director or executive of the Company, other than conduct involving a willful breach of duty in relation to the Company. The amount of the premium was \$31,900 for the below directors and executives.

• · Jim Grant
• · Peter Herd

· Terry Cuthbertson · Ian Maltman

Options

Options that were granted over unissued shares or interest during or since the financial year by the Company or controlled entity to directors or the most highly remunerated officers as part of their remuneration are as follows:

• . Options granted under the Montec International Limited Employee Option Plan were 100,000 options granted to Xueqin Du at an exercise price of \$0.50 exercisable on or before 1 July 2007 under the terms of her Executive Service Agreement.
• · In addition, 336,667 options were granted to lan Maltman directly at an exercise price of \$0.50 exercisable on or before 1 July 2006 under the terms of his Executive Service Agreement.

During the year ended 30 June 2004, no ordinary shares of Montec International Limited were issued on the exercise of options granted under the Montec International Limited Employee Option Plan. No shares have been issued since that date.

At the date of this report, the unissued ordinary shares of Montec International Limited under option are as follows:

Grant Date	Date of Expiry	Exercise Price	Number Under Option
4 November 2003	30/06/05	- A 0 - 50 -	4.323.430
12 October 2003	-006/06	- \$0.50	5.600.000
4 November 2003	30/06/07	MO 35	2 548,600
21 October 2003	30/06/05	A 0.50.	609.826
121 October 2008	01/07/07	30.50	m 100.000
30 November to 30 June 2004	01/07/06	ាពេកព	336 667
			12.918.423

i. These options were issued under the Company's Executive Option Plan.

Proceedings on Behalf of Company

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

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

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

Terry Cuthbertson Chairman

Dated this 20th day of September 2004.

Anglick Community

Malcolm Campbell Managing Director

Statement of financial performance

	Economic Entity		Parent Entity
Note	Year ended 30 June 2004	2 months ended 30 June 2003	Year ended 30 June 2004	2 months ended 30 June 2003
	\$.	\$.	S.	X.
2 Revenues from ordinary activities	578,863		578,863
Cost of goods sold	(243, 784)		(243,784)
Compilance and professional fees	(567, 752)		1561.644)
Advertising and marketing expenses	(483, 683)		(483, 683)
Employment expenses	(915, 962)		(909, 927)
Administrative expenses	(250, 768)		(248, 262)
Travel expenses	[142, 849]		(142,849)
Insurance experises Borrowing costs	(73, 442) (1, 240)		(73, 448) (1,240)
Depreciation and amostisation expense	(368,773)		(352.603)
Loss from ordinary activities before
income tax expense 3	(2,469,336)		(2,438,577)
Income tax expense relating to ordinary activities 4
Loss from ordinary activities after
related income tax expense	(2,469,336)		(2,438,577)
Net loss attributable to outside equity interests	5419
Net loss attributable to members of the parent entity	(2,463,917)		(2,438,577)
Net exchange difference on translation
of financial report of self-sustaining foreign operation 21	(22, 140)
Total revenues, expenses and
valuation adjustments attributable to members of the parent entity and
recognised directly in equity	(2,486,057)		(2,438,577)
Total changes in equity other than those resulting from transactions with owners
as owners	(2,486,057)		(2,438,577)
Applying AASB 1027: Basic earnings per share (cents per share) 80.	(0.059)
Diluted earnings per share (cents per share) 8h	(0.059)
Alternative EPS - Appiying Issued Shares
as at 30 hme 2004.
Basic earnings per share (cents per share) 80 Diluted earnings per share (cents per share). 8c	(0.046) (0.046)

The Financial Statements should be read in conjunction with the accompanying notes.

Statement of financial position

as at 30 June 2004

		Economic Entity		Parent Entity
	Note.	2004 \$.	2003 X,	2004 \$.	2003 S
CURRENT ASSETS
Cash assets Receivables	9 10	2,090,170 145,690	4.841	2,089,291 ${72,47}$	11
Inventories	11	409,257		405,238
Other	16.	279.654	16,909	267,478
TOTAL CURRENT ASSETS		2,924,771	21,750	2,934,478	m
NON-CURRENT ASSETS
Other financial assets	12.			281,605	431,605
Property, plant and equipment	14.	113,160	12,976	104,998
Intangible assets	15	4,512,190	1,293,499	4,271,447	1,186,195
TOTAL NON-CURRENT ASSETS		4,625,350	1,306,475	4,658,050	1,317,800
TOTAL ASSETS CURRENT LIABILITIES		7,550,124	1,328,225	7,592,528	1,317,811
Payables	17	215,492	1317809	209,251	1,317,800
Interest-bearing liabilities	18	8,701		8.701
Provisions	19	25,923		25.973
TOTAL CURRENT LIABILITIES		250,116	1,317,800	243,875	1,317,800
NON-CURRENT LIABILITIES Interest-bearing liabilities	18.	13,052		13,052
TOTAL NON-CURRENT LIABILITIES		13,052		13,052
TOTAL LIABILITIES		263,168	1,317,800	256,927	1,317,800
NET ASSETS		7,286,953	10,425	7,335,601	11
EQUITY
Contributed equity	$\overline{20}$	9,774,178	41	9,774.178	11
Reserves	24	(22, 140)
Accuradated osses Parent entity interest	22	(2,462,917) 7,288,121	41	(2, 438, 577) 7,325,601	m
Outside equity interest	23	(1, 168)	10,414
TOTAL EQUITY		7,286,953	10,425	7,335,601	M

The Financial Statements should be read in conjunction with the accompanying notes.

Statement of cash flows

	Economic Entity		Parent Entity
	Year ended	2 months ended	Year ended	2 months ended
Note	30 June 2004 š.	30 June 2003 K.	30 June 2004 \$.	30 June 2003 $\ddot{\phantom{0}}$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers Payments to suppliers and employees	340,701 (2, 849, 501)		340,701 (2,789,860)
Interest recorded.	125,439		125,439
Borrowing costs	(1, 240)		(1, 240)
Other	(21,256)		(21, 255)
$\sum a$ Net cash used in operating activities	(2.405, 857)		(2,346,216)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of non-current assets.	(92,992)		(92, 992)
Purchase of intellectual property Payment for subsidiary, net	(4.077, 495)		(4.077, 495)
of cash acquired 27b	(131,605)	4,991	(121,605)	11
Loan made to subsidiary			(55,690)
Net cash (used in) / provided
by incenting activities	(4, 302, 092)	4.991	(4,357,782)	11,
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares	10253.990		10,253,990
Cost of share issue	(1,456,204)		(1.455, 203)
Payment for borrowing	(4,509)		(4,509)
Net cash provided by financing activities.	8,793,278		8,793,278
Net increase in cash held	2,085.329	4,991	2.089,280	11
holdings in foreign currencies		(150)
Cash at 30 June 2004 and 200 사	2.000.170	4,841	2,089,291	11
Cash at 1 July 2003 Effect of exchange rates on cash	4,841		Ħ.

The Financial Statements should be read in conjunction with the accompanying notes.

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

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

The financial report covers the economic entity of Montec International Limited and controlled entities, and Montec International Limited as an individual parent entity. Montec International Limited is a listed public Company, incorporated and domiciled in Australia.

The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets.

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

a. Principles of Consolidation

A controlled entity is any entity controlled by Montec International Limited. Control exists where Montec International Limited 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 Montec International Limited to achieve the objectives of Montec International Limited. A list of controlled entities is contained in Note 13 to the financial statements.

All inter-Company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Where controlled entities have entered the economic entity during the year, their operating results have been included from the date control was obtained.

Outside interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report.

b. Income Tax

The economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit from ordinary activities adjusted for any permanent differences.

Timing differences which arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought to account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the 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.

c. Inventories

Inventories are measured at the lower of cost and net realisable value. Costs are assigned on the basis of weighted average costs.

d. Plant and equipment

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

Depreciation

The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use.

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

Class of Fixed Asset	Depreciation Rate
Plant and equipment	-37.5%
Leased plant and equipment	-37.5%

e Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to entities in the economic entity are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any quaranteed 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 payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

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

f. Investments

Non-current investments are measured on the cost basis. The carrying amount of non-current investments is reviewed annually by directors to ensure it is not in excess of the recoverable amount of these investments. The recoverable amount is assessed from the quoted market value for listed investments or the underlying net assets for other non-listed investments. The expected net cash flows from investments have not been discounted to their present value in determining the recoverable amounts.

g. Intangibles

Goodwill

Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill is amortised on a straight line basis over the period of 20 years. The balance is reviewed annually and any balance representing future benefits for which the realisation is considered to be no longer probable is written off.

Patents and Acquired Rights

Patents and acquired rights are recorded in the accounts at cost of acquisition and are amortised over the period in which their benefits are expected to be realised. The patents expire on 12 June 2012. The carrying amount of patents and acquired rights are reviewed annually to ensure they do not exceed the recoverable amount.

h. Foreign Currency Transactions and Balances

Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange ruling at that date.

The gains and losses from conversion of assets and liabilities, whether realised or unrealised, are included in profit from ordinary activities as they arise.

The assets and liabilities of the overseas controlled entities, which are self-sustaining, are translated at year-end rates and operating results are translated at the rates ruling at the end of each month. Gains and losses arising on translation are taken directly to the foreign currency translation reserve.

i. Employee Benefits

Provision is made for the economic entity liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries, and annual leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled plus related on-costs. 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 benefits.

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

The economic entity operates an ownership-based remuneration scheme through the employee option plan, details of which are provided in Note 28 to the financial statements.

i. Cash

For the purpose of the statement of cash flows, cash includes:

• . cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and
• . investments in money market instruments with less than 14 days to maturity.

k. Revenue

Revenue in the form of royalties from the utilisation of technology is recognised upon the utilisation of the technology by customers. Revenue from the recovery of raw materials supplied as part of the contractual agreement with dairy counterparties is recognised on delivery of raw materials to those customers.

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

Dividend revenue is recognised when the right to receive a dividend has been established.

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

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

I. 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 Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

m. Comparative Figures

The company was incorporated on 2 May 2003 and hence the comparative figures represent the 2 month period from incorporation to 30 June 2003.

n. Change in Accounting Policy

There have been no changes in accounting policy during the financial year ended 30 June 2004.

o. Adoption of Australian Equivalents to International Financial Reporting Standards

Australia is currently preparing for the introduction of Australian Equivalents to International Financial Reporting Standards (AEIFRS) effective for financial years commencing 1 January 2005. This requires the production of accounting data for future comparative purposes at the beginning of the next financial year.

The economic entity's management, in consultation with its auditors, is assessing the significance of these changes and preparing for their implementation. The Audit Committee will oversee and manage the economic entity's transition to IFRS. We will seek to keep stakeholders informed as to the impact of these new standards as they are finalised.

The directors are of the opinion that the key differences in the economic entity's accounting policies which will arise from the adoption of AEIFRS are:

Impairment of Assets

The economic entity currently determines the recoverable amount of an asset on the basis of undiscounted net cash flows that will be received from the assets use and subsequent disposal. In terms of AASB 136: Impairment of Assets, the recoverable amount of an asset will be determined as the higher of fair value less costs to sell and value in use. It is likely that this change in accounting policy will lead to impairments being recognised more often than under the existing policy.

Goodwill on Consolidation

Under AASB 3: Business Combinations, goodwill is to be capitalised in the statement of financial position and subjected to an annual impairment test. Amortisation of goodwill is to be prohibited. Current accounting policy of the entity is to amortise goodwill on a straight line basis over the period of 20 years.

Income Tax

Currently, the economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the accounting profit adjusted for any permanent differences. Timing differences are currently brought to account as either a provision for deferred income tax or future income tax benefit. Under AASB 1020: Income Taxes, the economic entity will be required to adopt a balance sheet approach under which temporary differences are identified for each asset and liability rather than the effects of the timing and permanent differences between taxable income and accounting profit.

Share Based Remuneration

Currently, options over unissued shares provided to executives as part of their remuneration are not expensed through the profit and loss. With the introduction of change through AASB 2: Share Based Payment, the economic entity will be required to expense the fair value of the options granted as remuneration over the period that the options vest.

		Economic Entity		Parent Entity
	Year ended: 30 June 2004	2 months ended 30 June 2003	Year ended. 30 June 2004	$\sim$ 2 months ended 30 June 2003
Operating activities:
- coyalties	227 424		227.424
--- sales of coops. ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,	220,547		220547
a di Sangai Sangai Sangai Sangai Sangai Sangai seperti pengerungan pengerungan pengerungan pengerungan pengeru Pada terbagai sebagai sebagai sebagai sebagai sebagai sebagai sebagai sebagai sebagai sebagai sebagai sebagai - interest received	125,439		125,439
Colber revenue ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,	5.453		5453
Total Revenue	578.863		573,863	$\omega$

NOTE 2: REVENUE

NOTE 3: LOSS FROM ORDINARY ACTIVITIES

		Economic Entity	Parent Entity
	Year ended: 30 June 2004	2 months ended 30 June 2003	Year ended 30 June 2004	2 months ended 30 June 2003
Loss from ordinary activities before income tax has been determined after:
Depreciation of non-current assets:
- plant and equipment	(13.217)		(8,403)
- feased plant and equipment	(5.85.1)		(5, 853)
Total depreciation	(19, 070)		(14, 256)
Americation of hon-current assets:
- patents and acquired rights	(338, 348)		(338,348)
- goodwill on consolidation.	(11, 355)
Total amortisation	(349,703)		(338, 348)
Rental expense on property	(56,488)		(56, 488)
Foreign currency translation gains	4.957		4857

NOTE 4: INCOME TAX EXPENSE

		Economic Entity		Parent Entity
	Year ended 30 June 2004	2 months ended 30 June 2003	Year ended 30 June 2004	2 months ended 30 June 2003
			.S	\$
The difference between income tax expense provided in the financial statements and the prima facie tax experise is reconciled as follows:
Prima facie tax revenue on loss from ordinary activities at 30% (2003: 30%) Add.	(740, 801)		(711573)
Tax effect of:
- not decucible amortsation	31 7 7 8		28.372
- other non-allowable items	880		880
Less: Tax effect of:
- foreign currency exchange profit not subject to income tax Tax effect of future income tax benefit	1487		1,487
not brought to account	709.630		703,898
Income tax expense attributable to ordinary activities.

The directors estimate that the Parent Entity and its controlled entities have carry-forward income tax losses of \$2,365,433 (2003: Nil) available to offset against future years' taxable income. The benefits of these losses have not been brought to account as realisation is not virtually certain. The benefit will only be obtained if:

(i) The parent entity and its controlled entities derive future assessable income of the nature and of an amount sufficient to enable the benefits from the deductions for the losses to be realised.

(ii) The parent entity and its controlled entities continue to comply with the conditions for deductibility imposed by the law; and

(iii) No changes in tax legislation adversely affect the parent entity and its controlled entities in realising the benefit from the deductions for the losses.

NOTE 5: DIRECTORS AND EXECUTIVE REMUNERATION

a. Names and positions held of Parent Entity Directors and Specified Executives in office at any time during the financial year are:

Parent Entity Directors

Jim Grant	Chairman - Non-Executive - Deceased 4 July 2004
Malcolm Campbell	Managing Director - Executive
Terry Cuthbertson	Director ~~ Non-Executive
Peter Herd	Director ---- Non-Executive
Xuegin Du	Director ---- Executive
Spiro Lymberatos	Director - Executive - Resigned 22 September 2003

Specified Executives

lan Maltman.	Chief Financial Officer
Michael See	Chief Operating Officer ----- Resigned 7 May 2004

The company only has two non-directors who meet the definition of executive under AASB 1046: Director and Executive Remuneration.

b. Parent Entity Directors' Remuneration

		Rost LATION Randomen
Salary & Fees	Superannuation Contribution	Cash Benefit	Benefits	Super- annuation		Cotions
50.000	4.500				5.000		59.500
120,000	10,800	50,000	68 102				248,902
30,000	2700			т,	5.000		37,700
32.700					5.000		37 700
64.192	5.581	5.715	5,382	$\sim$	11,580	11.83	103.339
75,000					200.000		275,000
370,892	23,687	55.715	73,484	ł,		11,783	762.144
			Primary	Mon-Cash		226,580	Shiess

Options issued to directors and executives as remuneration are valued using the Black-Scholes Option Pricing Model. The value of shares issued to directors and executives as remuneration is assessed as the fair market value prevailing at the time of issue having regard to the market price of the shares, or other such indicator of value, at the time of issue.

i. Remaneration paid for period from 1 November 2003 to 30 June 2004.

ii. Remaneration paid for period from 1 November 2003 to 30 June 2004.

iii. Remuneration paid for period from 1 November 2003 to 30 June 2004.

iv. Remuneration paid for period from 1 November 2003 to 30 June 2004.

v. Remuneration paid for period from 1 November 2003 to 30 June 2004.

vi. Remuneration paid for period from 1 July 2003 to 31 January 2004.

No directors' remaneration was paid in the period to 30 June 2003.

NOTE 5: DIRECTORS AND EXECUTIVE REMUNERATION (continued)

c. Specified Executives' Remuneration

				Primary			Equity		តកតា
	2002	Salary	Supplementary Contribution Benefit	Cashi	Non-Cash Benefits	ASTRON Bannua		Stares Collors
lan Malthan Michael See-	40. ΪŴ	-90.000 80 769	$2.100 -$ 7269	15138	14.256		10.000	31.213	158,707 28.038
		170.769	15369	15,138	14.256		10000	31.213	256,745

The equity valuation methodology adopted is described in Note 5b above.

E. Remuneration paid for period from 1 November 2003 to 30 June 2004.

ii. Remuneration paid for period from 19 January 2004 to 21 April 2004.

No executives' remuneration was paid in the period to 30 June 2003.

d. Remuneration Options

Options Granted As Remuneration

				Terms & Conditions for each Grant
	Vested Number	Granted S Number 2	Grant Date	Average Value per option at Grant Date	Eirst Exercise Price	Exercise Date	alasti Exercise Date:
Parent Entity Directors
Xuegin Du Specified Executives	100.000	100.000.	12/11/83	$30 + 78$	$50-50$	Curent	107.07
Tan Maltnan	336667	336.667	Monthly between Nov 2003 and June 2004	10.0927	\$0,50	Current	10705
	12667	436.667

All options granted to the above directors and executives have vested. The options will expire following the last date for exercise noted in the table above. The exercise price is \$0.50 per option in accordance with the Executive Service Agreements. The service and performance criteria set to determine remuneration are included per Note hibelow.

e. Shares Issued on Exercise of Remuneration Options

NOTE 5: DIRECTORS AND EXECUTIVE REMUNERATION (continued)

f. Options and Rights Holdings

Number of options held by Directors & Specified Executives

	Balance Granted as Options Net Change Balance Total Vested 01/07/03 Remuneration 2/2(ckg) Chief 30/06/04 0006/04 Precisable Unexercisable				Totall	Total
Parent Entity Directors
Malcolm Canobell		5.000.000	5.000,000	-5,000,000		5.000.000
X can be	100.000		100.000	100.000	100 000
Specified Executives
Tail Maturian	336.667		- 16 667	336.667	225.667
Total	4Blattisty	5,000,000	5,48161694	START RESITA	436.667	5,000,000

g. Shareholdings

Number of shares held by Parent Entity Directors and Specified Executives

	Balance 1/7/03	Received as Remuneration	Options Exercised	Net Change Others	Balance 30/6/04
Parent Entity Directors
Im Grant		10,000			10.000
Malcolm Campbell	49956.000			$(37.341.000)^{***}$	12,615,000
Terry Curintertson		10,000			10.000
Peter Herd		10,000			10,000
Xuena Du		10,000			10,000
Spiro Lymberatos		400.000		-5.000	405,000
Specified Executives
lan Makman
Michael See	KR LID	20.000			20,000
	49,956,000	460.000		(37.336.000)	13,080,000

* Net Change Other refers to shares purchased or sold during the financial year, except;

** Includes effect of share consolidation on 21 August 2003.

In addition to her holding in Montec International Limited, Dr Xueqin Du has been issued with 5% of the issued share capital (as at 30 June 2003) of Chongqing Montec Co Ltd under the term of her Executive Service Agreement, and as foreshadowed in the Company's prospectus dated 22 September 2003.

NOTE 5: DIRECTORS AND EXECUTIVE REMUNERATION (continued)

h. Remuneration Practices

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

The remuneration structure for executive officers, including executive directors, seeks to emphasise payment for results by ensuring that executive interests are aligned with those of the Company through equity ownership and/or entitlement.

The objective of the remuneration structure is to both reinforce the short and long-term goals of the Company and to provide a common interest between management and shareholders.

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

A notice period of 3 months is provided for under each executive's service agreement, with the exception of the Managing Director. The Managing Director is on a 3 year contract which commenced on 12 November 2003. On completion of the contract the board can renew it for one or more successive periods of 1 year.

All options have been issued in accordance with the terms provided for under each Executive Service Agreement, and as outlined in the Company's prospectus at the time of listing. The key metrics of options on issue are detailed in note 5, table (d) above and note 28 below.

Malcolm Campbell had received a cash benefit during the year in the form of a Living Away from Home Allowance paid monthly. This benefit is provided on a tax paid basis to Mr. Campbell under the term of his Executive Service Agreement.

Both Xuegin Du and lan Maltman have received cash benefits under the terms of their Executive Service Agreements whereby they receive this benefit on a tax paid basis to compensate them for income tax levied on remuneration options received. The cash benefits were paid on 16 June 2004.

MOTE & AUNITODE! DEMINIED ATION

	Economic Entity		Patent Entity
	Year ended 30 June 2004	2 months ended 30 June 2003	Year ended: 30 June 2004	2 months ended 30 June 2003
Remuneration of the auditor of the parent entity for:
auditing and reviewing the financial reports unio other services: acting as independent - 5	45,600		45.600
accurrant for the IPD.	81992		81,992
	127592		127,522
Remuneration of other auditors of subsidiaries for:
- auditing and reviewing the financial reports of subsidiaries.	2,500		2,500

NOTE 7: DIVIDENDS

a. No interim dividends have been declared or paid during the current financial year, nor in the previous financial year.

The directors are not recommending a final dividend be paid in the current financial year.

No final dividend was paid in the previous financial year.

	Economic Entity		Parent Emily
	2003. 2004	7004	2003.
b. Balance of franking account at year end. adjusted for franking credits arising from payment of provision for income tax and dividends recognised as receivables, franking debits arising from payment of proposed dividends and franking credits. that may be prevented from distribution. in subsequent financial years.

NOTE 8: EARNINGS PER SHARE

	Economic Entity Year ended 30 June 2004
a. Reconciliation of earnings to net loss
Net loss	(2,469,336)
Net loss attributable to outside equity interest	(5.419)
Earnings used in the calculation of basic and diluted EPS	(2,463,917)
b. Applying AASB 1027:
Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS	42,087,602
Weighted average number of options outstanding not treated as dilutive.	8.175.769
Weighted average number of ordinary shares outstanding during the year used in calculation of dilutive EPS	42,087,602
c. Alternative method - applying shares on issue as at 30 June 2004:
Number of ordinary shares outstanding at year end used in calculation of basic EPS.	54319.843
Number of options outstanding at year end not treated as dilutive. a san an an an an an a	12918.423
Number of ordinary shares outstanding at year end used in calculation of dilutive EPS	54 319 843

NOTE 9: CASH ASSETS

		Economic Entity:	Parent Entity
	2004	2003	2004	2003.
	感恩
Cash at bank	2.090.170	4.841	2,089,291
	2080170	4.841	2.089,291	11
Reconcliation of Cash
Cash at the end of the financial year as shown in the statement of cash flows is reconciled to rems in the statement of financial position as follows:
Cash	2.090.170	4841	2.089.221

NOTE 10: RECEIVABLES

	Economic Entity		Parent Entity
	2004	2003	2004	2003
	55	Ж.	-93
CURRENT
Trade debtors	89,366		89.366
Provision for doubtful debis.
	89,366		89.366
Short term deposits	8,321		8.321
Other debtors	48,003	mang.	47,037
Amounts receivable from:
- partly owned subsidiaries.			27.747
	145,690		172471

NOTE 11: INVENTORIES

	Economic Entity		ESSENTINO I I Parent Entity
	Onna	2003	2004 ,,,,,,,,,	-2003-
URRENT
At cost
Raw materials and stores	409257		405.238
	409,257		405,238

NOTE 12: OTHER FINANCIAL ASSETS

	Economic Ent
	,,,,,,,,,,,
IN CURRENT
Unlisted investments, at cost
coares in controlled entitles.		281,605 134.605.

NOTE 13: CONTROLLED ENTITIES

a. Controlled Entities

b. Controlled Entities Acquired

On 8 September 2003 the parent entity acquired 15% of Chongging Montec Co Limited for a purchase consideration of \$150,000 comprising shares. Montec International Limited is entitled to a corresponding share of profits earned from this date. The acquisition of 15% of Chongging Montec Co Ltd followed an earlier acquisition as at 30 June 2003 of 70% of Chongging Montec Co Ltd.

On 13 November 2003 a cash payment of \$131,605 was made to meet the outstanding obligation in respect of the acquisition of 70% of Chongqing Montec Co Ltd, transacted on 30 June 2003.

		Economic Entity	Parent Entity
	2004	2003	2004	2003
		\$	M	Ø
PLANT AND EQUIPMENT
Plant and equipment
At cost	92,096	15,196	79,120
Accumulated depreciation	(13, 217)	(2,220)	(8,403)
	78,879	12.976	10.117
Leased plant and equipment
Capitalised leased assets	40,134		40.134
Accumulated depreciation	(5,853)		(5,853)
	34.281		34,281
Total Property, Plant and Equipment	113,160	12,976	104998

NOTE 14: PROPERTY, PLANT AND EQUIPMENT

NOTE 14: PROPERTY, PLANT AND EQUIPMENT (Continued)

a. Movements in Carrying Amounts

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

2004	Plant and Equipment	Leased Plant and Equipment	Total
Economic Entity:
Balance at the beginning of year.	1/9/6		12,976
Additions	79.120	$-40.134$	119,254
Depreciation experise	(13/17)	(5,853)	(19,070)
Carrying amount at the end of year	78.879	34.221	113 160
Parent Entity:
Balance at the beginning of year.
Adultons	79.120	40.134	119.254
Depreciation expense	(8,403)	(5,852)	(14, 256)
Carrying amount at the end of year.	70,717	34.281	104 998

NOTE 15: INTANGIBLE ASSETS

		Economic Entity	Parent Entity
	2004	2003	2004	2003
	89
Goodwill, at cost	252.098	102.098
Accomulated amortsations	(11,355)
	240,743	102,098
Patents and acquired rights, at cost	4609.795	$1.191 + 1.1$	4609.795	1,186,195
Accumulated amortisation	(338,348)		(338,348)
	4,271,447	1.191.401	4.271.442	1,186,195
Total Interigible Assets	4,512,190	1,293,499	4,271,447	1.186.195

NOTE 16: OTHER ASSETS

RENT	279.554	16,909	267.478
	279,654	16.909	267.478

NOTE 17: PAYABLES

	Economic Entity:		Parent Forliv
	2004	2003	2004	2003.
CURRENT
Unsecuted fabilities
Trade creditors	83.099		83,098
Sundry creditors and accrued expenses.	142.393.	1,317,800	126 133	1,317,800
	215.092	1317800	209.254	1.317.800

NOTE 18: INTEREST BEARING LIABILITIES

	Note	Economic Entity		Parent Entity
		2004	2003	2004	2003
			- 5.
CURRENT
Lease hability	24	8,701		8701
		8701		8,701
NON-CURRENT
Tease lability	24	13.052		13,052
		13.052		13052
-tease liabilities are secured against the leased asset, being a motor vehicle in Qingdad, China.

NOTE 19: PROVISIONS

		Economic Entity	Parent Entity
	2004	2003	WINDS	ാവാദ
CURRENT
Employee entitlements	25,923		25.923
	75.973		25,923
a: Number of employees at year-end.			C.

NOTE 20: CONTRIBUTED EOUITY

	Note:	Economic Entity		Parent Entity
		2004	2003	2004	2003.
54,319,843 (2003:60,000,000) fully
paid ordinary shares	20a	9,774,178	11	9,774,178	Ħ.
a. Ordinary shares
At the beginning of the reporting period.		III.		M
Share movements during the year:
Essued 60,000,000 shares on 2 May 2003			11		11
Issued shares consolidated to 14,412,682. 6121803
Issued 19,831,505 shares on 8/9/07		1.126.241		1.126.241
Hisued 55,656 shares on 19/9/03		50		50
-Issued 20,000,000 shares on 4/11/03		10,000,000		10,000,000
-Issued 20,000 shares on 7/5/04		10,000		10,000
Transaction costs relating to share issues.		(1,362,124)		(1.362, 124)
At reporting date		9,774,178	M.	9774.178	11

The fair value ascribed to ordinary shares issued is based on the level of cash subscribed or the fair value assessed for services rendered or assets acquired with those issued shares.

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

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

b. Options

• i. For information relating to the Montec International Limited employee option plan, including details of options issued, exercised and lapsed during the financial year and the options outstanding at year-end refer to Note 28.
• ii. For information relating to share options issued to directors and executives during the financial year refer to Note 28.
• iii. On 4 November 2003, 2,548,500 options were granted to accept ordinary shares at an exercise price of \$0.35 each. The options are exercisable on or before 30 June 2007.
• ív. On 4 November 2003, 4,323,430 options were granted to accept ordinary shares at an exercise price of \$0.50 each. The options are exercisable on or before 30 June 2005.
• v. On 21 October 2003, 5,709,826 options were granted to accept ordinary shares at an exercise price of \$0.50 each. The options are exercisable as follows:
• 5,000,000 before 30 June 2006
• 609,826 before 30 June 2005
• 100,000 before 1 July 2007
• vì. At the end of each month for the period November 2003 to June 2004 options were granted with a total of 336,667 options issued to accept ordinary shares at an exercise price of \$0.50 each. The options are exercisable on or before 1 July 2006.

At 30 June 2004, there were 12,918,423 (30 June 2003: NIL) unissued ordinary shares for which options were outstanding.

NOTE 21: RESERVES

	Note		Economic Entity	Parent Entity
		2004	2003	2004	2003
Foreign currency translation	21a	(22, 140)
		(22, 140)
a. Foreign Currency Translation Reserve Movements During the Year. Opening balance Adjustment adsing from the translation of foreign controlled. entities' financial statements.		(22,140)
Closing balance a a a a ginneachadh ann an C		(22, 140)		aaaa waxaa dhaqaa ah ah ah ah ah ah ah ah ah ah ah ah a

The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary.

NOTE 22: ACCUMULATED LOSSES

	Economic Entity		Parent Entity
	2004	2003	2004.	ാണായ
Retained losses at the beginning of the -financial year
Net loss attributable to the members of the parent entity	(2.463.917)		(2.438.577)
Retained losses at the end of the financial year.	(7.16, 2.917)		12.436573

NOTE 23: OUTSIDE EQUITY INTERESTS IN CONTROLLED ENTITIES

	Economic Entity		Parent Enrity
	2004.	2002	2004	2002.
Outside equity interest comprises:
Share capital Reserves	$18 - 000$	35,000
	1.945	3,891
Retained losses	(21, 113)	(29.477)
	(1.168)	10d14

Note		Economic Entity:	Parent Entity
	2004	2003	2004	2003.
a. Finance Lease Commitments
Payable
not later than 1 year	10.620	Ж.	10.620
- later than 1 year but not later than 5 years.	15045	2	15045
- later than 5 years		Bestemaan
Minimum lease payments	25.665		25.665
Less Tuture finance charges	3.912	u grafinnin	3.912
Total Lease Liability 18.	21.252		21753

NOTE 24: CAPITAL AND LEASING COMMITMENTS

The finance lease liability is with respect to a motor vehicle utilised for business purposes in Qingdao, China. The lease is over a 3 year term at an implied interest rate of 6% per annum.

	Economic Entity		Parent Entity
	2004	2003 2004	2003
	83	59
b. Operating Lease Commitments
Non-cancelable operating leases contracted for but not capitalised in the financial statements.
Payable
not later than 1 year.	$-38 - 41$	38.741
later than 1 year but not later than 5 years.
later than 5 years.
	38.741	38.741

The property lease is a non-cancelable lease with a one-year term, with rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minimum lease payments shall be adjusted in accordance with a market rent review. An option exists to renew the lease at the end of the one-year term for an additional term of one year.

NOTE 25: CONTINGENT LIABILITIES

There are no contingent liabilities of a material nature identified as at the date of this report.

NOTE 26: SEGMENT REPORTING

Primary reporting - Geographic segments	Australia	China	Eliminations	Economic Entity
2004	S	5	S	\$.
REVENUE
External sales	179,820	273,604		453,424
Other segments
Total sales revenue	179,820	273,604		453,424
Unatlocated revenue				125,439
Total revenue from ordinary activities	179,820	273,604		578,263
SEGMENT RESULT
Experises	(2,480,337)	(567,862)		(3,048,199)
Loss from ordinary activities before income tax expense Інсоне тах ехреняе	(2,300,517)	(294, 258)		(2,469,336)
Loss from ordinary activities after income tax expense.	(2,300,517)	(294, 258)		(2,469,336)
ASSETS
Segment assets	7,551,005	26,201	58.608	7,508,598
Total assets	7,551,005	26,201	68,608	7,508,598
LABILIES
Segment labilities	215,404	33, 387	27,746	221,645
Total Inhilities	215,404	33,987	27, 146	221,645
OTHER
Acquisitions of non-current segment assets	3,824,459			3,824,459
Depreciation and amortisation of segment assets	(352, 604)			(352, 604)
Elektroniko eta martia eta mondoa eta erroma erroma erroma erroma erroma erroma erroma erroma erroma erroma e	3,471,855			3,471,855

NOTE 26: SEGMENT REPORTING (continued)

Primary reporting - Geographic segments	Australia	China	Eliminations	Economic Entity
$\sqrt{2003}$	\$.	\$.	ß	M
REVENUE
External sales
Other seqments
Total sales revenue
Unallocated revence
Total revenue from ordinary activities	IJ,		Ø,
SEGMENT RESULT
Experises
Loss from ordinary activities before income tax expense
Income tax expense.
Loss from ordinary activities after income tax expense
ASSETS
Segment assets	1,317,811	34,715	24,301	1,328,225
Total assets	1.317811	34,715	24.301	1,328/225
LIABILITIES
Segment liabilities	1,317,800			1217800
Total liabilities	1,317,800			1,317,800
OTHER
Acquisitions of non-current segment assets	1,186,195			1,186,195
Depreciation and amortisation of segment assets
	1,186,195		and an anti-complete the complete $1.136\,105$

Primary reporting - Geographical segments

Accounting Policies

Segment revenues and expenses are those directly attributable to the segments and include any joint revenue and expenses where a reasonable basis of allocation exists.

Segment assets include all assets used by a segment and consist principally of cash, receivables, inventories, intangibles and property, plant and equipment, net of allowances and accumulated depreciation and amortisation. While most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two or more segments is allocated to the segments on a reasonable basis. Segment liabilities consist principally of accounts payable, employee entitlements, accrued expenses, provisions and borrowings. Segment assets and liabilities do not include deferred income taxes.

Inter-segment Transfers

Segment revenues, expenses and result include transfers between segments. The prices charged on inter-segment transactions are the same as those charged for similar goods to parties outside of the economic entity at an arm's length. These transfers are eliminated on consolidation.

Secondary Reporting - Business Segments

Montec International has only one line of business, that being the sale and marketing of monounsaturated dairy technology.

NOTE 27: CASH FLOW INFORMATION

		Economic Entity	Parent Entity
	Year ended 2004	2 months ended 2003	Year ended 2004	2 months ended 2003
	Š,	Š.	\$.	S
a. Reconciliation of Cash Flow from Operations with loss from Ordinary Activities after Income Tax
Loss from ordinary activities after income tax- Non-cash flows in loss from ordinary activities.	(2,459.336)		(2,438,577)
Amortisation Depredation Expensing of shares issued for services	349.703 19,070 200,000		338,348 14,256 200,000
Changes in assets and habilities, net of the effects of purchase and disposal of subsidiaries Increase in trace debtors	(130, 839)		(130,889)
Increase in prepayments Increase in Inventories locrease in trade creditors and accruals	(180.952) (409,257) 189.881		(178,461) (405, 238) 228,422
Movement in provisions Cash flow from operations	25,923 (2.405, 857)		25.923 (2,346,216)
b. Acquisition of Entities On 30 June 2003, 70% of Changqing
Montec Co. Ltd. was acquired by Montec International Limited. A cash consideration of \$131,605 was paid in the year ended 30 June 2004 in fulfilled of this obligation. During the
current year 15% of the controlled entity Changaing Monter Co Limited was acquired. Details of this transaction are:
Purchase consideration	150,000	131,605	150,000	131,605
Cash consideration Cash (outflow)/inflow	(131,605)	131.605 4,991
Assets and liabilities held at acquisition date:
Receivables Inventories Property, plant and equipment	16,531 12,976	16,531 12976
Creditors Goodwill on consolidation	252,098	102,098
Outside equity interests in acquisitions

NOTE 27: CASH FLOW INFORMATION (continued)

c. Non-cash Financing and Investing Activities

i. Share issues

On 8 September 2003, 600,000 ordinary shares were issued at a fair market value assessed at that time of \$150,000, for a 15% interest in Chongging Montec Co Ltd. The fair market value of these shares was assessed after comparison with issues made to advisors around that time, the value of which was arrived at though mutual agreement.

NOTE 28: EMPLOYEE BENEFITS

Employees Share Option Arrangement

• i On 12 November 2003, 100,000 share options were granted under the Executive Option Plan to an executive to take up ordinary shares at an exercise price of \$0.50 per share. These options are exercisable on or before 1 July 2007. The options have no voting or dividend rights.
• il On 30 June 2004, 336,667 share options were granted (outside the Executive Option Plan) to an executive to take up ordinary shares at an exercise price of \$0.50 per share in accordance with the Executive's Service Agreement. These options are exercisable on or before 1 July 2006. The options have no voting or dividend rights.

The closing share market price of an ordinary share of Montec International Limited on the Australian Stock Exchange at 30 June 2004 was \$0.56 (The Company was not listed at 30 June 2003).

				Economic Entity	Parent Entity
			Year ended 2004	2 months ended 2003.	Year ended 2004	2 months ended 2003.
			No.	Nö.	No.	No.
a. Movement in the number of share options held by employees are as follows:
Opening balance
Granted during the year.			436.667
Exercised during the year
Lapsed during the year
Closing Balance			436.667
b. Details of share options outstanding as at end of year:
Grant	Expiry and	Exercise
Date: 12/11/2003	Exercise Date 1072007	Price 50.50	100.000
					100,000
30/11/03 to 30/06/04	- 1407/2006	\$0.50	336,667		336.667
			436.667		436.667

NOTE 28: EMPLOYEE BENEFITS (continued)

Fair value of shares issued during the reporting period is estimated to be the market price of shares of the parent entity on the Australian Stock Exchange as at close of trading on each of the issue dates. The fair value of shares issued to employees prior to listing has been assessed on the issue price to the public, being \$0.50 per share.

		30 line 2004
		Number of Shares Granted	Fair Value at Issue Date: Per Share	Agaregate Proceeds Received	Fair Value at Issue Date: Accrecate
d. Date Shares Granted	3-Sep 03	10.000	50.50		\$5,000
	7-May-04	$\times$ n Good	80.50		\$10,000
		-30-000			\$15.000
There were no shares granted as employee remuneration in the financial year ended 30 June 2003.

NOTE 29: EVENTS SUBSEQUENT TO REPORTING DATE

We note with deep regret the death of Mr Jim Grant in early July 2004. With Mr Grant's untimely death, Mr Terry Cuthbertson has been appointed by the board to act as Chairman of the Company.

NOTE 30: RELATED PARTY TRANSACTIONS

	Economic Entity		Parent Entity
	Year ended 2004	2 months ended 2003	Year ended: 2004	2 months ended 2003
	S	W		\$.
Transactions between related parties are on normal commercial terms and conditions no more. favorable than those available to other parties unless otherwise stated. Transactions with related parties:
i. Controlled entities Two inter-company loans have been provided to Chonoging Montec Co Ltd for a combined amount of \$57,528. These loans have been partly- recovered during the financial year, with an outstanding balance of \$27,747 as at 30 June 2004. The outstanding loans have been elminated on consolidation.			27 747
il Director related Entities Montec International Linited made payments to Montec Holdings Pty Ltd, a wholly owned and controlled entity of Malcolm Campbell as follows: payment of consideration for acquisition of accured rights and interest in Chongqing. Montec Co Ltd as outlined in the prospectus Gated 22 September 2003, assessment assessment	73 CN	22 Martin 1999 - Martin 1999 - André Martin 1999 - André Martin 1999 - André Martin 1999 - André Martin 199	725 500

			NOTE 30: RELATED PARTY TRANSACTIONS (continued)
--	--	--	-------------------------------------------------	--

		Economic Entity Parent Entity
	Year ended. 2004	2 months ended 2003	Year ended 2004	2 months ended 2003
rembursement of costs nourred on behalf of Montec International Ltd in relation to the offer as outlined in the prospectus dated.
22 September 2003 - payment made to reimburse Montec Holdings Pty Ltd for costs incurred on behalf of Montec International Limited in respect of	150.000		150.000
operations prior to listing. payment made to IMBS Pty Ltd. a wholly owned and controlled entity of Malcolm Campbell for services provided to Montec	165.000		165.000
International procto listing.	10.900		10.000
H. Directors No related party transactions with directors of Montec International Limited or controlled entities have occurred other than those noted in a above.			and and and and and and and and and an i katikani katikani katika ika ika ika ika ika ika ika ika ika
iv. Share Transactions of Directors
No share transactions of directors occurred
during the financial year other than those. foreshadowed in the prospectus dated 22 September 2003

NOTE 31: FINANCIAL INSTRUMENTS

a. Interest Rate Risk

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

				Fixed Interest Rate Maturing
	Weighted Average Effective Interest Rate	Floating Interest Rate	Within Year 1	576 ST Years	"Over 5" Years	Non-interest Bearing	Adaly
	278
	2004 2003	12004	2003 2004 2003 2004 2003 2003 2004 2003			2004 2003 2004	2003
Financial Assets
Cashi	4.80%	2,090,170 4,841					2,090,170 4,841
Financial Liabilities Lease habilities	6.00%	1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 1999 - 19	2701	13.057			71757

All other assets and liabilities are non-interest bearing.

NOTE 31: FINANCIAL INSTRUMENTS (continued)

b. Credit Risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position and notes to the financial statements.

Credit risk for derivative financial instruments arises from the potential failure by counter-parties to the contract to meet their obligations. The Company has no exposure to forward exchange contracts or interest rate swaps, nor other forms of derivative financial instruments.

Except for the following concentrations of credit risks, the economic entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the economic entity.

c. Net Fair Values

The net fair values of unlisted investments where there is no organised financial market, the net fair value has been based on a reasonable estimation of the underlying net assets or discounted cash flows of the investment. For other assets and other liabilities the net fair value approximates their carrying value.

d. Derivatives

The economic entity has not participated in the use of any derivative financial instruments during the year.

NOTE 32: COMPANY DETAILS

The registered office of the Company is:

Montec International Limited C/O Australian Company Secretaries Pty Ltd Level 5, 255 George St Sydney NSW 2000 Australia.

The principal places of business are: Montec International Limited Sydney, Australia Level 6, 55 York Street Sydney NSW 2000

Qingdao, China Level 7, Sanfod, No.96 Xiang Gang Zhong Road Qingdao PRC 266071

Chongging Montec Co Limited Chongqing, China Suite 214, No 106 Keyuan 3rd Hi-Tech Industrial Development Zone Chongging PRC 400039

DIRECTORS' DECLARATION

The directors of the Company declare that:

• 1. The financial statements and notes, as set out on pages 16 to 43 are in accordance with the Corporations Act 2001:
• a. comply with Accounting Standards and the Corporations Regulations 2001; and
• b. give a true and fair view of the financial position as at 30 June 2004 and of the performance for the year ended on that date of the Company and economic entity;
• 1. In the directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

Gruppe p

Malcolm Campbell Managing Director

Terry Cuthbertson

Chairman

Dated this 20th day of September 2004.

To the members of Montec International Limited

Chartered Accountants Business Advisers and Consultants

Grant Thornton

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for both Montec International Limited (the company) and Montec International Limited and controlled entities(the consolidated entity), for the year ended 30 June 2004. The consolidated entity comprises both the company and the entities it controlled during that year.

The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgment, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot quarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and of their performance as represented by the results of their operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

• · examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report; and
• · assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

Independence

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

Audit opinion

In our opinion, the financial report of Montec International Limited is in accordance with: (a) the Corporations Act 2001, including:

(i) giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2004 and of their performance for the year ended on that date; and

(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia.

Gast Tendents

Grant Thornton NSW Chartered Accountants

M A Adam-Smith Partner

Level 17, 383 Kent Street Sydney NSW 2000 PO Locked Bag Q800 OVB Post Office Sydney NSW 1230 T +61 2 8297 2400 P +61 2 9299 4445 E info@gtnsw.com.au Willwww.grantthornton.com.au

Grant Thornton NSW A New South Wales Partnership ABN 25 034 787 757

Liability limited by the Accountants Scheme, approved Junder the Professional Standards Act 1994 (NSW)

Member of Grant Promitie Association Inc. Member of Grant Thomton International

Sydney

20 September 2004

1. Shareholding as at 15 September 2004

a.	Distribution of Shareholders Number Category (size of Holding)	Ordinary
	$1 - 1.000$	26
	$1.001 - 5.000$	275
	$5.001 - 10.000$	250
	10.001 ~ 100.000	334
	100,001 - and over
		דלל

b. The number of shareholdings held in less than marketable parcels is twenty six.

c. The names of the substantial shareholders listed in the Company's register as at 15 September 2004 are:

	Number
Shareholder	Ordinary
Malcolm Campbell	12.615.000

d. Voting Rights

The voting rights attached to each class of equity security are as follows:

Ordinary shares

The right to vote at a general meeting of shareholders (whether present in person or by any representative, proxy or attorney) on a show of hands (one vote per shareholder) and on a poll (one vote per share).

	Name	Number of Ordinary	% Held of Issued
		Fully Paid Shares Held	Ordinary Capital
1.	Makolm Campbell	12,615,000	23.22
2.	GE Commercial Corporation (Australia) Pty Limited	2,666,667	4.91
3.	Aliserene Enterprises Pty Limited	2,530,750	4.66
4.	R & R Super Pty Limited	2,039,200	3.75
5.	Mr Stuart Baxter	1,520,000	2.80
6.	RBC Global Services Australia Nominees Pty Limited	1,396,577	2.57
7.	AFI Management Pty Ltd	1,175,000	2.16
8	Mr Raymond Kos	918,720	1.69
9.	Development Capital Corporation	800,000	1.47
10.	Invia Castodían Pty Limited	780,000	1.44
11.	Mr Boris Jaasen	741,400	1.37
12.	Whorouly Pty Ltd	680,000	1.25
13.	Meltrust Pty Ltd	609,825	1,12
14.	A&P Comestibles Pty Limited	609,825	1.12
15.	Keith Perring & Janice Perring	555,656	1.02
16.	Mr Stephen David Kennedy	555,556	1.02
17.	Atlantic Trading Corporation	550,800	1.01
18.	Ziba Pty Ltd	500,000	0.92
19.	Carpe Diem Initiatives Pty Ltd	500,000	0.92
20.	Mrs Janice Margaret Hocking	440,000	0.81
		32,184,976	59.23

e. 20 Largest Shareholders as at 15 September 2004 - Ordinary Shares

1. The name of the Company Secretary is Mr Nick Geddes. Mr Geddes qualifications are:

Fellow- The Institute of Chartered Accountants in England and Wales (FCA) Fellow- The Institute of Chartered Accountants in Australia Fellow- Chartered Secretaries Australia Fellow- Chartered Institute of Chartered Secretaries

3. The address of the registered office in Australia is:

Level 5, 255 George St Sydney NSW 2000 Telephone: 02 9252 1933

The address of the Company's Australian Head Office is: Level 6, 55 York St Sydney NSW 2000 Telephone: 02 9299 0011

4. Registers of securities are held at the following address:

New South Wales

Registries Limited 28 Margaret St Sydney NSW 2000

Additional Information (continued)

5. Stock Exchange Listing

Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the Australian Stock Exchange Limited.

6. Difference in Results Reported to Australian Stock Exchange

The results reported on 20 August 2004 to the Australian Stock Exchange in the preliminary final report differ from the results reported in these accounts as the loss of \$2.461 million, included in the preliminary final report was increased to a loss of \$2.469 million through an adjustment to amortisation of goodwill on consolidation.

$\mathscr{L}$

7. Unquoted Securities

Options over Unissued Shares

A total of 12,918,423 options are on issue. 12,918,423 options are on issue to forty-two holders of ordinary securities. 100,000 options are on issue to a director under the Montec International Limited employee option plan.

8. Restricted Securities

Ordinary Shares

Of the 54,319,843 ordinary shares on issue as at 30 June 2004, 30,894,122 were quoted on the Australian Stock Exchange. The remainder was subject to escrow restrictions as follows:

Ordinary Shares	Escrow release	Period
5,556,071	8/09/04	12 months
5,269,650	8/09/05	24 months
4,200,000	4/11/05	24 months
4,200,000	4/11/06	36 months (voluntary)
4,200,000	4/11/07	48 months (voluntary)
23.425.721

Options

Of the 12,918,423 unlisted options on issue as at 30 June 2004, 12,581,756 were subject to escrow restrictions as follows:

Period	Escrow release	Options
12 months	8/09/04	6.834.430
24 months	8/09/05	747.326
-24 months	4/11/05	5.000.000
		12.581.756

9. Cash Utilisation

Montec International Límited has applied the cash, and assets readily convertible to cash, held at the time of admission to the official list of the Australian Stock Exchange on a basis entirely consistent with its business objectives, as outlined in the company's listing prospectus dated 22 September 2003.

Coroomie Directory

Principal Registered Office

Level 5, 255 George Street Sydney NSW 2000 Phone: 02 9252 1933 Facsimile: 02 9252 2487

Australian Head Office

Level 6, 55 York Street Sydney NSW 2000 Phone: 02 9299 0011 Facsimile: 02 9299 1499

Investor Relations

Phone: 02 9251 6256 Facsimile: 02 9251 6544 Email: investors@montec-international.com.au

Attolicis

Grant Thornton Charlered Accountants Level 17, 383 Kent Street Sydney NSW 2000

Solidiors

Deacons 1 Alfred Street Circular Quay Sydney NSW 2000

Share Registry

Registries Limited 28 Margaret Street Sydney NSW 2000 Phone: 02 9290 9600 Facsimile: 02 9279 0664