LARK DISTILLING CO. LTD - Annual Report 2007

Montec International Limited ABN: 62 104 600 544

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Level 6, 55 York Street Sydney NSW 2000 Australia

[email protected] www.montec-international.com

Telephone:+61 2 9299 0011 Facsimile:+61 2 9299 1499

ASX & MEDIA RELEASE

30 August 2007

The Manager Company Announcements Office Australian Stock Exchange Limited 20 Bridge Street SYDNEY NSW 2000

PRELIMINARY FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2007

Results for Announcement to the Market

Disclosure in addition to the attached unaudited Financial Report in compliance with ASX listing Rule 4.3A.

The revenue from ordinary activities is down by 35% to $528,518 from the previous corresponding period. This decrease in the current year revenue results in part from lower production volumes scheduled during the 2007 financial year, symptomatic of the capital constraints faced by the business for much of the 2007 year. The lower average cash balance held during the 2007 financial year as compared with the prior year resulted in lower interest earnings in 2007, thereby contributing to the decease in revenue.
The loss from ordinary activities after tax attributable to members is down 35% to $3,389,170 from the previous corresponding period. This improvement relates largely to the impairment write down of patents in the prior period not being repeated. There was also a reduction in the cost of goods sold, administration and amortisation expenditure.
The net loss for the period attributable to members is down 35% to $3,389,170 from the previous corresponding period.
No dividend has been proposed or paid for the current period, as the company is yet to achieve profitability and requires its existing reserves to fund development of the business.
The net tangible asset per security for the current period and the previous corresponding period is $0.024 and $0.035 respectively. The decline in net tangible asset backing relates primarily to the increased number of ordinary shares on issue at 30 June 2007.
Review of Operations

The financial year ended 30 June 2007 has seen valuable progress in the Company’s efforts to establish its retail brand ‘dairypure’ in the Chinese market place. At year end approximately 2,804 stores stocked Montec’s monounsaturated liquid milk products with a sound foundation having been set for further expansion. The Company’s objective is to secure distribution through a sufficient number of retail points of presence, and achieve acceptable turnover of product by store, for the business to become commercial.

The Company’s business development for the financial year ended 30 June 2007 has centred on Beijing, Shanghai and other cities including Qingdao and Dalian. Distribution to-date has been achieved through a combination of agent relationships, the channels available to the company’s production partner Beijing Sanyuan Foods Co Ltd, and Montec’s own sales team and the niche channels on which this team is focused. In addition to its liquid milk business, the Company was successful in lodging patent applications for monounsaturated ice-cream. This patent application can be extended to worldwide protection of the technology should Montec determine commercial opportunity for the patented process on this scale. The current intention is for patents to be sought in each country where commercial activity is pursued including China.

To progress the Company’s China expansion a capital raising program was undertaken during the financial year. This comprised a limited private placement to sophisticated investors, raising approximately $0.6 million before costs, in November 2006, and a combined placement and renounceable rights issue raising approximately $3.9 million before costs in May 2007. These capital raisings have addressed the Company’s immediate funding needs, based on the near term objectives that have been set.

The Company was successful in achieving a negotiated settlement to the litigation which surrounds the ownership of European patents for monounsaturated dairy during the financial year. The settlement, which results in the European patents not being pursued,

was considered to be in the best interests of the Company’s shareholders as it allows management to focus more appropriately on the Company’s core business in China. This chapter in the Company’s development has been extremely frustrating for the current board and management.

From a financial perspective the year ended 30 June 2007 has been characterised as a period of further development where expenditure has been incurred with an expectation of future revenues being earnt.

Control was not lost over any subsidiary during the current financial year, with Chongqing Montec Co Ltd being liquidated in September 2006.
The Financial Report at the date of this release is still in the process of being audited.

Ends

Terry Cuthbertson Chairman Montec International Limited Tel: +61 2 9299 0011

Peter Herd Managing Director Montec International Limited Tel: +61 2 9299 0011

Investor Relations & Media Enquires:

Rod North Bourse Communications Pty Ltd Tel: +61 3 9510 8309 Mob: +61 (0) 408 670 706

MONTEC INTERNATIONAL LIMITED

ACN 104 600 544

AND CONTROLLED ENTITIES

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2007

Montec International Limited ABN 104 600 544 and Controlled Entity

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2007

Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements

Montec International Limited ABN 104 600 544 and Controlled Entity

INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2007

	Note	Consolidated Entity	Consolidated Entity	Parent	Entity
		2007	2006	2007	2006
		$	$	$	$
Revenue	2	528,518	797,373	528,518	797,373
Other income		-	9,870	3,545	-
Change in inventories of finished goods		27,482	-	27,482	-
Raw materials sold/used		(237,688)	(479,661)	(237,688)	(479,661)
Compliance and professional fees		(769,838)	(784,151)	(767,485)	(783,597)
Advertising and marketing expenses		(461,257)	(632,137)	(461,257)	(632,137)
Employee benefits expenses		(1,581,822)	(1,470,647)	(1,581,822)	(1,485,166)
Administrative expenses		(431,542)	(546,582)	(431,542)	(519,298)
Travel expenses		(123,485)	(232,034)	(123,485)	(231,941)
Insurance expenses		(60,966)	(104,459)	(60,966)	(104,459)
Finance costs		(648)	-	(648)	-
Depreciation and amortisation expense		(202,387)	(441,922)	(202,387)	(439,484)
Write off of certain acquired rights		(18,104)	-	(18,104)	-
Impairment write down of patents		(24,990)	(1,369,356)	(24,990)	(1,369,356)
Other expenses		(32,443)	-	(500)	-
Loss before income tax expense	3	(3,389,170)	(5,253,706)	(3,351,329)	(5,247,726)
Income tax expense	4	-	-	-	-
Loss after related income tax expense		(3,389,170)	(5,253,706)	(3,351,329)	(5,247,726)
Net loss attributable to outside equity
interests		-	-	-	-
Net loss attributable to members of the
parent entity		(3,389,170)	(5,253,706)	(3,351,329)	(5,247,726)
Earning per share:
Basic earnings per share (cents per share)	8b	(0.040)	(0.080)
Diluted earnings per share (cents per share)	8b	(0.040)	(0.080)
The Financial Statements should be read in conjunction		with the accompanying notes.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

BALANCE SHEET

AS AT 30 JUNE 2007

Note CURRENT ASSETS Cash and cash equivalents 9 Trade and other receivables 10 Inventories 11 Other current assets 12 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Financial assets 13 Property, plant and equipment 15 Intangible assets 16 TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables 17 Short-term provisions 18 TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 19 Reserves Accumulated losses TOTAL EQUITY	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 3,509,454 2,271,951 3,509,453 2,270,123 111,233 67,002 113,585 67,002 122,985 175,740 122,985 175,740 160,279 127,127 160,279 127,127
	3,903,951 2,641,820 3,906,302 2,639,992
	- - 1 1 83,224 128,057 83,224 128,057 816,123 1,027,733 816,123 1,027,733
	899,347 1,155,790 899,348 1,155,791
	4,803,298 3,797,610 4,805,650 3,795,783
	275,233 258,200 275,233 261,598 71,546 222,360 71,546 222,360
	346,779 480,560 346,779 483,958
	346,779 480,560 346,779 483,958
	4,456,519 3,317,050 4,458,871 3,311,825
	19,524,082 15,407,680 19,524,082 15,407,680 541,166 128,929 541,166 159,193 (15,608,729) (12,219,559) (15,606,377) (12,255,048)
	4,456,519 3,317,050 4,458,871 3,311,825

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

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2007

Consolidated Entity Note Balance at 1 July 2005 Adjustment arising from the translation of foreign controlled entities’ financial statements Net income recognised directly in equity Loss for the period Total recognised income and expenses for the period Equity remuneration reserve on recognition of employee share options expenses Balance at 30 June 2006 Adjustment arising from the translation of foreign controlled entities’ financial statements Net income recognised directly in equity Loss for the period Total recognised income and expenses for the period Equity remuneration reserve on recognition of employee share options expenses 20a Shares issued during the year Transaction costs Balance at 30 June 2007	Reserves Share Capital Ordinary $ Accumulated Losses $ Share Options $ Foreign Exchange $ Total $ 15,407,680 (6,965,853) 101,094 (24,539) 8,518,382 - - - (5,725) (5,725)
	- - - (5,725) (5,725) - (5,253,706) - - (5,253,706)
	- (5,253,706) - (5,725) (5,259,431)
	- - 58,099 - 58,099
	15,407,680 (12,219,559) 159,193 (30,264) 3,317,050 - - - 30,264 30,264
	- - - 30,264 30,264 - (3,389,170) - - (3,389,170)
	- (3,389,170) - 30,264 (3,358,906)
	- - 381,973 - 381,973 4,440,426 - - - 4,440,426 (324,024) - - - (324,024)
	19,524,082 (15,608,729) 541,166 - 4,456,519

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2007

Parent Entity Note Balance at 1 July 2005 Net income recognised directly in equity Loss for the period Total recognised income and expenses for the period Equity remuneration reserve on recognition of employee share options expenses Balance at 30 June 2006 Net income recognised directly in equity Loss for the period Total recognised income and expenses for the period Equity remuneration reserve on recognition of employee share options expenses 20a Shares issued during the year Transaction costs Balance at 30 June 2007	Reserves Share Capital Ordinary $ Accumulated Losses $ Share Options $ Foreign Exchange $ Total $ 15,407,680 (7,007,322) 101,094 - 8,501,452 - - - - - - (5,247,726) - - (5,247,726)
	- (5,247,726) - - (5,247,726)
	- - 58,099 - 58,099
	15,407,680 (12,255,048) 159,193 - 3,311,825 - - - - - - (3,351,329) - - (3,351,329)
	- (3,351,329) - - (3,351,329)
	- - 381,973 - 381,973 4,440,426 - - - 4,440,426 (324,024) - - - (324,024)
	19,524,082 (15,606,377) 541,166 - 4,458,871

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

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 JUNE 2007

Note CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs Net cash used in operating activities 24a CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of Intellectual property Payment for subsidiary, net of cash acquired 24b Other Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Cost of share issues Payment for borrowing Net cash provided by financing activities Net increase/(decrease) in cash held Cash at start of year Cash at end of year 9	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 239,779 621,573 239,779 621,573 (3,180,132) (3,716,200) (3,178,305) (3,716,585) 71,641 191,910 71,641 191,910 (648) - (648) -
	(2,869,360) (2,902,717) (2,867,533) (2,903,102)
	(9,539) (23,638) (9,539) (23,638) - - - - - (1) (1) - - - -
	(9,539) (23,639) (9,539) (23,639)
	4,440,426 - 4,440,426 - (324,024) - (324,024) - - - - -
	4,116,402 - 4,116,402 -
	1,237,503 (2,926,356) 1,239,330 (2,926,741) 2,271,951 5,198,307 2,270,123 5,196,864
	3,509,454 2,271,951 3,509,453 2,270,123

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

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2007

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, including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001 .

The financial report covers the consolidated 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 of Montec International Limited and controlled entities, and Montec International Limited as an individual parenting entity, complies with Australian Accounting Standards, which include A- IFRS, in their entirety. Compliance with A-IFRS ensures that the financial report also complies with International Financial Reporting Standards (IFRS) in their entirety.

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

Basis of Preparation

Reporting Basis and Conventions

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

Accounting Policies

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 14 to the financial statements. All controlled entities have a June financial year-end.

All inter-company balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation. Where controlled entities have entered the consolidated entity during the year, their operating results have been included from the date control was obtained. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those policies applied by the parent entity.

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

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

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

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

As all the controlled entities are foreign companies Montec International Limited has not formed a tax consolidated group under the tax consolidation regime.

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 been discounted to their present values in determining recoverable amounts.

Depreciation

The depreciable amount of all fixed assets is depreciated on a straight line basis over their useful lives to the consolidated 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 10% - 37.5 %

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

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement.

e. Leases

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged on a straight-line basis unless another method is more representative of the time pattern of the users benefits.

f. Financial Instruments

Recognition

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

Financial assets at fair value through profit and loss

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period in which they arise.

Loans and receivables

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

Held-to-maturity investments

There is no held-to-maturity investments during the financial year ended 30 June 2007.

Available-for-sale financial assets

Available-for-sale financial assets include any financial assets not included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity.

Financial liabilities

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

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivative instruments

There are no derivative instruments during the financial year ended 30 June 2007.

Fair value

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

Impairment

At each reporting date, the group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. Impairment losses are recognised in the income statement.

g. Impairment of Assets

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

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

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

h. Financial assets

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 been discounted to their present value in determining the recoverable amounts.

i. 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 on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 and adjusted for any impairment losses. 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.

j. Foreign Currency Transactions and Balances

Functional and presentation currency

The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement.

Group companies

The financial results and position of foreign operations whose functional currency is different from the group’s presentation currency are translated as follows:

assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;
income and expenses are translated at average exchange rates for the period; and
retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign currency translation reserve in the balance sheet. These differences are recognised in the income statement in the period in which the operation is disposed.

k. Employee Benefits

Provision is made for the consolidated entity liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year, have been measured at the amounts expected to be paid when the liability is settled plus related on-costs. 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.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

The consolidated entity operates an ownership-based remuneration scheme through the employee option plan, details of which are provided in Note 25 to the financial statements.

l. Provisions

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

m. Cash and Cash Equivalents

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.

n. Revenue

Revenue in the form of royalties from the utilisation of technology is recognised upon the sale raw materials supplied as part of the contractual agreement with customers. Revenue is also derived from the sale of finished goods milk products into wholesales and retail channels.

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).

o. 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.

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

p. Comparative Figures

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

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

q. Going concern

Notwithstanding the net loss for the year and the accumulated losses for the company and the consolidated entity, the directors have performed a review of the cash flow forecasts and have considered the cash flow needs of the company and consolidated entity, including their ability to reduce the level of cash expenditure if required to do so. Based on this review, the directors are satisfied that there are no material uncertainties that could cast doubt on the company’s and consolidated entity’s ability to meet their debts as and when they fall due or payable for a period of at least twelve months from the date of this report and hence the going concern basis of accounting is appropriate and has been used in the preparation of this financial report.

r. Critical accounting estimates and judgments

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

Key Estimates

The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

Patent Impairment

An impairment review of both the Australian and New Zealand patents held by Montec that relate to monounsaturated dairy production has been conducted. This review indicates that the net book value of these two patents after impairment is fairly stated. This amount was assessed after discounting the currently anticipated future cash flows associated with these patents and comparing it with the net book value.

Employee Share Option Valuation

The company has used the Black-Scholes or Binomial valuation model to estimate the fair value of options granted to employees, which is in accordance with AASB 2.

Key Judgments

Stock Obsolescence Provision

Included in inventory as at 30 June 2007 is a provision for stock obsolescence relating to certain forms of packaging printed for use in China, and a quantity of monounsaturated oil and premix showing signs of deterioration. The carrying value of these raw materials is unlikely to be recovered and an obsolescence provision has been made in the accounts. The amount of the provision is $117,559.

s. Disclosure of new standards not yet operative

A number of new or revised accounting standards will require adoption in future reporting periods. Below is a summary of the standards which are considered relevant to the Consolidated Entity.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

AASB 8 Operating Segments - operative date 1 January 2009

AASB 8 will result in a change in the segment disclosures presented in the financial report such that the segments presented will not be based on primary and secondary segments but reflect those segments and amounts regularly reviewed by the entity’s chief operating decision maker. While the amounts presented in the financial statements will not change, the amounts presented in the segment reporting note may differ to those currently presented as a result of AASB 8 requiring the amounts presented to be based on those seen by the entity’s chief operating decision maker.

AASB 101 Presentation of Financial Statements (Amended) - operative date 1 January 2007

An entity shall disclose information that enables users of its financial report to evaluate the entity’s objectives, policies and processes for managing capital.

The entity discloses the following:

a description of what it manages as capital;
when an entity is subject to externally imposed capital requirements: - the nature of those requirements
how those requirements are incorporated into the management of capital
how it is meeting its objectives for managing capital
summary quantitative data about what it manages as capital
any changes from the previous period
whether during the period it complied with any externally imposed capital requirement to which it is subject
when the entity has not complied with such externally imposed capital requirements, the consequences of such non-compliance

Adoption of these amendments is likely to result in increased disclosures particularly those regarding the entity’s objectives, policies and processes for managing capital but will not impact on amounts presented in the financial statements.

AASB 2007-4 Amendments to Australian Accounting Standards arising from Exposure Drafts - operative date 1 July 2007

These amendments arise as a result of the AASB decision that, in principle, all options that currently exist under IFRSs should be included in the Australian equivalents to IFRSs and additional Australian disclosures should be eliminated, other than those now considered particularly relevant in the Australian reporting environment.

Adoption of AASB 2007-4 will result in reduced disclosures within the financial report of the entity in particular those relating to interim financial reporting. AASB 2007-4 also provides the entity with additional recognition, measurement and presentation alternatives. The entity has not decided on the possible adoption of these alternatives and has therefore been unable to assess the financial impact of this change on the entity’s financial report in the period of initial application.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

AASB Interpretation 4 - Determining whether an Arrangement contains a Lease (revised) - operative date 1 January 2008

This interpretation specifies criteria for determining whether an arrangement is, or contains a lease. The determination is based on an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset and whether the arrangement conveys a right to use the asset. Further, reassessment of whether an arrangement is, or contains, a lease is based on whether there is a change in the contractual terms of the arrangement, exercise of a renewal option, an extension of the arrangement, a change in the determination of whether fulfillment is dependent on a specified asset or a substantial change to the asset.

If an arrangement contains a lease, the parties to the arrangement apply the requirements of AASB 117 Leases to the lease element of the arrangement, unless exempted from those requirements by the Standard. Accordingly, if an arrangement contains a lease, that lease is classified as a finance lease or an operating lease. Other elements of the arrangement not within the scope of AASB 117 are accounted for in accordance with other Standards.

Adoption of Interpretation 4 (revised) is unlikely to have a material impact on the entity’s financial report as the entity has no current or expected arrangements which would fall within the scope of this interpretation.

AASB Interpretation 10 - Interim Financial Reporting and Impairment - operative date 1 November 2006

AASB 134 Interim Financial Reporting requires an entity to apply the same accounting policies in its interim financial report as are applied in its annual financial report. It also states that measurements for interim reporting purposes are made on a year-to-date basis so that the frequency of reporting does not affect an entity’s annual results.

However, this Interpretation clarifies that an entity cannot reverse an impairment loss recognised in a previous interim period in relation to goodwill or an investment in an equity instrument or in a financial asset carried at cost. This approach is consistent with the impairment reversal prohibitions in AASB 136 Impairment of Assets and AASB 139.

Adoption of Interpretation 10 is unlikely to have a material impact on the entity’s financial report as the entity has not experienced any impairments of the type described in interpretation 10 during any interim financial period.

AASB Interpretation 11 – AASB 2 - Group and Treasury Share Transactions - operative date 1 March 2007

This Interpretation addresses whether certain types of share-based payment transactions with employees (or other suppliers of good and services) should be accounted for as equity-settled or as cash-settled transactions under AASB 2. For example, the Interpretation clarifies that when an entity’s employees are granted rights to the entity’s equity instruments either by the entity or its shareholders, the transactions are accounted for as equity-settled transactions. This is so whether the entity chooses to, or is required to buy, the equity instruments from another party or the shareholders provide the necessary equity instruments.

Adoption of Interpretation 11 is unlikely to have a material impact on the entity’s financial report.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 2: REVENUE

NOTE 2: REVENUE
Operating activities: — royalties — milk sales — cream sales — sales of goods — interest income – other persons — other revenue Total Revenue NOTE 3: LOSS BEFORE TAX Loss before income tax has been determined after: Depreciation of non-current assets: — plant and equipment Amortisation of non-current assets: — patents and acquired rights Rental expense on property Foreign currency translation (losses)/gains Write off of certain acquired rights Provision for stock obsolescence Impairment write down: — patents — net assets of subsidiary Other expenses: — Legal fees	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 239,754 335,054 239,754 335,054 124,959 - 124,959 - 18,346 20,795 18,346 20,795 73,793 237,549 73,793 237,549 71,641 191,910 71,641 191,910 25 12,065 25 12,065
	528,518 797,373 528,518 797,373 (33,870) (45,179) (33,870) (42,741) (168,517) (396,743) (168,517) (396,743) (98,722) (160,087) (98,722) (160,087) (49,779) 845 (49,779) 845 (18,103) - (18,103) - (117,559) (71,519) (117,559) (67,637) (24,990) (1,369,356) (24,990) (1,369,356) - 9,870 - - (560,129) (518,392) (560,129) (518,392)

NOTE 2: REVENUE

Operating activities:
—
royalties
—
milk sales
—
cream sales
—
sales of goods
—
interest income – other persons
—
other revenue
Total Revenue
NOTE 3: LOSS BEFORE TAX
Loss before income tax has been determined
after:
Depreciation of non-current assets:
—
plant and equipment
Amortisation of non-current assets:
—
patents and acquired rights
Rental expense on property
Foreign currency translation (losses)/gains
Write off of certain acquired rights
Provision for stock obsolescence
Impairment write down:
—
patents
—
net assets of subsidiary
Other expenses:
—
Legal fees

Consolidated Entity
Parent Entity
2007
2006
2007
2006
$ $ $ $ 239,754
335,054
239,754
335,054
124,959
-
124,959
-
18,346
20,795
18,346
20,795
73,793
237,549
73,793
237,549
71,641
191,910
71,641
191,910
25
12,065
25
12,065

528,518
797,373
528,518
797,373
(33,870)
(45,179)
(33,870)
(42,741)
(168,517)
(396,743)
(168,517)
(396,743)
(98,722)
(160,087)
(98,722)
(160,087)
(49,779)
845
(49,779)
845
(18,103)
-
(18,103)
-
(117,559)
(71,519)
(117,559)
(67,637)
(24,990)
(1,369,356)
(24,990)
(1,369,356)
-
9,870
-
-
(560,129)
(518,392)
(560,129)
(518,392)

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 4: INCOME TAX EXPENSE
The prima facie tax on loss from ordinary
activities before income tax is reconciled to
income tax as follows:
a. Prima facie tax receivable on loss from
ordinary activities at 30% (2006:30%)
Add:
Tax effect of:
—
non-deductible amortisation
—
other non-allowable items
Less:
Tax effect of:
—
foreign currency exchange profit not
subject to income tax
—
other allowable items
Tax effect of deferred tax assets not brought to
account
Income tax expense attributable to entity
The applicable weighted average effective tax
rates are as follows:

Consolidated Entity
Parent Entity
2007
2006
2007
2006
$ $ $ $ (1,016,751)
(1,576,112)
(1,016,045)
(1,574,318)
3,530
3,530
3,530
3,530
161,286
440,913
161,286
440,913
(12,828)
2,964
(12,828)
2,964
339,101
(22,409)
339,101
(22,409)
1,178,208
1,112,224
1,177,502
1,110,430

-
-
-
-

-%
-%
-%
-%

The directors estimate that the Parent Entity and its controlled entities have carry-forward income tax losses of $6,247,766 (2006: $5,069,558) available to offset against future years’ taxable income. The benefits of these losses have not been brought to account as there is no convincing evidence of future taxable profits to offset losses. 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.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 5: KEY MANAGEMENT PERSONNEL COMPENSATION

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

Key Management Personnel Terry Cuthbertson Chairman — Non-Executive Peter Herd Acting Managing Director — Executive (appointed acting MD 28 July 2006) Xueqin Du Director — Executive Lin Yuansheng Director — Non-Executive (resigned 20 June 2007) Mei Zhan Yan Director — Non-Executive (appointed 20 June 2007) Jim Manny Director — Non-Executive (appointed 26 October 2006) Ian Maltman Chief Financial Officer Roger McGrath Alternate Director (alternate for Lin Yuansheng, resigned 13 March 2007) Malcolm Campbell Managing Director — Executive (resigned 28 July 2006)

b. Key Management Personnel

2007 Primary Post Employment Equity Total Salary & Fees Superannuation Contribution Cash Benefit Non-Cash Benefits Super- annuation Shares Options $ $ $ $ $ $ $ $ Terry Cuthbertson 75,000 6,750 - - - - 91,239 172,989 Peter Herd 168,950 - - - - - 91,239 260,189 Xueqin Du 105,000 9,450 12,000 - - - 54,952 181,402 Lin Yuansheng (i) 43,750 3,938 - - - - 29,863 77,551 Mei Zhan Yan (ii) - - - - - - - - Jim Manny (iii) 30,726 2,765 - - - - 29,863 63,354 Ian Maltman 157,500 14,175 - - - - 54,952 226,627 Malcolm Campbell (iv) 167,742 1,350 4,263 1,283 - - - 174,638 748,668 38,428 16,263 1,283 - - 352,108 1,156,750	Primary	Post Employment	Equity	Total
	748,668 38,428 16,263 1,283 - - 352,108 1,156,750

(i) Compensation paid for the period 1 July 2006 to 20 June 2007.

(ii) Mei Zhan Yan’s director’s fees for the period 20 June 2007 to 30 June 2007 are being paid to BAIC Australia Pty Ltd. Details are set out in Note 27.

(iii) Compensation paid for the period 26 October 2006 to 30 June 2007.

(iv) Compensation paid for the period 1 July 2006 to the contracted end of Mr. Campbell’s employment on 11 November 2006 under severance arrangements effective 28 July 2006.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 5: KEY MANAGEMENT PERSONNEL COMPENSATION (CONTINUED)

b. Key Management Personnel (Continued)

2006 Terry Cuthbertson Malcolm Campbell Peter Herd Xueqin Du Lin Yuansheng Ian Maltman	Primary	Post Employment	Equity	Total
	Salary & Fees Superannuation Contribution Cash Benefit Non-Cash Benefits Super- annuation Shares Options $ $ $ $ $ $ $ $ 75,000 6,750 - - - - - 81,750 180,000 16,200 108,653 71,205 - - - 376,058 49,050 - - - - - - 49,050 105,000 9,450 25,867 13,059 - - 28,591 181,967 45,000 4,050 8,000 - - - - 57,050 157,500 14,175 13,867 13,059 - - 28,591 227,192
	611,550 50,625 156,387 97,323 - - 57,182 973,067

c. Compensation Options

Options Granted As Compensation

Terms & Conditions for Each Grant

				Average
				Value per	First		Last
		Granted		Option at	Exercise	Exercise	Exercise
	Vested No.	Number	Grant Date	Grant Date	Price	Date	Date
Key Management
Personnel
Terry Cuthbertson					$0.12, $0.18
	5,000,000	5,000,000	1 May 2007	0.0182	and $0.25	Current	31/12/10
Peter Herd					$0.12, $0.18
	5,000,000	5,000,000	1 May 2007	0.0182	and $0.25	Current	31/12/10
Xueqin Du	3,000,000	3,000,000	1 May 2007	0.0183	$0.12, $0.18 and $0.25	Current	31/12/10
Lin Yuansheng	1,600,000	1,600,000	1 May 2007	0.0187	$0.12 and $0.18	Current	31/12/10
James Manny	1,600,000	1,600,000	1 May 2007	0.0187	$0.12 and $0.18	Current	31/12/10
Ian Maltman	3,000,000	3,000,000	1 May 2007	0.0183	$0.12, $0.18 and $0.25	Current	31/12/10
	19,200,000	19,200,000

All options granted to the above key management personnel have vested. The options are exercisable at the exercise prices noted and will expire following the last date for exercise listed above. The service and performance criteria set to determine compensation are included per Note 5g below.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 5: KEY MANAGEMENT PERSONNEL COMPENSATION (CONTINUED)

d. Shares Issued on Exercise of Compensation Options

Key Management Personnel Terry Cuthbertson Peter Herd Xueqin Du James Manny Lin Yuansheng Ian Maltman	No. of ordinary shares issued Amount paid per share Amount unpaid per share - - - - - - - - - - - - - - - - - - -

e. Options and Rights Holdings

Number of options held by Key Management Personnel

Key Management Personnel Terry Cuthbertson Peter Herd Xueqin Du Lin Yuansheng i James Manny Ian Maltman Total	Balance 01/07/06 Granted as Compensation Options Exercised Net Change Other Balance 30/06/07 Total Vested 30/06/07 Total Exercisable Total Unexercis -able - 5,000,000 - 10,000 5,010,000 5,010,000 5,010,000 - - 5,000,000 94,460 5,094,460 5,094,460 5,094,460 - 800,000 3,000,000 - 20,000 3,820,000 3,820,000 3,820,000 - - 1,600,000 - 3,846,154 5,446,154 5,446,154 5,446,154 - - 1,600,000 - 238,000 1,838,000 1,838,000 1,838,000 - 1,710,000 3,000,000 - (505,000) 4,205,000 4,205,000 4,205,000 -
	2,510,000 19,200,000 3,703,614 25,413,614 25,414,614 25,414,614 -

Key Management
Personnel
Terry Cuthbertson
Peter Herd
Xueqin Du
Lin Yuansheng i
James Manny
Ian Maltman
Total

Balance
01/07/06
Granted as
Compensation
Options
Exercised
Net
Change
Other
Balance
30/06/07
Total Vested
30/06/07
Total
Exercisable
Total
Unexercis
-able
-
5,000,000
-
10,000
5,010,000
5,010,000
5,010,000
-
-
5,000,000
94,460
5,094,460
5,094,460
5,094,460
-
800,000
3,000,000
-
20,000
3,820,000
3,820,000
3,820,000
-

-
1,600,000
-
3,846,154
5,446,154
5,446,154
5,446,154
-
-
1,600,000
-
238,000
1,838,000
1,838,000
1,838,000
-
1,710,000
3,000,000
-
(505,000)
4,205,000
4,205,000
4,205,000
-

2,510,000
19,200,000
3,703,614 25,413,614 25,414,614 25,414,614
-

i Note that Mei Zhan Yan as at 20 June 2007 holds the 3,846,154 options indirectly through BAIC Australia Pty Ltd, with Mr Lin Yuansheng having retired.

f. Shareholdings

Number of shares held by Key Management Personnel

Key Management Personnel Terry Cuthbertson Peter Herd Xueqin Du Lin Yuansheng i. James Manny	Balance 1/7/06 Received as Compensation Options Exercised Net Change Other* Balance 30/6/07 10,000 - - 10,000 20,000 14,460 - - 134,460 148,920 10,000 - - 30,000 40,000 3,846,154 - - 3,846,154 7,692,308 239,825 - - 238,000 477,825
	4,120,439 - - 4,258,614 8,379,053

Net Change Other refers to shares purchased or sold during the financial year.

i. Note that Mei Zhan Yan as at 20 June 2007 holds the 7,692,308 ordinary shares indirectly through BAIC Australia Pty Ltd, with Mr Lin Yuansheng having retired.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 5: KEY MANAGEMENT PERSONNEL COMPENSATION (CONTINUED)

g. Compensation Practices

The board’s policy for determining the nature and amount of compensation of key management personnel of the company is as follows:

The compensation structure for key management personnel seeks to emphasize 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 compensation 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 compensation structure for key management personnel 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 key management personnel are on a continuing basis the terms of which are not expected to change in the immediate future. Upon retirement key management personnel are paid employee benefit entitlements accrued to date of retirement.

A notice period of three months is provided for under each executive’s service agreement, with the exception of the previous Managing Director. The previous Managing Director was on a three year contract that commenced on 12 November 2003, but which was terminated by mutual agreement on 28 July 2006.

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 (c) above and Note 25 below.

NOTE 6: AUDITORS’ REMUNERATION	Consolidated	Entity	Parent Entity
	2007	2006	2007	2006
	$	$	$	$
Remuneration of the auditor of the parent
entity for:
— auditing and reviewing the financial
reports	62,350	67,400	62,350	67,400
— other services	-	-	-	-
Remuneration of other auditors of
subsidiaries for:
— auditing and reviewing the financial
reports of subsidiaries	-	-	-	-

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.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 7: DIVIDENDS (CONTINUED)

Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 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 recognised as a liability and franking credits that may be prevented from distribution in subsequent financial years - - - - Impact of any proposed dividends not recognised as a liability. - - - - - - - - NOTE 8: EARNINGS PER SHARE Consolidated Entity Consolidated Entity 2007 2006 $ $ a. Reconciliation of earnings to net loss Net loss (3,389,170) (5,253,706) Net loss attributable to outside equity interest - - Earnings used in the calculation of basic and diluted EPS (3,389,170) (5,253,706) b. Applying AASB 133: Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS 85,043,326 65,916,002 Weighted average number of options outstanding not treated as dilutive 21,953,882 10,572,712 Weighted average number of ordinary shares outstanding during the year used in calculation of dilutive EPS 85,043,326 65,916,002 NOTE 9: CASH AND CASH EQUIVALENTS Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ Cash at bank and in hand 3,509,454 2,271,951 3,509,453 2,270,123 3,509,454 2,271,951 3,509,453 2,270,123 Reconciliation of Cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents 3,509,454 2,271,951 3,509,453 2,270,123	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 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 recognised as a liability and franking credits that may be prevented from distribution in subsequent financial years - - - - Impact of any proposed dividends not recognised as a liability. - - - - - - - - NOTE 8: EARNINGS PER SHARE Consolidated Entity Consolidated Entity 2007 2006 $ $ a. Reconciliation of earnings to net loss Net loss (3,389,170) (5,253,706) Net loss attributable to outside equity interest - - Earnings used in the calculation of basic and diluted EPS (3,389,170) (5,253,706) b. Applying AASB 133: Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS 85,043,326 65,916,002 Weighted average number of options outstanding not treated as dilutive 21,953,882 10,572,712 Weighted average number of ordinary shares outstanding during the year used in calculation of dilutive EPS 85,043,326 65,916,002 NOTE 9: CASH AND CASH EQUIVALENTS Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ Cash at bank and in hand 3,509,454 2,271,951 3,509,453 2,270,123 3,509,454 2,271,951 3,509,453 2,270,123 Reconciliation of Cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents 3,509,454 2,271,951 3,509,453 2,270,123	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ - - - - - - - -	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ - - - - - - - -
			- - - -
			Consolidated Entity Consolidated Entity 2007 2006 $ $ (3,389,170) (5,253,706) - -
			(3,389,170) (5,253,706)
	3,509,454 2,271,951 3,509,453 2,270,123 3,509,454 2,271,951 3,509,453 2,270,123

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 10: TRADE AND OTHER

NOTE 10: TRADE AND OTHER
NOTE 11: INVENTORIES CURRENT At cost Raw materials and consumables Provision for Stock Obsolescence RECEIVABLES CURRENT Trade receivables Provision for doubtful debts Term receivables Other receivables Amount receivable from: — Wholly-owned subsidiaries NOTE 12: OTHER CURRENT ASSETS Prepayments	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 86,091 41,618 86,091 29,969 - (11,649) - -
	86,091 29,969 86,091 29,969 8,016 37,033 8,016 37,033 17,126 - 17,126 - - - 2,352 -
	240,544 247,259 240,544 243,377 (117,559) (71,519) (117,559) (67,637) 111,233 67,002 113,585 67,002
	122,985 175,740 122,985 175,740 160,279 127,127 160,279 127,127
	160,279 127,127 160,279 127,127

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 13: FINANCIAL ASSETS		Consolidated	Entity	Parent	Entity
		2007	2006	2007	2006
		$	$	$	$
NON-CURRENT
Unlisted investments, at cost
— Shares in controlled entities	13a,14	-	-	1	285,801
— Provision for write down to
recoverable amount		-	-	-	(285,800)
		-	-	1	1
a. Unlisted investments movement during the year
Balance at beginning of the financial year		-	-	1	-
— Additional investment		-	-	-	1
Balance at the end of the financial year		-	-	1	1
NOTE 14: CONTROLLED ENTITIES
a. Controlled Entities		Country of	Percentage
		Incorporation	Owned
			2007	2006
			$	$
Parent Entity:
Montec International Limited
Subsidiaries of Montec International Limited:
— Chongqing Montec Co Limited		China	-	100%
— Montec International (HK) Limited		Hong Kong	100%	100%
b. Controlled Entities Acquired
Chongqing Montec Co Limited	was liquidated in September 2006 having			been fully
written down in the financial year ended 30 June 2006.

NOTE 15: PROPERTY, PLANT AND EQUIPMENT

PLANT AND EQUIPMENT Plant and equipment At cost Provision for write off plant and equipment Accumulated depreciation Total Property, Plant and Equipment	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 177,379 228,702 177,379 216,612 - (2,938) - - (94,155) (97,707) (94,155) (88,555)
	83,224 128,057 83,224 128,057

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 15: 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.

2007 Consolidated Entity: Balance at 1 July 2005 Additions Transfer asset in or out Movement on exchange Movement on provision for disposal of assets Depreciation expense Balance at 30 June 2006 Additions Disposals Transfer asset in or out Depreciation expense Balance at 30 June 2007 Parent Entity: Balance at 1 July 2005 Additions Transfer asset in or out Depreciation expense Balance at 30 June 2006 Additions Disposals Transfer asset in or out Depreciation expense Carrying amount at the end of year	Plant and Equipment Leased Plant and Equipment Total $ $ $ 147,160 - 147,160 23,638 - 23,638 - - - (361) - (361) 2,799 - 2,799 (45,179) - (45,179)
	128,057 - 128,057 9,539 - 9,539 (20,502) - (20,502) - - - (33,870) - (33,870)
	83,224 - 83,224 147,160 - 147,160 23,638 - 23,638 - - - (42,741) - (42,741)
	128,057 - 128,057 9,539 - 9,539 (20,502) - (20,502) - - - (33,870) - (33,870)
	83,224 - 83,224

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 16: INTANGIBLE ASSETS Goodwill, at deemed cost Impairment write down of goodwill Patents and acquired rights, at cost Accumulated amortisation Impairment write down of patents Total Intangible Assets Consolidated Group Year ended 30 June 2006 Balance at the beginning of year Additions Disposals Amortisation charge Impairment losses Year ended 30 June 2007 Balance at the beginning of year Additions Disposals Amortisation charge Impairment losses Closing value at 30 June 2007	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ - 250,594 - - - (250,594) - - - - - - 3,423,601 3,441,704 3,423,601 3,441,704 (1,213,132) (1,044,615) (1,213,132) (1,044,615) (1,394,346) (1,369,356) (1,394,346) (1,369,356) 816,123 1,027,733 816,123 1,027,733 Patent Acquired Rights $ $ 2,694,846 98,987 - - - - (384,979) (11,765) (1,369,356) - 940,511 87,222 940,511 87,222 - - - (18,103) (156,752) - (24,990) (11,765) 758,769 57,354	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ - 250,594 - - - (250,594) - - - - - - 3,423,601 3,441,704 3,423,601 3,441,704 (1,213,132) (1,044,615) (1,213,132) (1,044,615) (1,394,346) (1,369,356) (1,394,346) (1,369,356) 816,123 1,027,733 816,123 1,027,733 Patent Acquired Rights $ $ 2,694,846 98,987 - - - - (384,979) (11,765) (1,369,356) - 940,511 87,222 940,511 87,222 - - - (18,103) (156,752) - (24,990) (11,765) 758,769 57,354
		87,222
		87,222 - (18,103) - (11,765)
		57,354

Intangible assets, other than goodwill, have finite useful lives. The current amortisation charges for intangible assets are included under depreciation and amortisation expense per the income statement.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 16: INTANGIBLE ASSETS (CONTINUED)

Impairment Disclosures – Patents and acquired rights

Patents are allocated to cash generating units which are based on the groups reporting segments. All patents recognised relate to the Australian segment. The recoverable amounts of the patents are determined based on value-in-use calculations. Value in use is calculated based on present value of cash flow projections over a 5 year period. The cash flows are discounted using the yield of 10 year government bonds at the beginning of the budget period, adjusted for a market risk premium and the company’s Weighted Average Cost Capital (WACC). The following assumptions were used in the value-inuse calculations:

	Discount Rate	Growth Rate
Acquired patents	17.1%	0%

Management has based the value in use calculations on budgeted results for the acquired patents. Discount rates are pre-tax and adjusted to incorporate risks associated with the company.

No cash flow after 5 years has been factored into the calculations as the Patents expire at that future point in time.

NOTE 17: TRADE AND OTHER PAYABLES CURRENT Unsecured liabilities Trade creditors Sundry creditors and accrued expenses Amount payable to : - wholly-owned subsidiaries NOTE 18: SHORT-TERM PROVISIONS CURRENT Employee benefits Provision for management restructure a. Number of employees at year-end	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 98,737 98,195 98,737 98,195 176,496 160,005 176,496 160,005 - - - 3,398
	275,233 258,200 275,233 261,598 71,546 110,506 71,546 110,506 - 111,854 - 111,854
	71,546 222,360 71,546 222,360 8 9 8 8

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 18: SHORT-TERM PROVISIONS (CONTINUED)

b. Movement in provisions Consolidated Group Opening balance at 1 July 2006 Additional provisions Amount used Unused amounts reversed Balance at 30 June 2007 NOTE 19: CONTRIBUTED EQUITY Note 151,364,518 (2006: 65,916,002) fully paid ordinary shares 19a a. Ordinary shares At the beginning of the reporting period Share movements during the year: - Share placement of 8,400,000 ordinary shares at $0.07 per share on 17/11/2006 - Share placement of 11,500,000 ordinary shares at $0.05 per share on 24/4/07 - 59,762,362 shares issued through renounceable rights issue ordinary shares at $0.05 per share on 24/4/07 -Share placement of 5,786,154 ordinary shares under rights issue prospectus at $0.05 per share on 21/5/07 Transaction costs relating to share issues At reporting date	Employee Benefits Management Restructure $ $ 110,506 111,854 38,641 - (77,601) (111,854) - - 71,546 - Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ 19,524,082 15,407,680 19,524,082 15,407,680
	15,407,680 15,407,680 15,407,680 15,407,680 588,000 - 588,000 - 575,000 - 575,000 - 2,988,118 - 2,988,118 - 289,308 - 289,308 - (324,024) - (324,024) -
	19,524,082 15,407,680 19,524,082 15,407,680

b. Movement in provisions
Consolidated Group
Opening balance at 1 July 2006
Additional provisions
Amount used
Unused amounts reversed
Balance at 30 June 2007
NOTE 19: CONTRIBUTED EQUITY
Note
151,364,518 (2006: 65,916,002)
fully paid ordinary shares
19a
a. Ordinary shares
At the beginning of the reporting period
Share movements during the year:
- Share placement of 8,400,000 ordinary
shares at $0.07 per share on 17/11/2006
- Share placement of 11,500,000 ordinary
shares at $0.05 per share on 24/4/07
- 59,762,362 shares issued through
renounceable rights issue ordinary shares
at $0.05 per share on 24/4/07
-Share placement of 5,786,154 ordinary
shares under rights issue prospectus at
$0.05 per share on 21/5/07
Transaction costs relating to share issues
At reporting date

Employee
Benefits
Management
Restructure
$ $ 110,506
111,854
38,641
-
(77,601)
(111,854)
-
-
71,546
-
Consolidated Entity
Parent Entity
2007
2006
2007
2006
$ $ $ $ 19,524,082
15,407,680
19,524,082
15,407,680

15,407,680
15,407,680
15,407,680
15,407,680
588,000
-
588,000
-
575,000
-
575,000
-
2,988,118
-
2,988,118
-
289,308
-
289,308
-
(324,024)
-
(324,024)
-

19,524,082
15,407,680
19,524,082
15,407,680

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 19: CONTRIBUTED EQUITY (CONTINUED)

b. Number of ordinary shares At the beginning of reporting period Shares issued during the year: - Share placement of 8,400,000 ordinary shares at $0.07 per share on 17/11/2006 - Share placement of 11,500,0007 ordinary shares at $0.05 per share on 24/4/07 - 59,762,362 shares issued through renounceable rights issueordinary shares at $0.05 per share on 24/4/07 -Share placement of 5,786,154 ordinary shares under rights issue prospectus at $0.05 per share on 21/5/07 Options converted to ordinary shares during the year: At reporting date	No. No. No. No. 65,916,002 65,916,002 65,916,002 65,916,002 8,400,000 - 8,400,000 - 11,500,000 - 11,500,000 - 59,762,362 - 59,762,362 - 5,786,154 - 5,786,154 - - - - -
	151,364,518 65,916,002 151,364,518 65,916,002

b. Number of ordinary shares
At the beginning of reporting period
Shares issued during the year:
- Share placement of 8,400,000 ordinary
shares at $0.07 per share on 17/11/2006
- Share placement of 11,500,0007 ordinary
shares at $0.05 per share on 24/4/07
- 59,762,362 shares issued through
renounceable rights issueordinary shares
at $0.05 per share on 24/4/07
-Share placement of 5,786,154 ordinary
shares under rights issue prospectus at
$0.05 per share on 21/5/07
Options converted to ordinary shares
during the year:
At reporting date

No.
No.
No.
No.
65,916,002
65,916,002
65,916,002
65,916,002
8,400,000
-
8,400,000
-
11,500,000
-
11,500,000
-
59,762,362
-
59,762,362
-
5,786,154
-
5,786,154
-
-
-
-
-

151,364,518
65,916,002
151,364,518
65,916,002

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.

c. 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 25.
ii. For information relating to share options issued to directors and executives during the financial year refer to Note 25.

At 30 June 2007, there were 99,931,516 (30 June 2006:10,807,326) unissued ordinary shares for which options were outstanding.

NOTE 20: RESERVES

a. Option Reserve

The option reserve records items recognised as expenses on valuation of employee share options.

b. Foreign Currency Translation Reserve

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

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 21: CAPITAL AND LEASING COMMITMENTS

Note Operating Lease Commitments Non-cancelable operating leases contracted for but not capitalised in the financial statements Payable - not later than 1 year	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ $ $ - - - -
	- - - -

The property lease is currently on a month to month basis, with rent payable in advance.

NOTE 22: CONTINGENT ASSETS AND LIABILITIES

There are no contingent assets or contingent liabilities of a material nature identified as at the date of this report. All legal matters identified as potential assets or liabilities as at 30 June 2006 have been resolved, as outlined in the Directors’ Report.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 23: SEGMENT REPORTING Primary reporting — Geographic segments 2007 REVENUE External sales Other segments Total sales revenue Unallocated revenue Total revenue SEGMENT RESULT Expenses Loss before income tax expense Income tax expense Loss after income tax expense ASSETS Segment assets Total assets LIABILITIES Segment liabilities Total liabilities OTHER Acquisitions of non current segment assets Depreciation and amortisation of segment assets	Australia China Eliminations Consolidated Entity $ $ $ $ 239,779 217,098 - 456,877 - - - -	Australia China Eliminations Consolidated Entity $ $ $ $ 239,779 217,098 - 456,877 - - - -
	239,779 217,098 (2,619,002) (1,298,686)	- 456,877 71,641
		528,518 - (3,917,688)
	(3,389,170) - (3,389,170) 4,068,073 737,577 (2,352) 4,803,298	(3,389,170) -
		(3,389,170)
	4,068,073 737,577 (2,352) 4,803,298
	349,131 - (2,352) 346,779
	349,131 - (2,352) 346,779
	- 9,539 - 9,539 100,660 101,727 - 202,387

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 23: SEGMENT REPORTING (CONTINUED)

Primary reporting — Geographic segments 2006 REVENUE External sales Other segments Total sales revenue Unallocated revenue Total revenue SEGMENT RESULT Expenses Loss before income tax expense Income tax expense Loss after income tax expense ASSETS Segment assets Total assets LIABILITIES Segment liabilities Total liabilities OTHER Acquisitions of non current segment assets Depreciation and amortisation of segment assets	Australia China Eliminations Consolidated Entity $ $ $ $ 278,190 327,273 - 605,463 - - - -	Australia China Eliminations Consolidated Entity $ $ $ $ 278,190 327,273 - 605,463 - - - -
	278,190 327,273 (3,556,254) (2,504,695)	- 605,463 201,780
		807,243 - (6,060,949)
	(5,253,706) - (5,253,706) 2,920,143 880,865 (3,398) 3,797,610	(5,253,706) -
		(5,253,706)
	2,920,143 880,865 (3,398) 3,797,610
	483,958 - (3,398) 480,560
	483,958 - (3,398) 480,560
	317 23,321 - 23,638 226,027 215,895 - 441,922

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.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 23: SEGMENT REPORTING (CONTINUED)

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 consolidated 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 and products.

NOTE 24: CASH FLOW INFORMATION

a. Reconciliation of Cash Flow from Operations with loss after Income Tax Loss after income tax Non-cash flows in loss Amortisation Depreciation Write-off of certain Acquired Rights Impairment write down patents Staff share option expenses Impairment write down net asset of subsidiary Other non cash items Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries Decrease/(increase) in trade and other receivables Decrease/(increase) in prepayments Decrease/(increase) in inventories Increase/(decrease) in trade creditors and accruals Increase/(decrease) in provisions Cash flow used in operations	Consolidated Entity Parent Entity 2007 2006 2007 2006 $ $ (3,389,170) (5,253,706) (3,351,329) (5,247,726) 168,517 396,743 168,517 396,743 33,870 45,179 33,870 42,741 18,103 - 18,103 - 24,990 1,369,356 24,990 1,369,356 381,973 58,099 381,973 58,099 - (9,870) - - 53,421 3,058 20,502 1 (48,507) 23,409 (51,505) (3,311) (33,170) (16,080) (33,152) (16,896) 52,870 280,733 52,755 280,971 (93,297) 39,541 (93,297) 56,099 (38,960) 160,821 (38,960) 160,821
	(2,869,360) (2,902,717) (2,867,533) (2,903,102)

a. Reconciliation of Cash Flow from
Operations with loss after Income Tax
Loss after income tax
Non-cash flows in loss
Amortisation
Depreciation
Write-off of certain Acquired Rights
Impairment write down patents
Staff share option expenses
Impairment write down net asset of
subsidiary
Other non cash items
Changes in assets and liabilities, net of the
effects of purchase and disposal of
subsidiaries
Decrease/(increase) in trade and
other receivables
Decrease/(increase) in prepayments
Decrease/(increase) in inventories
Increase/(decrease) in trade creditors
and accruals
Increase/(decrease) in provisions
Cash flow used in operations

Consolidated Entity
Parent Entity
2007
2006
2007
2006
$ $ (3,389,170)
(5,253,706)
(3,351,329)
(5,247,726)
168,517
396,743
168,517
396,743
33,870
45,179
33,870
42,741
18,103
-
18,103
-
24,990
1,369,356
24,990
1,369,356
381,973
58,099
381,973
58,099
-
(9,870)
-
-
53,421
3,058
20,502
1
(48,507)
23,409
(51,505)
(3,311)
(33,170)
(16,080)
(33,152)
(16,896)
52,870
280,733
52,755
280,971

(93,297)
39,541
(93,297)
56,099
(38,960)
160,821
(38,960)
160,821

(2,869,360)
(2,902,717)
(2,867,533)
(2,903,102)

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 24: CASH FLOW INFORMATION (CONTINUED)

	Consolidated Entity		Parent Entity
	2007	2006	2007	2006
	$	$	$	$
b. Acquisition of Entities
There were no acquisitions of entities in the
year ended 30 June 2007. During the prior
year 100% of the controlled entity Montec
International (HK) Limited was acquired.
Details of this transaction are:
Purchase consideration	-	1	-	1
Cash consideration	-	1	-	1
Cash (outflow)/inflow	-	(1)	-	(1)
Assets and liabilities held at acquisition date:
Cash	-	1	-	1
Receivables	-	-	-	-
Inventories	-	-	-	-
Property, plant and equipment	-	-	-	-
Creditors	-	-	-	-
Goodwill/(Discount) on consolidation	-	-	-	-
Minority interests in acquisitions	-	-	-	-
During the prior year the remaining 15% of
the controlled entity Chongqing Montec Co
Limited was acquired.	-	1	-	1
c. Non-cash Financing and Investing
Activities

i.Share issues

There were no non cash financing or investing activities undertaken during the financial year ended 30 June 2007.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 25: EMPLOYEE BENEFITS

Employee Share Option Arrangements

5,000,000 options granted on 1 May 2007 to Terry Cuthbertson exercisable on or before 31 December 2010 comprising 1,500,000 options exercisable at $0.12, 1,500,000 options exercisable at $0.18 and 2,000,000 exercisable at $0.25 each.
5,000,000 options granted on 1 May 2007 to Peter Herd exercisable on or before 31 December 2010 comprising 1,500,000 options exercisable at $0.12, 1,500,000 options exercisable at $0.18 and 2,000,000 exercisable at $0.25 each.
3,000,000 options granted on 1 May 2007 to Xueqin Du exercisable on or before 31 December 2010 with three tranches of 1,000,000 options exercisable at $0.12, $0.18 and $0.25 each.
1,600,000 options granted on 1 May 2007 to Lin Yuansheng exercisable on or before 31 December 2010, comprising two tranches of 800,000 options exercisable at $0.12 and $0.18 each.
1,600,000 options granted on 1 May 2007 to James Manny exercisable on or before 31 December 2010, comprising two tranches of 800,000 options exercisable at $0.12 and $0.18 each.
3,000,000 options granted on 1 May 2007 to Ian Maltman exercisable on or before 31 December 2010, comprising three tranches of 1,000,000 options exercisable at $0.12, $0.18 and $0.25 each.
800,000 options granted on 1 May 2007 to employees exercisable on or before 31 December 2010 at $0.12 each.
800,000 options granted on 1 May 2007 to employees exercisable on or before 31 December 2010 at $0.18 each.

The closing share market price of an ordinary share of Montec International Limited on the Australian Stock Exchange at 30 June 2007 was $0.043 (30 June 2006: $0.22).

a. Movement in the number of share options held by employees are as follows: Opening balance Granted during the year Exercised during the year Lapsed during the year Closing Balance Exercisable at year end	Consolidated Entity Parent Entity 2007 2006 2007 2006 No. No. No. No. 2,588,000 1,134,000 2,588,000 1,134,000 20,800,000 1,454,000 20,800,000 1,454,000 - - - - (505,000) - (505,000) -
	22,883,000 2,588,000 22,883,000 2,588,000 22,883,000 2,588,000 22,883,000 2,588,000

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 25: EMPLOYEE BENEFITS (CONTINUED)

There were no options exercised during the year ended 30 June 2007.

The options outstanding at 30 June 2007 had a weighted average exercise price of $0.208 and a weighted average remaining contractual life of 3.25 years. Exercise prices range from $0.12 to $0.56 in respect of options outstanding at 30 June 2007.

The weighted average fair value of the options granted during the year was $0.0184.

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

- Exercise prices	$0.12, $0.18 and $0.25
- Average life of the options	3.67 years
- Underlying share price	$0.044
- Expected share price volatility	160%
- Risk free interest rate	5.98%

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

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

Included under employee benefits expenses in the income statement is $381,973 (2006: $58,099), and relates, in full, to equity-settled share-based payment transactions.

				Consolidated	Entity	Parent	Entity
				2007	2006	2007	2006
				No.	No.	No.	No.
b.	Details of share options outstanding as
	at end of year:
	Grant Date	Expiry and Exercise Date	Exercise Price
	19/8/2004	1/7/07	$0.56	24,000	24,000	24,000	24,000
	16/9/2004	1/7/06	$0.50	-	168,333	-	168,333
	16/9/2004	1/7/07	$0.50	505,000	505,000	505,000	505,000
	12/11/2003	1/7/07	$0.50	100,000	100,000	100,000	100,000
	30/11/2003 to	1/7/06	$0.50
	30/6/2004			-	336,667	-	336,667
	23/7/2005	1/7/08	$0.50	24,000	24,000	24,000	24,000
	28/7/2005	1/7/08	$0.50	1,400,000	1,400,000	1,400,000	1,400,000
	18/11/2005	1/7/08	$0.50	30,000	30,000	30,000	30,000
	1 May 2007	31/12/10	$0.12	7,400,000	-	7,400,000	-
	1 May 2007	31/12/10	$0.18	7,400,000	-	7,400,000	-
	1 May 2007	31/12/10	$0.25	6,000,000	-	6,000,000	-
				22,883,000	2,588,000	22,883,000	2,588,000

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 25: EMPLOYEE BENEFITS (CONTINUED)

c. Details of Shares Granted

There were no shares granted to employees as remuneration in the financial year ended 30 June 2007 (2006: nil granted).

NOTE 26: EVENTS SUBSEQUENT TO REPORTING DATE

There were no material events subsequent to reporting date.

NOTE 27: RELATED PARTY TRANSACTIONS

NOTE 27: RELATED PARTY TRANSACTIONS
	Consolidated	Entity	Parent Entity
	2007	2006	2007	2006
	$	$	$	$
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
The inter-company position with Chongqing
Montec Co Ltd is as follows:
- inter-company payable	-	-	-	3,398
The outstanding loan has been eliminated on
consolidation.
The inter-company position with Montec
International (HK) Limited is as follows:
- inter-company receivable	-	-	2,352	-
ii. Director-related Entities
Director’s fee payable to BAIC Australia Pty Ltd in
relation to Mr. Mei Zhan Yan as a director of
Montec International Limited during the financial
year ended 30 June 2007.	1,363	-	1,363	-
iii. Directors
No related party transactions with directors of
Montec International Limited or controlled entities
occurred during the financial year ended 30 June
2007.
The following related party transactions with
directors of Montec International Limited or
controlled entities occurred during the financial
year ended 30 June 2006:
- consulting fees payable to Lin Yuansheng for
strategic advice and marketing services related to
China expansion.	-	8,000	-	8,000

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 27: RELATED PARTY TRANSACTIONS (CONTINUED)

	Consolidated Entity		Parent Entity
	2007	2006	2007	2006
	$	$	$	$
iv. Share Transactions of Directors
Share transactions of directors during the
financial year ended 30 June 2007 were:
-Terry Cuthbertson subscribed for 10,000	500	-	500	-
shares with attaching options through the right
issue.
- Peter Herd through Byre Pty Ltd subscribed for	8,823	-	8,823	-
84,460 shares and attaching options through the
right issue, and bought 40,000 shares on market on 7thDecember 2006.
- Peter Herd subscribed for 10,000 shares and	500	-	500	-
attaching options through the right issue.
- Xueqin Du subscribed for 20,000 shares and	1,000	-	1,000	-
attaching options through the right issue.
- James Manny subscribed for 238,000 shares	11,900	-	11,900	-
and attaching options through the rights issue in
the name of A&P Comestibles Pty Ltd.

No share transactions of directors occurred during the financial year ended 30 June 2006.

NOTE 28: FINANCIAL INSTRUMENTS

a. Interest Rate Risk

The consolidated 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	Fixed Interest Rate Maturing	Fixed Interest Rate Maturing	Fixed Interest Rate Maturing	Fixed Interest Rate Maturing	Fixed Interest Rate Maturing
Weighted Average Effective Interest Rate		Floating Interest Rate		Within Year 1		To 5 Years		Over 5 Years		Non-interest Bearing		Total
		$000		$000		$000		$000		$000		$000
2007	2006	2007	2006	2007	2006	2007	2006	2007	2006	2007	2006	2007	2006
6.15% 5.65% 3,509 2,272				- - - - 3,509 2,272
- - - -				- - - - - - - - - -

All other assets and liabilities are non-interest bearing.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 28: 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 counterparties 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 consolidated entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the consolidated 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 consolidated entity has not participated in the use of any derivative financial instruments during the year.

Montec International Limited

Montec International Limited ABN 104 600 544 and Controlled Entity

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 29: 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

Beijing China Room 2603, Building No.5, WanDa Plaza 93 Jianguolu Road, Chaoyang District Beijing PRC 100022

Shanghai China Room 407, Building No.2, 500 Cao Bao Road, Shanghai PRC 200233

Qingdao, China Room F, 25 Floor, Shum Yip Centre A, No.9 Shandong Road Qingdao PRC 266071

Montec International (HK) Limited C/O KCS Limited 8[th] Floor, Gloucester Tower, The Landmark 15 Queen’s Road, Central Hong Kong

Montec International Limited

AI assistant

LARK DISTILLING CO. LTD — Annual Report 2007

65265_rns_2007-08-29_d0434b70-fe49-41ef-a13b-3bb0d728336a.pdf

ASX & MEDIA RELEASE

PRELIMINARY FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2007

Results for Announcement to the Market

Ends

Investor Relations & Media Enquires:

MONTEC INTERNATIONAL LIMITED

AND CONTROLLED ENTITIES

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

CONTENTS

INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2007

BALANCE SHEET

AS AT 30 JUNE 2007

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2007

CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 JUNE 2007

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

Accounting Policies

a. Principles of Consolidation

b. Income Tax

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

c. Inventories

d. Plant and equipment

Depreciation

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

e. Leases

f. Financial Instruments

Recognition

Financial assets at fair value through profit and loss

Loans and receivables

Held-to-maturity investments

Available-for-sale financial assets

Financial liabilities

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivative instruments

Fair value

Impairment

g. Impairment of Assets

h. Financial assets

i. Intangibles

Goodwill

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Patents and Acquired Rights

j. Foreign Currency Transactions and Balances

Functional and presentation currency

Transaction and balances

Group companies

k. Employee Benefits

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

l. Provisions

m. Cash and Cash Equivalents

n. Revenue

o. Goods and Services Tax (GST)

p. Comparative Figures

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

q. Going concern

r. Critical accounting estimates and judgments

Patent Impairment

Key Judgments

s. Disclosure of new standards not yet operative

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

LARK DISTILLING CO. LTD Annual Report 2007