LARK DISTILLING CO. LTD — Annual Report 2009

Sep 29, 2009

MONTEC INTERNATIONAL LIMITED

ACN 104 600 544

AND CONTROLLED ENTITIES

ANNUAL REPORT 30 JUNE 2009

ANNUAL REPORT 30 JUNE 2009

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TABLE OF CONTENTS

Chairman’s Letter	1
Managing Director’s Report	2
Corporate Governance Statement	3
Directors’ Report	8
Income Statement s	17
Balance Sheets	18
Statements of Changes in Equity	19
Cash Flow Statements	20
Notes to the Financial Statements	21
Directors’ Declaration	54
Auditor’s Independence Declaration	55
Independent Audit Report	56
Additional Information	59

ANNUAL REPORT 30 JUNE 2009

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CHAIRMAN’S LETTER

Dear Shareholder

This year we faced a number of challenges, influenced by dramatic changes in the domestic business environment in Australia and China, and in the global environment.

In Australia we have witnessed a further consolidation of the dairy industry with the takeover of the Dairy Farmers co-operative by overseas interests. We have made a number of approaches to Dairy Farmers over several years regarding the promotion of the monounsaturated milk product market under licence by them as “Farmers Best”. Despite positive assurances no results were apparent. We have also had representations from the new owners of Dairy Farmers, but to date, have not seen reason to expect any improvement in our income streams from this source.

In China, the Melamine poison issue which Peter Herd refers to in his report, plus uncertainties developing as the global financial crisis emerged had serious, although indirect, detrimental impacts on our business there.

During the year Directors have reviewed a number of proposals from various entities to use this company as a vehicle by which to list their own business. None of the proposals considered were seen to have the potential to add value for current shareholders. Rather, in the opinion of Directors, their impact would have been to reduce shareholder value now and in the longer term.

As a result we have undertaken a review of our operations and carefully examined our key advantages, strengths and opportunities. The Company that has emerged from this process is leaner and truly focussed on rebuilding shareholder value.

We have undertaken a capital raising to pursue some of the opportunities we have identified and will focus on applying a few fundamental principles to exporting food and beverage products to China, utilising some of the channels and partnership contacts we have established in recent years. These fundamentals include premium quality product, demand-based sourcing, servicing the needs of a small, quality customer base and continued frugality in managing our business.

I would like to thank my fellow directors for their support and contribution to the Board and to thank the management team for their diligence and continued support and commitment to our Company.

Regards,

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Terry Cuthbertson Chairman

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MANAGING DIRECTOR’S REPORT

During the past year the operational focus has been on structuring the business in China in a manner appropriate to the changing market conditions and the resources available, while identifying the optimum way forward in an increasingly volatile and difficult market environment. This has necessitated a significant decrease in China based staff as a result of a major shift away from the direct marketing model previously used to achieve market entry. Despite the short term restructuring costs incurred, by year end the company had achieved substantial reductions in the ongoing cost base in China and is developing a “go to market” strategy which reflects the learning and experience of recent years. In addition, directors have actively sort restructuring opportunities to take the business forward in a way which would be of benefit to shareholders.

In Australia, the Company has maintained the licensing arrangements, whereby Dairy Farmers market the “Farmers Best” brand of chilled milk, primarily in New South Wales. Overall performance has been disappointing in recent years as, despite our representations, the market position of “Farmers Best” has continued to deteriorate, due possibly to both the increasingly competitive market environment and lack of consumer marketing support for the brand. This situation has shown little sign of improving since the purchase of Dairy Farmers by Kirin Holding (Australia) Pty Ltd. mid year.

During July 2008, prior to the emergence of the melamine contagion issue, management conducted a review of the sales and marketing model in China. This review concluded that, despite some success in developing direct selling to retail channels, the overall pace of growth and market penetration was not sufficient, on the existing resource base, to support the cost structure needed to sustain the direct selling approach and provide the returns necessary to build the business in the near term. As a result of this review, in August management began restructuring to move the business to a lower cost model, less reliant on direct selling to retail channels, and selling instead to wholesaler agents or channels where overall market entry costs and ongoing marketing expenses are less. This process has been completed in the year under review and has yielded significant cost savings in both marketing and staffing expenses.

The melamine contagion issue which emerged in September 2008 and compounded in subsequent months, attracting worldwide publicity in the process, caused a sudden decline in consumer confidence for all dairy products and an ongoing decline in sales across the sector. The most adverse impact was experienced by UHT milk and infant formula powders. Although neither the licensed ice cream products nor the UHT milk and yoghurt products provided by our contract suppliers were directly implicated in this issue, the overall negative impact on the industry impacted our sales and effectively stalled any momentum our marketing efforts had achieved in the preceding months.

The realigned and significantly lower cost business model achieved in China retains the capability to pursue both previously identified opportunities in dairy products and selected new product categories. Management’s operational focus is now on developing a trading business in China based upon the direct supply of premium dairy products from Australia, including the supply of our monounsaturated UHT milk from Australia and the direct supply of monounsaturated and other speciality powders to major marketers of milk powder products, as both finished products and ingredients. To this end there has been ongoing discussions with several China based marketers of milk powder products in defining specifications and pricing parameters for proprietary products and, in turn, identifying sourcing on their behalf. In addition, in working through customer and supply networks already established in China, management have identified several product opportunities, both within and outside the dairy category for further investigation.

The Directors, at this time, also have under consideration proposals from a number of parties to support the Company through a restructure of the business and the capital base. While, in a number of cases, these discussions are continuing, to date no commitment has been made regarding these proposals.

Regards,

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Peter Herd Managing Director

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CORPORATE GOVERNANCE STATEMENT

The Board has reviewed its compliance with the Second Edition of the Australian Securities Exchange (ASX) Corporate Governance Council’s Principles and Recommendations. Unless disclosed below, all the good practice recommendations of the ASX Corporate Governance Council have been applied for the entire financial year ended 30 June 2009. Each of the eight principles are listed below.

Principle 1 – Lay solid foundations for management and oversight by the Board

Board Roles and Responsibilities

The Board is first and foremost accountable to provide value to its shareholders through delivery of timely and balanced disclosures.

The roles and responsibilities of the Board include:

• defining and monitoring the strategic direction of the Company;

• reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance;

• reviewing and approving business plans, operating plans (including the annual budget) and funding plans;

• appointment or removal of the company’s auditors, evaluation of auditor performance and independence;

• appointment and performance assessment of the chair, executive directors, non-executive directors, managing director, chief financial officer and company secretary;

• reviewing and approving financial and other reporting; and

• ensuring appropriate reporting to shareholders.

Principle 2 – Structure of the Board to add value

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 directors’ report.

The Board is currently comprised of five directors: three non-executive directors and two executive directors.

The names of independent directors of the company are:

• Terry Cuthbertson

• James Manny

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

• less than 10% of company shares are held by the director and any entity or individual directly or indirectly associated with the director;

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CORPORATE GOVERNANCE STATEMENT (CONTINUED)

• 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 chair prior to incurring any expense on behalf of the company.

The Board has established two committees to assist in the execution of its duties. Audit Committee and Nomination and Remuneration Committee. The names of the members of the committees and their attendance at meetings of committee are detailed in the Directors’ Report.

Audit Committee

The audit committee consists of two independent non-executive directors and acting managing director. The chief financial officer attends audit committee meetings as an invitee.

Nomination and Remuneration Committee

The nomination and remuneration committee consists of two independent non-executive directors and acting managing director. 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.

Principle 3 – Promote ethical and responsible decision-making

Ethical Standards

The Board acknowledges and emphasizes the importance of all directors and employees maintaining the highest standards of corporate governance practice and ethical conduct.

A code of conduct has been established requiring directors and employees to:

• act honestly and in good faith;

• exercise due care and diligence in fulfilling the functions of office;

• avoid conflicts and make full disclosure of any possible conflict of interest;

• comply with the law;

• encourage the reporting and investigating of unlawful and unethical behaviour; and

• comply with the share trading policy outlined in the Code of Conduct.

Directors are obliged to be independent in judgment and ensure all reasonable steps are taken to ensure due care is taken by the Board in making sound decisions.

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CORPORATE GOVERNANE STATEMENT (CONTINUED)

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 time it has been released to the market and adequate time has been given for this to be reflected in the securities prices.

Principle 4 – Safeguard integrity in financial reporting

Reporting standards

The financial reports of the Company are produced in accordance with Australian International Financial Reporting Standards, other authoritative pronouncements of the Australian Accounting Interpretations, Australian Accountings Standards Board and the Corporations Act 2001 . The financial statements and reports are subject to review every half year and the auditor issues an audit opinion accompanying the full year results for each financial year.

External auditors

The Company policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually, taking into consideration assessment of performance, existing value and tender costs. Grant Thornton have been appointed as the external auditors.

Fees paid to external auditors, including a breakdown of fees for non-audit services, is provided in Note 6 to the financial statements.

Management Representation to Board

Prior to the Directors approving these financial statements, the Group Chief Executive Officer and the Group Chief Financial Officer have provided a formal written representation stating to the Board that:

• the financial records of Montec International Limited have been properly maintained;

• the Financial Report complies with all relevant accounting standards; and

• the Financial Report give a true and fair view.

• Operating efficiency, effectiveness of the Company’s risk management and internal compliance and control system are being maintained.

Principle 5 – Make timely and balanced disclosure

Continuous Disclosure

The Corporations Act 2001 and the ASX Listing Rules require that a Company discloses to the market matters which could be expected to have a material effect on the price or value of the Company’s securities. Management procedures are in place throughout the Company to ensure that all material matters which may potentially require disclosure are promptly reported to the Chief Executive Officer, through established reporting lines. Matters reported are assessed and, where required by the Listing Rules, advised to the market. Advice will be sought from the Board on the requirements for disclosure of information to the market. The Company Secretary is responsible for communications with the ASX and for ensuring that such information is not released to any person until the ASX has confirmed its release to the market.

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CORPORATE GOVERNANE STATEMENT (CONTINUED)

Principle 6 – Respect the rights of shareholders

Shareholder Rights

Shareholders are entitled to vote on significant matters impacting on the business, which include the election and remuneration of directors, changes to the constitution and receipt of annual and interim financial statements. Shareholders are strongly encouraged to attend and participate in the Annual General Meetings of Montec International Limited, to lodge questions to be responded by the Board and/or the Managing Director, and are able to appoint proxies.

Communications

In order to properly carry out its responsibility to govern on behalf of the Shareholders, the Board recognizes the importance of Shareholders receiving relevant information in a timely manner. Shareholders receive information from the Company through distribution of the Annual Report, the Notice of Annual General Meeting, and through the release of business updates and other relevant significant announcements to the ASX and on the Company’s website. Copies of all public releases are posted on the Company’s website together with the Company’s Annual Report.

Principle 7 – Recognise and manage risk

Risk Management

The entire board and Audit Committee oversees credit, market (traded and non-traded), funding and liquidity, operational and strategic business, business continuity, compliance and security risks assumed by the Company in the course of carrying on its business. In performing its oversight functions, the Board and Audit Committee has access to such internal and external advisers as it deems appropriate to assist it in performing those functions.

The Company has in place an integrated risk management framework to identify, assess, manage and report risks and risk adjusted returns on a consistent and reliable basis.

A full description of the functions of the framework and the nature of the risks is set out in Note 28 to the Financial Statements.

Principle 8 – Remunerate fairly and responsibly

Remuneration Policies

The remuneration policy, which sets the terms and conditions for the key management personnel 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 form industry sectors and other listed companies and independent advice. The policy is designed to attract the highest caliber 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 specified 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 expensed. Options are valued using the Black-Scholes Option Pricing Model.

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CORPORATE GOVERNANE STATEMENT (CONTINUED)

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.

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 change to the terms of issue must be justified by reference to measurable performance criteria.

Performance Evaluation

An annual performance evaluation of the board and all board members will be conducted by the Chairman in December 2009, as this will be approximately one year since the last evaluation. 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.

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DIRECTORS’ REPORT

Your directors present their report on the Group, being the Company and its controlled entities, for the financial year ended 30 June 2009.

Directors

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

Mr Peter Herd Ms Xueqin Du Mr Mei Zhan Yan Mr James Manny

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

Company Secretary

The following person held the position of company secretary at the end of the financial year: Mr Nick Geddes FCA, FCIS - Mr Geddes is the principal of Australian Company Secretaries, a company secretarial practice, that he formed in 1993. Mr Geddes is a member of the National Council of Chartered Secretaries Australia and Chairman of the NSW Branch of that Institute. His previous experience, as a Chartered Accountant and Company Secretary, includes investment banking and development and venture capital in Europe, Africa, the Middle East and Asia. Mr Geddes is a Fellow of the Chartered Institute of Company Secretaries in Australia and a Chartered Accountant (Fellow of both the Institute of Chartered Accountants in Australia and the Institute of Chartered Accountants in England and Wales)

Principal Activities and Significant Change in Nature of Activities

The principal activity of the consolidated group during the financial year was the marketing and licensing of monounsaturated dairy technology and the sale of finished products incorporating this food science.

During the year the Group significantly reduced its operations in China as a result of the milk contamination scare and the subsequent lack of working capital to recommence production.

There were no other significant changes in the nature of the consolidated group’s principal activity during the financial year.

Operating Results

The consolidated loss of the consolidated group after providing for income tax amounted to $1,928,196 (2008: $2,450,542).

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 2009 (2008:$nil).

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DIRECTORS’ REPORT (CONTINUED)

Review of Operations

China business

During July 2008, prior to the emergence of the melamine contagion issue, management conducted a review of the sales and marketing model in China. This review concluded that, despite some success in developing direct selling to retail channels, the overall pace of growth and market penetration was not sufficient, on the existing resource base, to support the cost structure needed to sustain the direct selling approach and provide the returns necessary to build the business in the near term. As a result of this review, in August management began restructuring to move the business to a lower cost model, less reliant on direct selling to retail channels. This process has been completed in the year under review and has yielded significant cost savings in both marketing and staffing expenses.

The melamine contagion issue which emerged in September 2008 and attracted worldwide publicity, caused a sudden decline in consumer confidence for all dairy products and an ongoing decline in sales across the sector, with most adverse impact being on UHT milk and infant formula powders. Although neither the licenced ice cream products nor the UHT milk and yoghurt products provided by our contract suppliers were implicated in this issue, the overall negative impact on the industry impacted our sales and effectively stalled any momentum achieved in preceding months.

The realigned and significantly lower cost business model achieved in China retains the capability to pursue opportunities previously identified. These include the supply of our monounsaturated UHT milk from Australia and the direct supply of monounsaturated and other speciality powders to major marketers of milk powder products, as both finished products and ingredients for further processing. The final specifications of various milk powder products have now been agreed with several partners and trial production of UHT milk has been undertaken. In addition, management have investigated and identified other product opportunities, both within and outside the dairy category, to be sourced in Australia and distributed through the channels already established in China.

Australia royalties

Royalties from licences held in Australia have fallen $26,242 (13%) to 173,553 in 2009 (2008: $199,795) as Dairy Farmers have produced fewer of the “Farmers Best” brand of milk during the year.

Financial Position

The net assets of the consolidated group have decreased by $1,684,348 from 30 June 2008 to $316,237 in 2009. This decrease is largely due to the following factors:

• Operating expenses incurred during the year;

• Impairment of Australian Patents $371,907;

• Significantly reduced operations in China leading to a decline in sales revenues; partially offset by � Proceeds from share issues raising $105,002.

The Group’s working capital, being current assets less current liabilities, has decreased from $1,349,708 in 2008 to $211,175 in 2009.

Significant Changes in State of Affairs

There were no significant changes in the state of affairs of the Company or consolidated group during the financial year, except for the Company issuing 3,500,000 ordinary shares at 3 cents and 21 ordinary shares at 10 cents on 8 July 2008.

After Balance Date Events

On 4[th] September 2009, the Company announced a renounceable rights issue offer one for one share at 0.4 cents per share. The rights issue will be complete in mid October 2009. Except for the above rights issue, no other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated group, the results of those operations, or the state of affairs of the consolidated group in future financial years.

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DIRECTORS’ REPORT (CONTINUED)

Future Developments, Prospects and Business Strategies

The likely developments in the operations of the consolidated group and the expected results of those operations in future financial years are to be:

• The recognition of royalties and/or profit margins following the sale of commercial quantities of monounsaturated dairy emanating from commercial arrangements that have been established by the Company to date; and

• The commercialising of the Company’s proprietary technology with appropriate customers in a number of Asia Pacific countries.

Environmental Issues

The consolidated group’s operations are not subject to significant environmental regulation under a law of China, or of the Commonwealth or of a state or territory of Australia.

Information on Directors

Mr 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., S2 Net Limited,
	My Net Fone Limited, South American Iron & Steel Corporation Limited
	and a director of Healthzone Limited and Mint Wireless 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	— 20,000 ordinary shares of Montec International Limited, and 5,000,000
	options over ordinary shares in Montec International Limited.
Special Responsibilities	— Mr Cuthbertson is the Company’s Chairman and Chairman of the Audit
	Committee and member of the Nomination and Remuneration
	Committee.
Directorships held in other	— Mr Cuthbertson is Chairman of Austpac Resources N.L, S2 Net
listed entities	Limited, My Net Fone Limited, South American Iron & Steel Corporation
	Limited and a director of Healthzone Limited and Mint Wireless Limited.
Mr Peter Herd	— Managing Director from 28 July 2006.
Qualifications	— B. Ec (Hons), FAICD
Experience	— Previously General Manager of Dairy Farmers’ Milk and Beverage
	Division, previously Regional Director of 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	— 20,000 ordinary shares of Montec International Limited directly, and an
	additional 128,920 Montec International Limited shares held indirectly.
	5,000,000 options over ordinary shares of Montec International Limited
	held directly, and an additional 84,460 options over Montec
	International Limited shares held indirectly.
Special Responsibilities	— Mr Herd is Managing Director of the Company and a member of the
	Audit Committee and Nomination and Remuneration Committee.
Directorships held in other	— None.
listed entities

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DIRECTORS’ REPORT (CONTINUED)

Information on Directors (continued)

Ms Xueqin 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 through 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	— 140,000 ordinary shares and 3,000,000 options over ordinary shares
	of Montec International Limited.
Special Responsibilities	— Technical review and development of all product extensions.
Directorships held in other	— None.
listed entities
Mr Mei Zhan Yan	— Director (Non-executive)
Qualifications	— Master Degree of Chemistry from Beijing Science and Technology
	University of China.
Experience	— Managing Director of BAIC Australia Pty Ltd, which is the Australia
	subsidiary of Beijing Sanyuan Group Co., Ltd. (“Sanyuan Group”).
	Sanyuan Group is the largest food, beverage and dairy company in
	China and is listed on the Shanghai Stock Exchange.
	Mr. Yan also is Managing Director of Beijing Holdings BAIC Limited
	(Hong Kong) and Managing Director of BAIC Scriven Limited (Hong
	Kong), which are the subsidiaries of Sanyuan Group in Hong Kong,
	Director of Beijing Allied Faxi Food Co, Ltd., Director of Beijing
	Sunflower Building Co. Ltd. and Director of Beijing Dong Yuan Estate
	Co. Ltd.
Interest in Shares and Options	— 7,692,308 ordinary shares in Montec International Limited, held
	indirectly as a consequence of his directorship of BAIC Australia Pty
	Limited.
Special Responsibilities	— Key relationship holder with Beijing Sanyuan Foods, and integral to
	China business development and special project reviews within that
	country.
Directorships held in other	— None.
listed entities
Mr James Manny	— Director (Non-executive)
Qualifications	— Bachelor of Business
Experience	— Managing Director of Credit New Holland Group Limited and iCash
	Payment System Limited.
Interest in Shares and Options	— 477,825 ordinary shares of Montec International Limited held
	indirectly. 1,600,000 options held directly of Montec International
	Limited.
Special Responsibilities	— Chairman of the Nomination and Remuneration Committee, and
	member of the Audit Committee.
Directorships held in other	— Mr Manny is executive chairman and director of iCash Payment
listed entities	System Limited.

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DIRECTORS’ REPORT (CONTINUED)

Remuneration Report

This report details the nature and amount of remuneration for each key management person of Montec International Limited (the Company), and for the executive receiving the highest remuneration.

Remuneration Policy

The remuneration policy of the Company has been designed to align key management personnel objectives with shareholder and business objectives. The board of the Company believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best key management personnel to run and manage the consolidated group, as well as create goal congruence between directors, executives and shareholders.

The board’s policy for determining the nature and amount of remuneration for key management personnel of the consolidated group is as follows:

• The remuneration policy, setting the terms and conditions for the key management personnel, was developed by the nomination and remuneration committee and approved by the board after seeking professional advice from independent external consultants. During the year, there is no nomination and remuneration committee meeting, however, matters required discussion are covered at the monthly directors meeting.

• All key management personnel receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits, with the potential for options and other incentives. Option to be issued at the discretion of the Board. Since 1 October 2008, key management personnel has either received a reduced base salary or not been paid salary.

• The nomination and remuneration committee reviews key management personnel packages annually by reference to the consolidated group’s performance and executive performance.

The performance of key management personnel is reviewed annually and is based predominantly on the forecast growth of the consolidated group’s profits and shareholders’ value. All bonuses and option incentives are issued at the discretion of the Board. Any incentives or bonuses must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of other key management personnel executives and reward them for performance that results in long-term growth in shareholder wealth.

In determining whether or not performance criteria have been achieved, Montec International Limited bases the assessment on audited figures. The following table shows the revenue, profits and dividends for the last five years for the listed entity, as well as the share prices at the end of the respective financial years.

years.
	2005	2006	2007	2008	2009
Revenue	$0.63m	$0.80m	$0.53m	$0.87m	$0.36m
Net Profit	($4.46m)	($5.25m)	($3.39m)	($2.45m)	($1.93m)
Share Price at Year-end	$0.39	$0.22	$0.04	$0.01	$0.01
Dividends Paid	0 cents	0 cents	0 cents	0 cents	0 cents

Key management personnel are also entitled to participate in the employee share and option arrangements.

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

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DIRECTORS’ REPORT (CONTINUED)

Remuneration Report (continued)

All remuneration paid to key management personnel is valued at the cost to the company and expensed, shares given to key management personnel are valued as the difference between the market price of those shares and the amount paid by key management personnel. Options are valued using the BlackScholes methodology.

The board policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. The Company’s constitution and the ASX Listing Rules specify that the aggregate remuneration of non executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was as outlined in the Company’s Initial Public Offering prospectus of $300,000 per annum. However, non-executive directors were not remunerated since 1 October 2008 to accomplish the reduction of expenditures for the Company. These amounts have been forfeited by the non-executive directors and the Managing Director. Not to be paid at future date, therefore no accrual has been made in the balance sheet at year end.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The board considers advice from external parties as well as the fees paid to non executive directors of comparable companies when undertaking the annual review process. Fees for non-executive directors are not linked to the performance of the consolidated group. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company and are able to participate in the employee option plan.

Key Management Personnel Remuneration Policy

The board seeks to set aggregate remuneration at a level which provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.

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

Since 1 October 2008, each director has not received a fee for being a director of the company.

Employment contracts are entered into with the Managing Director/Chief Executive Officer, Chief Financial Officer and Technical Director. These are summarised below.

Managing Director and Chief Executive Officer

Commencing on Mr Herd’s appointment to the role of Acting Managing Director on 28 July 2006, Mr Herd was paid a combined director’s fee and salary of $18,818 and a superannuation contribution, including salary sacrifice on superannuation, of $9,351 for the period from 1 July 2008 to 30 September 2008. Since 1 October 2008, Mr Herd was not remunerated.

Chief Financial Officer

Pursuant to an executive service agreement between Montec International Limited and Mr Kenneth Lee dated 19 October 2007, Mr Lee received a contractor fee of $8,000 for the period from 1 July 2008 to 31 October 2008. Since 1 November 2008, Mr Lee was not remunerated.

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ANNUAL REPORT 30 JUNE 2009

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DIRECTORS’ REPORT (CONTINUED)

Remuneration Report (continued)

Technical Director

Pursuant to an executive service agreement between Montec and Ms Xueqin Du dated 5 September 2003, as amended, Dr Du is entitled to a three month notice period. Dr Du was paid a reduced salary of $97,500 and a superannuation contribution at a rate of 9 percent of the salary earned during the year. As Dr Du has statutory responsibilities in China she earned a China salary equivalent to $4,000 for the period from 1 July 2008 to 31 October 2008.

The nomination and remuneration committee determines the proportion of fixed and variable compensation for each key management personnel.

Details of Key Personnel Remuneration for the year ended 30 June 2009

The remuneration for the key management personnel during the year was as follows:

2009 Mr Terry Cuthbertson (i) Mr Peter Herd (i) Ms Xueqin Du Mr Mei Zhan Yan (ii) Mr James Manny (i) Mr Kenneth Lee (iii) Total Key Management Personnel	Salary & Fees Superannuation Contribution Cash Benefit Non-Cash Benefits Options Total Performance Related % $ $ $ $ $ $ 18,750 2,813 - - - 21,563 - 18,818 9,351 - - - 28,169 - 97,500 8,775 4,000 - - 110,275 - 8,175 - - - - 8,175 - 11,250 1,688 - - - 12,938 - 8,000 - - - - 8,000 -
	162,493 22,627 4,000 - - 189,120

(i) Remuneration paid for the period 1 July 2008 to 30 September 2008.

(ii) Mr Mei Zhan Yan’s director’s fees are being paid to BAIC Australia Pty Ltd.

(iii) Mr Kenneth Lee (Chief Financial Officer) was paid for the period from 1 July 2008 to 31 October 2008.

2008 Mr Terry Cuthbertson Mr Peter Herd Ms Xueqin Du Mr Mei Zhan Yan (i) Mr James Manny Mr Ian Maltman (ii) Mr Kenneth Lee (iii) Total Key Management Personnel	Salary & Fees Superannuation Contribution Cash Benefit Non-Cash Benefits Options Total Performance Related % $ $ $ $ $ $ 75,000 6,750 - - - 81,750 - 83,850 96,000 - - - 179,850 - 130,000 11,700 12,000 - - 153,700 - 49,050 - - - - 49,050 - 45,000 4,050 - - - 49,050 - 84,383 5,250 - - - 89,633 - 19,600 - - - - 19,600 -
	486,883 123,750 12,000 - - 622,633 -

(i) Mr Mei Zhan Yan’s director’s fees are being paid to BAIC Australia Pty Ltd. (ii) Mr Ian Maltman (previous Chief Financial Officer) was paid for the period from 1 July 2007 to 30 October 2007 and unused annual leave on termination of employment.

(iii) Mr Kenneth Lee (Chief Financial Officer) was paid for the period from 1 November 2007 to 30 June 2008.

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ANNUAL REPORT 30 JUNE 2009

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DIRECTORS’ REPORT (CONTINUED)

Options issued as Part of Remuneration for the year ended 30 June 2009

There were no options issued as part of remuneration for the year ended 30 June 2009 (2008: nil).

Meetings of Directors

During the financial year, 13 meetings of directors (including committees) were held. Attendances by each director during the year were as follows:

Mr Terry Cuthbertson Mr Peter Herd Ms Xueqin Du Mr Mei Zhan Yan Mr James Manny	DIRECTORS’ MEETINGS	DIRECTORS’ MEETINGS	COMMITTEE MEETINGS	COMMITTEE MEETINGS	COMMITTEE MEETINGS	COMMITTEE MEETINGS
			AUDIT COMMITTEE		NOMINATION AND REMUNERATION COMMITTEE *
	Number eligible to attend	Number Attended	Number eligible to attend	Number Attended	Number eligible to attend	Number Attended
	12	12	1	1	-	-
	12	11	1	1	-	-
	12	9	-	-	-	-
	12	4	-	-	-	-
	12	12	1	1	-	-

• Due to the Groups size, matters required to be discussed at a nomination and remuneration committee are covered at the monthly directors meeting.

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 $38,516 (2008: $43,600) for the below directors and executives.

Mr Terry Cuthbertson Mr Peter Herd Ms Xueqin Du Mr Mei Zhan Yan Mr James Manny Mr Kenneth Lee

Options

There were no options granted over unissued shares or interest during or since the financial year by the Company or controlled entity.

During the year ended 30 June 2009 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.

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ANNUAL REPORT 30 JUNE 2009

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DIRECTORS’ REPORT (CONTINUED)

Options (continued)

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	Number Under Option
1 May 2007	31/12/10	$0.12	(i)	7,400,000
1 May 2007	31/12/10	$0.18	(i)	7,400,000
1 May 2007	31/12/10	$0.25	(i)	6,000,000
				20,800,000

i These options were issued under the Company’s Employee 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.

Non-audit Services

The Board of Directors, in accordance with the Audit Committee confirm that there were no non-audit services provided by the external auditors during the year ended 30 June 2009 (2008: $nil).

Auditor’s Independence Declaration

The lead auditor’s independence declaration in accordance with s307C of the Corporations Act 2001 for the year ended 30 June 2009 has been received and can be found on page 55 which forms part of this report.

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

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Terry Cuthbertson Chairman Dated this 30[th ] day of September 2009

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Peter Herd

Managing Director

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ANNUAL REPORT 30 JUNE 2009

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INCOME STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2009

	Note	Consolidated	Group	Parent	Entity
		2009	2008	2009	2008
		$	$	$	$
Revenue	2	359,206	875,045	206,444	777,424
Change in inventories of finished goods		(60,453)	32,971	-	(27,482)
Raw materials sold/used		(136,648)	(468,300)	-	(416,936)
Compliance and professional fees		(193,287)	(307,089)	(186,417)	(295,365)
Advertising and marketing expenses		(295,418)	(703,579)	(60,056)	(423,123)
Employee benefits expenses		(564,033)	(1,090,396)	(304,889)	(844,190)
Administrative expenses		(421,858)	(331,042)	(158,389)	(242,208)
Travel expenses		(56,396)	(141,212)	(40,223)	(128,810)
Insurance expenses		(42,745)	(49,838)	(42,745)	(49,838)
Depreciation and amortisation expense		(144,657)	(181,102)	(142,705)	(181,102)
Impairment write down of investments		-	-	(228,230)	(540,656)
Impairment write down of loan in subsidiary	10	-	-	(374,404)	-
Impairment write down of patents	16	(371,907)	(86,000)	(371,907)	(86,000)
Loss before income tax expense	3	(1,928,196)	(2,450,542)	(1,703,521)	(2,458,286)
Income tax expense	4	-	-	-	-
Loss after related income tax expense		(1,928,196)	(2,450,542)	(1,703,521)	(2,458,286)
Net loss attributable to members of the
parent entity		(1,928,196)	(2,450,542)	(1,703,521)	(2,458,286)
Earning per share:
Basic earnings per share (cents per share)	8	(0.012)	(0.016)
Diluted earnings per share (cents per share)	8	(0.012)	(0.016)

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

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ANNUAL REPORT 30 JUNE 2009

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BALANCE SHEETS

AS AT 30 JUNE 2009

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 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 Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 362,430 1,209,877 360,357 1,089,156 54,271 178,846 20,849 136,803 40,389 170,925 - 33,165 11,373 86,344 9,533 40,127
	468,463 1,645,992 390,739 1,299,251
	- - - 228,230 30,062 74,717 21,576 67,975 75,000 576,160 75,000 576,160
	105,062 650,877 96,576 872,365
	573,525 2,296,869 487,315 2,171,616
	230,056 213,751 55,751 94,376 27,232 82,533 27,232 76,655
	257,288 296,284 82,983 171,031
	257,288 296,284 82,983 171,031
	316,237 2,000,585 404,332 2,000,585
	19,629,084 19,524,082 19,629,084 19,524,082 674,620 535,774 543,432 541,166 (19,987,467) (18,059,271) (19,768,184) (18,064,663)
	316,237 2,000,585 404,332 2,000,585

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

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ANNUAL REPORT 30 JUNE 2009

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STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2009

Consolidated Group Balance at 1 July 2007 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 Balance at 30 June 2008 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 Shares issued during the year Balance at 30 June 2009 Parent Entity Balance at 1 July 2007 Net income recognised directly in equity Loss for the period Total recognised income and expenses for the period Balance at 30 June 2008 Net income recognised directly in equity Loss for the period Total recognised income and expenses for the period Shares issued during the year Balance at 30 June 2009	Reserves Issued Capital $ Accumulated Losses $ Share Options $ Foreign Exchange $ Total $
	19,524,082 (15,608,729) 541,166 - 4,456,519 - - - (5,392) (5,392)
	- - - (5,392) (5,392) - (2,450,542) - - (2,450,542)
	- (2,450,542) - (5,392) (2,455,934)
	19,524,082 (18,059,271) 541,166 (5,392) 2,000,585 - - - 138,846 138,846
	- - - 138,846 138,846 - (1,928,196) - - (1,928,196)
	- (1,928,196) - 138,846 (1,789,350)
	105,002 - - - 105,002
	19,629,084 (19,987,467) 541,166 133,454 316,237
	Reserves Issued Capital $ Accumulated Losses $ Share Options $ Foreign Exchange $ Total $
	19,524,082 (15,606,377) 541,166 - 4,458,871 - - - - - - (2,458,286) - - (2,458,286)
	- (2,458,286) - - (2,458,286)
	19,524,082 (18,064,663) 541,166 - 2,000,585 - - - 2,266 2,266 - (1,703,521) - - (1,703,521)
	- (1,703,521) - 2,266 (1,701,255) 105,002 - - - 105,002
	19,629,084 (19,768,184) 541,166 2,266 404,332

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

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ANNUAL REPORT 30 JUNE 2009

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CASH FLOW STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2009

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 Proceeds from sales of property, plant and equipment Payment for subsidiary, net of cash acquired 24b Loan to related parties Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Net cash provided by financing activities Net (decrease)/increase in cash and cash equivalents held Cash and cash equivalents at start of year Cash and cash equivalents at end of year 9	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 315,219 680,315 180,049 526,036 (1,296,415) (3,103,509) (764,856) (2,217,840) 32,891 142,249 32,891 141,312 - - - -
	(948,305) (2,280,945) (551,916) (1,550,492)
	(5,281) (19,000) - (12,258) 1,137 368 1,137 368 - - (768,885) - - (283,022) (89,030)
	(4,144) (18,632) (281,885) (869,805)
	105,002 - 105,002 -
	105,002 - 105,002 -
	(847,447) (2,299,577) (728,799) (2,420,297) 1,209,877 3,509,454 1,089,156 3,509,453
	362,430 1,209,877 360,357 1,089,156

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

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2009

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 group 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, in their entirety. Compliance with Australian Accounting Standards 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 group 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, except for Beijing Montec Commercial Limited, which has a December year end.

All inter-company balances and transactions between entities in the consolidated group, including any unrealised profits or losses, have been eliminated on consolidation. Where controlled entities have entered the consolidated group 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.

b. Income Tax

The charge for current income tax expense is based on the result 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.

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

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 group 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.

Provision for obsolescence is calculated as management’s best estimate of amounts that will be recoverable from sale of inventory at a particular point in time.

d. Plant and equipment

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

Depreciation

The depreciable amount of all fixed assets is depreciated on a straight line basis over their useful lives to the consolidated group 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.

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

d. Plant and equipment (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 and Initial Measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention.

Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transactions costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity is no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognized in profit or loss.

Classification and Subsequent Measurement

• (i) Financial assets at fair value through profit and loss

Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise.

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

f. Financial Instruments (continued)

(ii) 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 subsequently measured at amortised cost using the effective interest rate method.

(iii) Held-to-maturity investments

There were no held-to-maturity investments held during the financial year ended 30 June 2009 (2008: nil).

(iv) Available-for-sale financial assets

There were no available-for-sale financial assets held during the financial year ended 30 June 2009 (2008: nil).

(v) Financial liabilities

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method.

Derivative instruments

There were no derivative instruments held during the financial year ended 30 June 2009 (2008: nil).

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 of financial assets

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

Financial Guarantees

There were no financial guarantees given during the financial year ended 30 June 2009 (2008: $nil).

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 as they represent investments in wholly owned subsidiaries which are consolidated in accordance with note 1(a). 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 by comparing the underlying net assets to carrying value recognised in the Company.

i. Intangibles

Patents and acquired rights

Patents and acquired rights are recognised 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.

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

j. Foreign Currency Transactions and Balances (continued)

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.

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, where this approximates the rate at date of transaction; 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 group’s 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. Those cashflows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cashflows.

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

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

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 cash flow statement, cash and cash equivalents includes:

• cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts.

n. Revenue

Revenue in the form of royalties from the utilisation of technology is recognised upon the sale of 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 which is recognised on the date of delivery.

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.

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 balance sheet are shown inclusive of GST.

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

p. Comparative Figures

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

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

q. Going concern

The consolidated entity has made a loss of $1,928,196 (2008: $2,450,542) and experienced negative cashflows of $847,447 (2008: $2,299,577). Notwithstanding the uncertainty surrounding the ability of the consolidated entity to continue as a going concern the director have prepared the financial statements on a going concern basis, as the directors have a number of strategies in progress to generate revenues from operations, reduce costs, realise assets and raise additional finance, including:

1. The directors have performed a review of the cash flow forecasts and have considered the cash flow needs of the company and consolidated group, including their ability to reduce the level of cash expenditure if required to do so.

2. Directors have initiated discussions with a number of parties that have expressed interest in supporting the Company with its capital requirements. At this time no financial commitment is contracted. However, should sufficient and appropriate capital not be available to the company on a timely basis the directors will require the cessation of the pursuit of the China markets and a further reduction in expenditure on staff and directors. The business would, under this scenario, operate on existing capital reserves combined with the ongoing licensing arrangement with Dairy Farmers which has provided a monthly income stream historically.

3. On 4 September 2009, the Company announced a renounceable rights issue (the Offer) on one to one share basis at 0.4 cents per share. The maximum number of shares which may be issued under the Offer is 154,864,539 to raise $619,458. The Offer opened on 23 September 2009 and closes on 8 October 2009. The Offer is fully underwritten by Patersons Securities Limited.

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

Impairment of intangibles – Patents

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.

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 an impairment in the net book value of patents of $371,907 which was recognised during the year. This amount was assessed under very minimal activity being conducted in China and all the investment and loans to subsidiaries having been impaired, the only operation that is currently being undertaken is the operation of a royalty.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

r. Critical accounting estimates and judgments (continued)

Key Judgments

Provision for impairment of unlisted investments

An impairment provision of $228,230 has been recognised in the Company accounts at 30 June 2009 to recognise the difference between the cost of the investment and the net book value of assets of the entity at year end. This amount is reversed on consolidation as the results of the subsidiary are include in the Group Entity.

Stock Obsolescence Provision

Included in inventory as at 30 June 2009 is a provision for stock obsolescence relating to premix for use in UHT milk production 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 $54,600.

s. Disclosure of new standards not yet operative

The following Australian Accounting Standards have been issued or amended and are applicable to the parent and consolidated group but are not yet effective. They have not been adopted in preparation of the financial statements at reporting date and the directors do not expect these requirements to have any material effect on the Groups financial statement.

AASB 3 Business Combinations (March 2008) – “AASB 3R” – Operative date 1 July 2009

AASB 3R amends how entities account for business combinations and changes in ownership interests in subsidiaries. Many changes have been made to this standard affecting acquisition related costs, step acquisitions, measurement of goodwill and contingent considerations. AASB 3 also replaces the term “Minority Interest” with “Non-controlling Interest”.

As the entity has not been a party to a business combination during the year, this standard does not have any impact on the entity’s financial report.

AASB 101 Presentation of Financial Statements (September 2007) - operative date 1 July 2009

AASB 101R contains a number of changes from the pervious AASB 101. The main changes are to require that an entity must:

• present all non-owner changes in equity (‘comprehensive income’) either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income;

• present an additional statement of financial position (balance sheet) as at the beginning of the earliest comparative period when the entity applies an accounting policy retrospectively, makes a retrospective restatement, or reclassifies items in its financial statements

• disclose income tax relating to each component of other comprehensive income

• disclose reclassification adjustments relating to components of other comprehensive income

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

s. Disclosure of new standards not yet operative (continued)

There are other changes to terminology, however these are not mandatory.

AASB 101R does not affect recognition or measurement criteria, therefore the changes are not expected to have any impact on the entity’s reported financial position.

AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 –operative date 31 December 2009

AASB 2007-8 consequentially amends a number of AASB’s as a result of the reissue of AASB 101. Some of the changes include changing the terms:

• ‘general purposes financial report’s to ‘general purpose financial statements’’

• ‘financial report’ to ‘financial statements’

In application paragraphs, where relevant, of Australian Accounting Standards (including ‘Interpretations) to better align with IFRS terminology.

As the changes do not affect recognition or measurement criteria, the changes are not expected to have any impact on the entity’s reported financial position and performance.

AASB 127 Consolidated and Separate Financial Statements – operative date 30 June 2010

AASB 127 amends how entities account for business combinations and changes in ownership interests in subsidiaries. Many changes were made to this standard affecting acquisitions and disposals which do not result in a change of control, partial disposals where control is lost, attribution of profit or loss to noncontrolling interests and loss of significant influence or control in relation to Associates and Joint Ventures.

AASB 127 replaces the term “Minority Interest” with the “Non-controlling Interest”.

AASB 127 is applied retrospectively, with certain exceptions relating to the significant changes made in this revision.

As the transitional provision of AASB 127 provides that the changes to the recognition and measurement criteria within AASB 127 resulting from this revision do not apply retrospectively to business combinations effected prior to the amendments being adopted, this standard is not expected to have any impact on the entity’s financial report.

AASB 123 Borrowing Costs (June 2007)- “AASB 123R”- operative date 1 July 2009

AASB 123R incorporates amendments removing the option to immediately expense borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset.

As the entity does not have borrowings associated with qualifying assets, these amendments are not expected to have any impact on the entity’s financial report.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

AASB 8 Operating Segments (February 2007) – Operative date 1 July 2009

AASB 8 supersedes AASB 114. AASB 8 has a different scope of application to AASB 114; it is applicable only to listed entitles and those in the process of listing, and requires that segment information be disclosed using the management approach. This may result in a different set of segments being identified than those previously disclosed under AASB 114.

AASB 8 is a disclosure standard therefore has no impact on the entity’s reported position and performance. However, 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. The segment reporting - note 23 has been prepared on this basis.

AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations

AASB 2008-1 was issued after the AASB made changes to AASB 2 Share Based Payments including:

• Clarifying that vesting conditions are service conditions and performance conditions only, and that other features of a share-based payment are not vesting conditions.

Cancellations, whether by the entity or by other parties, should be accounting for consistently.

As the entity has not been entered into share-based payment transaction during the year, these amendments have not had any impact on the entity’s financial report.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 2: REVENUE

NOTE 2: REVENUE
	Consolidated	Group	Parent	Entity
	2009	2008	2009	2008
	$	$	$	$
Operating activities:
— royalties	173,553	199,795	173,553	199,795
— milk sales	65,854	215,641	-	165,433
— yoghurt drinks	50,851	294,630	-	86,078
— cream sales	-	18,805	-	8,474
— sales of other goods	36,057	3,905	-	176,312
— interest income – other persons	32,891	142,249	32,891	141,312
— other revenue	-	20	-	20
Total Revenue	359,206	875,045	206,444	777,424
NOTE 3: LOSS BEFORE INCOME TAX EXPENSE
Loss before income tax has been determined
after:
Depreciation of non-current assets:
— plant and equipment	(15,404)	(27,139)	(13,452)	(27,139)
Amortisation of non-current assets:
— patents and acquired rights	(129,253)	(153,963)	(129,253)	(153,963)
Rental expense on property	(78,059)	(103,993)	(40,532)	(63,417)
Foreign currency translation (losses)	1,970	(29,517)	1,152	(21,836)
Impairment write down:
— Patents and acquired rights	(371,907)	(86,000)	(371,907)	(86,000)
— Investments	-	-	(228,230)	(540,656)
— Loan to subsidiaries	-	-	(374,404)	-
Other expenses:
— Legal fees	(23,404)	(47,841)	(23,404)	(47,841)
Loss on disposal of plant and equipment	(32,066)	-	(31,810)	-

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 4: INCOME TAX EXPENSE The prima facie tax on loss before income tax is reconciled to income tax as follows: a. Prima facie tax receivable on loss at 30% (2008:30%) 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 Group Parent Entity 2009 2008 2009 2008 $ $ $ $ (578,459) (735,163) (511,056) (737,486) 3,530 3,530 3,530 3,530 345,433 57,931 324,176 220,128 7,708 9,048 7,708 9,048 180,520 141,384 122,165 141,384 417,724 824,134 313,223 664,260
	- - - -
	-% -% -% -%

The directors estimate that the Parent Entity and its controlled entities have carry-forward income tax losses of $9,882,564 (2008: $8,490,197) 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.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 5: KEY MANAGEMENT PERSONNEL COMPENSATION

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

Key Management Personnel Mr Terry Cuthbertson Chairman — Non-Executive Mr Peter Herd Managing Director — Executive Ms Xueqin Du Director — Executive Mr Mei Zhan Yan Director — Non-Executive Mr James Manny Director — Non-Executive Mr Kenneth Lee Chief Financial Officer

b. Options and Rights Holdings

Number of options held by Key Management Personnel

Key Management Personnel Mr Terry Cuthbertson Mr Peter Herd Ms Xueqin Du Mr James Manny Mr Ian Maltman Mr Kenneth Lee Total

Balance 01/07/08 Granted as Compensation Options Exercised Net Change Other Balance 30/06/09 Total Vested 30/06/09 Total Exercisable Total Unexercisable 5,000,000 - - - 5,000,000 5,000,000 5,000,000 - 5,000,000 - - - 5,000,000 5,000,000 5,000,000 - 3,000,000 - - - 3,000,000 3,000,000 3,000,000 - 1,600,000 - - - 1,600,000 1,600,000 1,600,000 - 3,000,000 - - - 3,000,000 3,000,000 3,000,000 - - - - - - - - -

17,600,000 - - - 17,600,000 17,600,000 17,600,000 -

c. Shareholdings

Number of shares held by Key Management Personnel

Key Management Personnel Mr Terry Cuthbertson Mr Peter Herd Ms Xueqin Du Mr Mei Zhan Yan (i) Mr James Manny	Balance 1/7/08 Received as Compensation Options Exercised Net Change Other* Balance 30/6/09 20,000 - - - 20,000 148,920 - - - 148,920 140,000 - - - 140,000 7,692,308 - - - 7,692,308 477,825 - - - 477,825
	8,479,053 - - - 8,479,053

(i) Note that Mr Mei Zhan Yan as at 30 June 2009 holds the 7,692,308 (2008: 7,692,308) ordinary shares indirectly through BAIC Australia Pty Ltd.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 6: AUDITORS’ REMUNERATION	Consolidated	Group	Parent Entity
	2009	2008	2009	2008
	$	$	$	$
Remuneration of the auditor of the parent
entity (Grant Thornton NSW) for:
— auditing and reviewing the financial
reports	54,000	76,000	54,000	76,000
— other services	-	-	-	-
Remuneration of Grant Thornton Hong Kong
the auditor of the subsidiaries for:
— auditing and reviewing the financial
reports	-	13,000	-	13,000
— other assurance services	1,785	-	1,785	-

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.

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.

Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ - - - - - - - -

- - - -

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 8: EARNINGS PER SHARE

a. Reconciliation of earnings to net loss Net loss Earnings used in the calculation of basic and diluted EPS b. Applying AASB 133: Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS Weighted average number of options outstanding not treated as dilutive Weighted average number of ordinary shares outstanding during the year used in calculation of dilutive EPS	Consolidated Group Consolidated Group 2009 2008 $ $ (1,928,196) (2,450,542)
	(1,928,196) (2,450,542)
	154,795,719 151,364,518 (i) 20,800,000 20,800,000 154,795,719 151,364,518

(i) As options exercise prices are in excess of the average market price for ordinary shares and the Company has made a loss during the year, they are considered anti-dilutive.

NOTE 9: CASH AND CASH EQUIVALENTS

NOTE 9: CASH AND CASH EQUIVALENTS
Cash at bank and in hand Reconciliation of Cash Cash at the end of the financial year as shown in the cash flow statement is reconciled to items in the balance sheet as follows: Cash and cash equivalents	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 362,430 1,209,877 360,357 1,089,156
	362,430 1,209,877 360,357 1,089,156 362,430 1,209,877 360,357 1,089,156

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 10: TRADE AND OTHER RECEIVABLES	NOTE 10: TRADE AND OTHER RECEIVABLES
		Consolidated	Group	Parent Entity
	Note	2009	2008	2009	2008
		$	$	$	$
CURRENT
Trade receivables		83,005	138,572	13,359	19,854
Provision for doubtful debts	10a	(36,852)	-	-	-
		46,153	138,572	13,359	19,854
Term receivables		6,675	6,675	6,675	6,675
Other receivables		21,281	54,589	20,653	39,882
Provision for impairment of other
receivables	10a	(19,838)	(20,990)	(19,838)	(20,990)
Amount receivable from:
Wholly-owned subsidiaries		-	-	374,404	91,382
Provision for impairment of amount
due from subsidiaries		-	-	(374,404)	-
	10a	54,271	178,846	20,849	136,803

a. Provision for Impairment of Receivables

Current trade and term receivables are non-interest bearing loans and generally on 60 day terms. A provision for impairment is recognised when there is objective evidence that an individual trade or term receivable is impaired. These amounts have been included in the administrative expense items in the income statement.

Movement in the provision for impairment of receivables is as follows:

Consolidated Group Current trade receivable Current other receivable Parent Entity Current other receivable	Opening Balance Charge for the Year Amounts Written Off Closing Balance 1.07.2008 30.06.2009 $ $ $ $ - 36,852 - 36,852 20,990 (1,152) - 19,838
	20,990 35,700 - 56,690 20,990 (1,152) - 19,838
	20,990 (1,152) - 19,838

There are no balances within trade and other receivables that contain assets that are not impaired and are past due. It is expected these balances will be received when due. Impaired assets are provided for in full.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 11: INVENTORIES		Consolidated	Group	Parent	Entity
		2009	2008	2009	2008
		$	$	$	$
CURRENT
At cost
Raw materials and consumables		94,989	247,083	54,600	109,323
Provision for stock obsolescence		(54,600)	(76,158)	(54,600)	(76,158)
		40,389	170,925	-	33,165
NOTE 12: OTHER CURRENT ASSETS
Prepayments		11,373	86,344	9,533	40,127
		11,373	86,344	9,533	40,127
NOTE 13: FINANCIAL ASSETS
NON-CURRENT
Unlisted investments, at cost
— Shares in controlled entities	13a,14	-	-	768,886	768,886
Less: Impairment provision		-	-	(768,886)	(540,656)
		-	-	-	228,230
a. Unlisted investments movement during the		year
Balance at beginning of the financial year		-	-	228,230	1
— Additional investment		-	-	-	768,885
— Impairment		-	-	(228,230)	(540,656)
Balance at the end of the financial year		-	-	-	228,230
NOTE 14: CONTROLLED ENTITIES
a. Controlled Entities		Country of	Percentage
		Incorporation	Owned
			2009	2008
Parent Entity:
Montec International Limited
Subsidiaries of Montec International Limited:
— Beijing Montec Commercial Limited		China	100%	100%
— Montec International (HK) Limited		Hong Kong	100%	100%

b. Controlled Entities Acquired

No controlled entities acquired during the year ended 30 June 2009.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 15: PLANT AND EQUIPMENT

PLANT AND EQUIPMENT Plant and equipment At cost Accumulated depreciation Total Plant and Equipment	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 132,114 191,753 120,092 185,011 (102,052) (117,036) (98,516) (117,036)
	30,062 74,717 21,576 67,975

a. Movements in Carrying Amounts

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

2009 Consolidated Group: Balance at 1 July 2007 Additions Disposals Depreciation expense Balance at 30 June 2008 Additions Disposals Movement on exchange Depreciation expenses Balance at 30 June 2009 Parent Entity: Balance at 1 July 2007 Additions Disposals Depreciation expense Balance at 30 June 2008 Additions Disposals Depreciation expenses Balance at 30 June 2009	Plant and Equipment Total $ $ 83,224 83,224 19,000 19,000 (368) (368) (27,139) (27,139)
	74,717 74,717 5,281 5,281 (32,947) (32,947) (1,585) (1,585) (15,404) (15,404)
	30,062 30,062
	83,224 83,224 12,258 12,258 (368) (368) (27,139) (27,139)
	67,975 67,975 - - (32,947) (32,947) (13,452) (13,452)
	21,576 21,576

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 16: INTANGIBLE ASSETS Patents and acquired rights, at cost Accumulated amortisation Impairment write down of patents Total Intangible Assets Consolidated Group Year ended 30 June 2008 Balance at the beginning of year Disposals Amortisation charge Impairment losses Closing value at 30 June 2008 Year ended 30 June 2009 Balance at the beginning of year Amortisation charge Impairment losses Closing value at 30 June 2009	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 3,423,601 3,423,601 3,423,601 3,423,601 (1,496,348) (1,367,095) (1,496,348) (1,367,095) (1,852,253) (1,480,346) (1,852,253) (1,480,346) 75,000 576,160 75,000 576,160 Patent Acquired Rights Total $ $ $ 758,769 57,354 816,123 - - - (142,198) (11,765) (153,963) (86,000) - (86,000) 530,571 45,589 576,160 530,571 45,589 576,160 (117,488) (11,765) (129,253) (338,083) (33,824) (371,907) 75,000 - 75,000	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 3,423,601 3,423,601 3,423,601 3,423,601 (1,496,348) (1,367,095) (1,496,348) (1,367,095) (1,852,253) (1,480,346) (1,852,253) (1,480,346) 75,000 576,160 75,000 576,160 Patent Acquired Rights Total $ $ $ 758,769 57,354 816,123 - - - (142,198) (11,765) (153,963) (86,000) - (86,000) 530,571 45,589 576,160 530,571 45,589 576,160 (117,488) (11,765) (129,253) (338,083) (33,824) (371,907) 75,000 - 75,000
	75,000 Patent $ 758,769 - (142,198) (86,000) 530,571 530,571 (117,488) (338,083) 75,000
		576,160
		576,160 (129,253) (371,907)
		75,000

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

Impairment Disclosures – Patents and acquired rights

Patents and acquired rights are allocated to cash generating units which are based on the groups reporting segments. All patents and acquired rights recognised relate to the Australian segment, as there are very minimal activity being conducted in China and all of the investments and loans to Beijing Montec having been impaired. Management has based the costs that are currently being incurred relate to the royalty stream being generated by the patents and acquired rights, therefore, the carrying value of the patents and acquired rights was impaired by $371,907 in the current year.

The recoverable amounts of the patents and acquired rights are determined based on value-in-use calculations. Value-in-use is calculated based on present value of cash flow projections over the remaining 3 year life of the patent. The cash flows are discounted using the target cash rate of Reserve Bank Australia 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-in-use calculations:

	Discount Rate	Growth	Rate
	2009 2008	2009	2008
Patents and acquired rights	17.1% 19.3%	0%	0%

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

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 16: INTANGIBLE ASSETS (CONTINUED)

No terminal value cash flow after 3 years has been factored into the calculations as the Patents expire at that future point in time. The acquired rights economic life has been determined to be the same as the Patents.

The impairment loss recognised during the year is the excess of the recoverable amount over the carrying amount.

NOTE 17: TRADE AND OTHER

NOTE 17: TRADE AND OTHER
PAYABLES CURRENT Unsecured liabilities Trade creditors Sundry creditors and accrued expenses NOTE 18: SHORT-TERM PROVISIONS CURRENT Employee benefits	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 66,084 98,796 6,737 27,300 163,972 114,955 49,014 67,076
	230,056 213,751 55,751 94,376 27,232 82,533 27,232 76,655
	27,232 82,533 27,232 76,655

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 19: ISSUED CAPITAL Note 154,864,539 (2008: 151,364,518) fully paid ordinary shares 19a a. Ordinary shares At the beginning of the reporting period Share movements during the year: - Share placement of 3,500,000 ordinary shares at $0.03 per share on 8/07/2008 -Share placement of 21 ordinary shares under rights issue at $0.10 per share on 8/07/2008 At reporting date b. Number of ordinary shares At the beginning of reporting period Shares issued during the year: - Share placement of 3,500,000 ordinary shares at $0.03 per share on 8/07/2008 -Share placement of 21 ordinary shares under rights issue at $0.10 per share on 8/07/2008 At reporting date	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 19,629,084 19,524,082 19,629,084 19,524,082
	19,524,082 19,524,082 19,524,082 19,524,082 105,000 - 105,000 - 2 - 2 -
	19,629,084 19,524,082 19,629,084 19,524,082 No. No. No. No. 151,364,518 151,364,518 151,364,518 151,364,518 3,500,000 - 3,500,000 - 21 - 21 -
	154,864,539 151,364,518 154,864,539 151,364,518

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.

The ordinary shares have no par value.

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 2009, there were 20,800,000 (30 June 2008:20,800,000) unissued ordinary shares for which options were outstanding.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 19: ISSUED CAPITAL (CONTINUED)

d. Capital Management

Management controls the capital of the group in order to ensure that the group can fund its operations and continue as a going concern.

The groups debt and capital includes ordinary share capital, and financial liabilities, supported by financial assets. The group has no debt during the year ended 30 June 2009 (2008: $nil), therefore there are no externally imposed capital requirements.

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.

NOTE 21: CAPITAL AND LEASING COMMITMENTS

Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements Payable - not later than 1 year	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ - - - -
	- - - -

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.

Page 43

ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 23: SEGMENT REPORTING

Primary reporting — Geographic segments 2009 REVENUE External sales Other segments Total sales 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 OTHER NON-CASH SEGMENT EXPENSES Impairment of patents and acquired rights Impairment of loan in subsidiary	Australia China Eliminations Consolidated Group $ $ $ $ 206,444 152,762 - 359,206 - - - -	Australia China Eliminations Consolidated Group $ $ $ $ 206,444 152,762 - 359,206 - - - -
	(905,018) (1,382,384)	359,206
		359,206 - (2,287,402)
	(1,928,196) - (1,928,196) 280,663 547,266 (254,404) 573,525	(1,928,196) -
		(1,928,196)
	280,663 547,266 (254,404) 573,525
	82,983 428,709 (254,404) 257,288
	82,983 428,709 (254,404) 257,288
	- 5,281 - 5,281 142,705 1,952 - 144,657 371,907 - - 371,907 347,404 - (347,404) -

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 23: SEGMENT REPORTING (CONTINUED)

Primary reporting — Geographic segments 2008 REVENUE External sales Other segments Total sales 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 Group $ $ $ $ 341,128 922,852 (388,935) 875,045 - - - -	Australia China Eliminations Consolidated Group $ $ $ $ 341,128 922,852 (388,935) 875,045 - - - -
	341,128 922,852 (388,935) 875,045 875,045 (1,374,443) (1,951,144) - (3,325,587)
		875,045 - (3,325,587)
	(2,450,542) - (2,450,542) 1,512,026 963,814 (178,971) 2,296,869	(2,450,542) -
		(2,450,542)
	1,512,026 963,814 (178,971) 2,296,869
	171,032 304,223 (178,971) 296,284
	171,032 304,223 (178,971) 296,284
	12,258 6,742 - 19,000 181,102 - - 181,102

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.

Page 45

ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

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 group at an arm’s length. These transfers are eliminated on consolidation.

Secondary Reporting - Business Segments

Montec International Limited 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 Impairment of investments Impairment of loan to subsidiaries Write-off of obsolete stock Net loss on disposal of property, plant and equipment 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 Group Parent Entity 2009 2008 2009 2008 $ $ $ $ (1,928,196) (2,450,542) (1,703,521) (2,458,286) 129,253 153,963 129,253 153,963 15,404 27,139 13,452 27,139 - - - - 371,907 86,000 371,907 86,000 - - 228,230 540,656 - - 374,404 - 157,325 - - - 32,066 - 31,810 - - (5,392) - - 107,425 (64,223) 26,838 69,202 74,971 73,935 30,594 120,152 130,536 (47,940) 33,165 89,820 16,305 (64,872) (38,625) (184,247) (55,301) 10,987 (49,423) 5,109

(948,305) (2,280,945) (551,916) (1,550,492)

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ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 24: CASH FLOW INFORMATION (CONTINUED)

	Consolidated	Group	Parent	Entity
	2009	2008	2009	2008
	$	$	$	$
b. Entities established
During the year 100% of the controlled entity
Beijing Montec Commercial Limited was
established. Details of this transaction are:
Capital consideration	-	-	-	768,885
Cash consideration	-	-	-	768,885
Cash (outflow)/inflow	-	-	-	(768,885)
Assets and liabilities held at acquisition date:
Cash	-	-	-	-
Receivables	-	-	-	-
Inventories	-	-	-	-
Property, plant and equipment	-	-	-	-
Creditors	-	-	-	-
Goodwill/(Discount) on consolidation	-	-	-	-
Minority interests in acquisitions	-	-	-	-
Shares issued	-	-	-	768,885
c. Non-cash Financing and Investing
Activities

There were no non cash financing or investing activities undertaken during the financial year ended 30 June 2009 (2008:$nil).

Page 47

ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 25: SHARE BASED PAYMENTS

There were no new employee share options issued during the financial year.

The closing share market price of an ordinary share of Montec International Limited on the Australian Stock Exchange at 30 June 2009 was $0.01 (30 June 2008: $0.01).

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 Net change other (i) Closing Balance Exercisable at year end (i) This includes options held by employee who	Consolidated Group Parent Entity 2009 2008 2009 2008 No. No. No. No. 19,200,000 22,883,000 19,200,000 22,883,000 - - - - - - - - - (2,083,000) - (2,083,000) (3,000,000) (1,600,000) (3,000,000) (1,600,000)
	16,200,000 19,200,000 16,200,000 19,200,000 16,200,000 19,200,000 16,200,000 19,200,000 left the company during the year.

There were no options exercised during the year ended 30 June 2009.

The options outstanding at 30 June 2009 had a weighted average exercise price of $0.183 and a weighted average remaining contractual life of 1.50 years. Exercise prices range from $0.12 to $0.50 in respect of options outstanding at 30 June 2009.

Included under employee benefits expenses in the income statement is nil (2008: nil), and relates, in full, to equity-settled share-based payment transactions.

b. Details of share options outstanding as at end of year: Grant Date Expiry and Exercise Date Exercise Price 1 May 2007 31/12/10 $0.12 1 May 2007 31/12/10 $0.18 1 May 2007 31/12/10 $0.25	Consolidated Group Parent Entity 2009 2008 2009 2008 No. No. No. No. 7,400,000 7,400,000 7,400,000 7,400,000 7,400,000 7,400,000 7,400,000 7,400,000 6,000,000 6,000,000 6,000,000 6,000,000
	20,800,000 20,800,000 20,800,000 20,800,000

c. Details of Shares Granted

There were no shares granted to employees as remuneration in the financial year ended 30 June 2009 (2008: nil granted).

Page 48

ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 26: EVENTS SUBSEQUENT TO REPORTING DATE

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

NOTE 27: RELATED PARTY TRANSACTIONS

NOTE 27: RELATED PARTY TRANSACTIONS
	Consolidated	Group	Parent	Entity
	2009	2008	2009	2008
	$	$	$	$
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
Sales and other costs paid on behalf of Beijing Montec
Commercial Limited.	-	-	87,622	-
The inter-company position with Beijing Montec
Commercial Limited is as follows:
- inter-company receivable at 30 June 2009	-	-	364,799	84,909
At year end account receivable from controlled entities
have been fully impaired.
Sales and other costs paid on behalf of Montec
International (HK) Limited.	-	-	3,132	4,121
The inter-company position with Montec International
(HK) Limited is as follows:
- inter-company receivable	-	-	9,605	6,473
The outstanding receivables have been eliminated on
consolidation.
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.	8,175	49,050	8,175	49,050
iii. Key Management Personnel
No other related party transactions with directors or
executives of Montec International Limited or controlled
entities occurred during the financial year ended 30 June
2009.
iv. Share Transactions of Key Management
Personnel
No share transactions of directors during the financial
year ended 30 June 2009.
Share transactions of directors during the financial year
ended 30 June 2008 were:
- Ms Xueqin Du bought 100,000 shares on market on 17
November 2007.	-	3,400	-	3,400
				Page 49

ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 28: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

a. Financial Risk Management Policy

The group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable, loans to and from subsidiaries.

The Board and Management monitor risks on a regular basis as part of formal board meeting and ad-hoc management discussion.

i. Financial Risk Exposures and Management

The main risks the group is exposed to through its financial instruments are liquidity risks, foreign currency risk and credit risk.

Liquidity risks

The group manages liquidity risk by continually monitoring forecast cash flows and generating when required additional capital funding as necessary. It is noted that the group does not have any borrowing facilities.

Foreign currency risk

The group is exposed to fluctuations in foreign currencies arising from the sale and purchase of goods and services in currencies other than the group’s measurement currency. The management managed the foreign currency transactions on a monthly basis to avoid the fluctuation on the exchange rate, while the group does not have any material foreign currency risk exposure. Where exposures do arise, forward foreign exchange contracts will be applied.

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 balance sheet and notes to the financial statements.

There are no material amounts of collateral held as security at 30 June 2009.

The consolidated group does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the consolidated group.

b. Financial Instruments

i. Derivative Financial Instruments

The consolidated group has not participated in the use of any derivative financial instruments during the year.

ii. Financial instrument composition and maturity analysis

The tables below reflect the weighted average effective interest rate on classes of financial assets and financial liabilities.

Page 50

ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 28: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

Financial Assets: Cash Trade and other receivables					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 1 Year		Over 1 Years		Non-interest Bearing		Total
			$		$		$		$		$
	2009	2008	2009	2008	2009	2008	2009	2008	2009	2008	2009	2008
	4.38% 6.02%362,430 1,209,877 - - - - - - 362,430 1,209,877 - - - - - - - - 54,271 178,846 54,271 178,846

Trade and sundry payables are expected to be paid as follows:

Less than 6 months Over 6 months	Consolidated Group Parent Entity 2009 2008 2009 2008 $ $ $ $ 55,751 213,751 55,751 94,376 174,305 - - -
	230,056 213,751 55,751 94,376

All other assets and liabilities are non-interest bearing. All trade and other payables are expected to be paid within 12 months.

iii. 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.

iv. Sensitivity Analysis

Interest Rate Risk and Foreign Currency Risk

The group has performed a sensitively analysis relating to its exposure to interest rate risk and foreign currency risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks.

Page 51

ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 28: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

Interest Rate Sensitivity Analysis

At 30 June 2009, the effect on profit and equity as a result of changes in the interest rate, with all other variables remaining constant would be as follows:

	Consolidated	Group	Parent	Entity
	2009	2008	2009	2008
	$	$	$	$
Change in profit
- Increase in interest rate by 2%	658	2,845	658	2,826
- Decrease in interest rate by 2%	(658)	(2,845)	(658)	(2,826)
Change in equity
- Increase in interest rate by 2%	658	2,845	658	2,826
- Decrease in interest rate by 2%	(658)	(2,845)	(658)	(2,826)

Foreign Currency Risk Sensitivity Analysis

At 30 June 2009, the effect on profit and equity as a result of changes in the value of the Australian Dollar to the Chinese Renminbi, with all other variables remaining constant is as follows:

	Consolidated	Group	Parent	Entity
	2009	2008	2009	2008
	$	$	$	$
Change in profit
- Improvement in AUD to RMB by 5%	(35,209)	(36,639)	(35,209)	(31,805)
- Decline in AUD to RMB by 5%	35,209	36,639	35,209	31,805
Change in equity
- Improvement in AUD to RMB by 5%	(35,209)	(36,639)	(35,209)	(31,805)
- Decline in AUD to RMB by 5%	35,209	36,639	35,209	31,805

NOTE 29: ECONOMIC DEPENDENCY

Montec International Limited is dependent on the revenue generated from the licensing arrangement with Dairy Farmers going forward.

Page 52

ANNUAL REPORT 30 JUNE 2009

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2009

NOTE 30: COMPANY DETAILS

The registered office of the Company is:

Montec International Limited C/O Australian Company Secretaries Pty Ltd Level 9, 20 Hunter Street Sydney NSW 2000 Australia

The principal places of business are:

Montec International Limited Sydney, Australia Level 6, 55 York Street Sydney NSW 2000

Beijing Montec Commercial Limited Beijing China Room 320, Ju An Office Building, 18 Bai Zi Wan Road, Chaoyang District Beijing PRC 100022

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

Page 53

ANNUAL REPORT 30 JUNE 2009

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DIRECTORS’ DECLARATION

The directors of the Company declare that:

1. The financial statements and notes, as set out on pages 8 to 53 are in accordance with the Corporations Act 2001 and :

2. a. comply with Accounting Standards and the Corporations Regulations 2001 ; and

3. b. give a true and fair view of the financial position as at 30 June 2009 and of the performance for the year ended on that date of the Company and consolidated group;

4. The Managing Director and Chief Financial Officer have each declared that:

5. a. the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;

6. b. the financial statements and notes for the financial year comply with the Accounting Standards; and

7. c. the financial statements and notes for the financial year give a true and fair view.

8. 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.

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Terry Cuthbertson Chairman Dated this 30th day of September 2009

Peter Herd

Managing Director

Page 54

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Grant Thornton NSW ABN 25 034 787 757

Level 17, 383 Kent Street Sydney NSW 2000 PO Locked Bag Q800 QVB Post Office Sydney NSW 1230

T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@grantthornton.com.au W www.grantthornton.com.au

Auditor’s Independence Declaration To the Directors of Montec International Limited

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Montec International Limited and its controlled entities for the year ended 30 June 2009, I declare that, to the best of my knowledge and belief, there have been:

• a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• b no contraventions of any applicable code of professional conduct in relation to the audit.

GRANT THORNTON NSW Chartered Accountants

N J Bradley Partner

Sydney, 30 September 2009

Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia.

Liability limited by a scheme approved under Professional Standards legislation.

PAGE 55

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Grant Thornton NSW ABN 25 034 787 757

Level 17, 383 Kent Street Sydney NSW 2000 PO Locked Bag Q800 QVB Post Office Sydney NSW 1230

T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@grantthornton.com.au W www.grantthornton.com.au

Independent Auditor’s Report

To the Members of Montec International Limited

Report on the Financial Report

We have audited the accompanying financial report of Montec International Limited and its controlled entities (the Group) which comprises the balance sheet as at 30 June 2009, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards.

Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia.

Liability limited by a scheme approved under Professional Standards legislation.

PAGE 56

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Independence

In conducting our audit, we complied with applicable independence requirements of the Corporations Act 2001.

Auditor’s opinion

In our opinion:

• a the financial report of Montec International Limited is in accordance with 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 2009 and of their performance for the year ended on that date; and

• ii complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and

• b the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

PAGE 57

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 12 to 15 of the directors’ report for the year ended 30 June 2009. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion

In our opinion the Remuneration Report of Montec International Limited for the year ended 30 June 2009, complies with section 300A of the Corporations Act 2001.

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GRANT THORNTON NSW Chartered Accountants N J Bradley Partner

Sydney, 30 September 2009

PAGE 58

ANNUAL REPORT 30 JUNE 2009

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ADDITIONAL INFORMATION

1. Shareholding

• a. Distribution of Shareholders Number as at 17 September 2009

Category (size of Holding)	Ordinary
1 – 1,000	32
1,001 – 5,000	138
5,001 – 10,000	144
10,001 – 100,000	384
100,001 – and over	214

• b. The number of shareholdings held in less than marketable parcels is 640.

• c. There names of the substantial shareholders listed in the Company’s register as at 17 September 2009 are:

Shareholder Number Ordinary MR Phillip Anthony Riolo 8,394,844

• d. 20 Largest Shareholders as at 17 September 2009 – Ordinary Shares

	Name	Number of Ordinary Fully Paid Shares Held	% Held of Issued Ordinary Capital
1	MR PHILLIP ANTHONY RIOLO	8,394,844	5.42
2	BAIC AUSTRALIA PTY LIMITED	7,692,308	4.97
3	MR STEPHEN THOMAS PIRRIE	4,227,400	2.73
4	UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD	3,765,541	2.43
5	SINO FINANCIAL GROUP LTD	3,500,000	2.26
6	MR BRIAN JOHN CURRIE & MRS JOAN ELIZABETH CURRIE SUPER FUND A/C>	3,048,306	1.97
7	MR ANTHONY JAMES ELLIS	3,000,000	1.94
8	WHOROULY PTY LTD	2,653,338	1.71
9	RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED	2,627,451	1.70
10	MRS KERRI ANN HENDRY	2,590,000	1.67
11	MR HENRY HERRON	2,531,400	1.64
12	MRS JANICE MARGARET HOCKING	2,468,314	1.59
13	FELTRIM PASTORAL CO PTY LTD	2,000,488	1.29
14	AVANTEOS INVESTMENTS LIMITED	2,000,000	1.29
15	TRIFERN PTY LTD	2,000,000	1.29
16	GE COMMERCIAL CORPORATION (AUSTRALIA) PTY LIMITED	1,897,437	1.23
17	MR TREVOR NEIL HAY	1,869,852	1.21
18	AWESOME NOMINEES PTY LTD	1,860,000	1.20
19	MR GARY DAVID MARES & MRS SUE MAREE MARES FUND A/C>	1,750,000	1.13
20	MR MATTHEW DAVID EVANS	1,645,150	1.06
		61,521,829	39.73

Page 59

ANNUAL REPORT 30 JUNE 2009

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e. Voting Rights

The voting rights attached to the ordinary shares are that on a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

2. 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 9, 20 Hunter Street Sydney NSW 2000 Telephone: 02 9252 1933

The address of the Company’s Australian Head Office is:

Level 6, 55 York Street Sydney NSW 2000 Telephone: 02 9299 0011

4. Registers of securities are held at the following address

New South Wales Registries Limited 28 Margaret Street Sydney NSW 2000

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 31 August 2009 to the Australian Stock Exchange in the preliminary final report do not differ from the results reported in these accounts.

7. Unquoted Securities

Options over Unissued Shares

A total of 20,800,000 un-listed options were on issue to key management personnel and employees under the Montec International Limited employee option plan as at 30 June 2009.

8. Restricted Securities

Ordinary Shares

Of the 154,864,539 ordinary shares on issue as at 30 June 2009, all were quoted on the Australian Stock Exchange. No ordinary shares are subject to escrow restrictions.

Options

No options are subject to escrow restrictions.

Page 60

ANNUAL REPORT 30 JUNE 2009

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CORPORATE DIRECTORY

Principal Registered Office

Level 9, 20 Hunter Street Sydney NSW 2000 Phone: 02 9252 1933 Facsimile: 02 9235 2709

Australian Head Office

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

Investor Relations

Email: investors@montec-international.com.au

Auditors

Grant Thornton NSW Level 17, 388 Kent Street Sydney NSW 2000

Solicitors

Deacons Level 18, Grosvenor Place 225 George Street Sydney NSW 2000

Share Registry

Registries Limited Level 2, 28 Margaret Street Sydney NSW 2000 Phone: 02 9290 9600 Facsimile: 02 9279 0664

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