LARK DISTILLING CO. LTD — Annual Report 2012

Oct 18, 2012

ANNUAL REPORT 30 JUNE 2012

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MONTEC INTERNATIONAL LIMITED

ACN 104 600 544

CONSOLIDATED ENTITY

ANNUAL REPORT 30 JUNE 2012

ANNUAL REPORT 30 JUNE 2012

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TABLE OF CONTENTS

Directors’ Report	1
Statement of Comprehensive Income	9
Statement of Financial Position	10
Statement of Changes in Equity	11
Statement of Cash Flows	11
Notes to the Financial Statements	12
Directors’ Declaration	41
Auditor’s Independence Declaration	42
Independent Auditor’s Report	43
Corporate Governance Statement	46
Additional Information	51
Corporate Directory	53

ANNUAL REPORT 30 JUNE 2012

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DIRECTORS’ REPORT

Your directors present their report on Montec International Limited consolidated entity (“Group”) for the financial year ended 30 June 2012.

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 Mr James Manny Mr David Yu

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:

Nick Geddes FCA, FCIS Company Secretary. Mr Geddes is the principal of Australian Company Secretaries, a company secretarial practice that he formed in 1993. Nick is past President of Chartered Secretaries Australia and a former Chairman of the NSW Council 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 Chartered Accountant (Fellow of Institute of Chartered Accountants in England & Wales) and Fellow of the Institute of Chartered Secretaries (Chartered Secretaries Australia).

Operating Results

The loss of the Group for the financial year after providing for income tax amounted to $123,555 (2011: $329,476).

Principal Activities and Significant Change in Nature of Activities

The principal activity of the Group during the financial year was the marketing and licensing of monounsaturated dairy technology and the sale of raw materials incorporating this food science.

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

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 2012 (2011: $nil).

Review of Operations

The consolidated entity continued to engage in its principal activity being the marketing and licensing of dairy technology, the results of which are disclosed in the attached financial statements. Business activities in the year ended 30 June 2012 have centred to investigate investment opportunities and continued cost reduction.

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DIRECTORS’ REPORT (CONTINUED)

Review of Operations (continued)

On 29 July 2011 the Company entered into a Convertible Note Agreement with Malachite Resources Limited (ASX: MAR) which would have provided the Company and shareholders a commercial return and the opportunity for the Company to investigate potential opportunities that may exist to acquire one or more projects currently owned by MAR. Subsequently, the Convertible Note Agreement was terminated on the basis that the Company was unable to obtain the required regulatory approvals to proceed with the subscription of convertible notes in MAR.

i. China business

During the year the Group maintains Chinese operations to the level of minimum presence, and the management continues to investigate other product opportunities, both within and outside the dairy category.

ii. Australia royalties

Royalties from licenses held in Australia have fallen $33,855 (28%) to $86,348 in 2012 (2011: $120,203).

Financial Position

The net assets of the Group have decreased by $144,139 from 30 June 2011 to net liabilities of $90,919 in 2012. This decrease is largely due to the following factors:

• Operating expenses incurred during the year;

• Reduced Dairy Farmer license fees; partially offset by

• Proceeds from convertible notes arrangement of $200,000.

The Group’s working capital, being current assets less current liabilities, has decreased from net current liabilities of $46,924 in 2011 to net current liabilities of $90,919 in 2012.

Significant Changes in State of Affairs

There were no significant changes in the state of affairs of the Group during the financial year.

After Balance Date Events

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 Group, the results of those operations, or the state of affairs of the Group in future financial years.

Future Developments, Prospects and Business Strategies

The likely developments in the operations of the 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 Group to date; and

• Investment in opportunities already identified in other industries and the sale of Australian made premium products into 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.

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DIRECTORS’ REPORT (CONTINUED)

Information on Directors

Mr Terry Cuthbertson	— Director (Non-Executive); Appointed Non-Executive Chairman from July
	2004.
Qualifications	— Bachelor of Business, ACA
Experience	— Non-Executive Chairman of Austpac Resources N.L., My Net Fone
	Limited, Sun Biomedical Limited, Mint Wireless Limited, South American
	Iron & Steel Corporation 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 Holdings
	Pty Ltd which generated over $2 billion in revenues from operations
	throughout the Asia-Pacific Region.
Interest in Shares and	— 7,951,352 ordinary shares of Montec International Limited.
Options
Special Responsibilities	— Mr Cuthbertson is the Company’s Chairman and member of the Audit
	Committee and Nomination and Remuneration Committee.
Directorships held in other	— Mr Cuthbertson is Non-Executive Chairman of Austpac Resources N.L, My
listed entities	Net Fone Limited, Mint Wireless Limited, South American Iron & Steel
	Corporation Limited, Chairman of Sun Biomedical Limited and OMI
	Holdings Limited and Non-Executive Director of Malachite Resources
	Limited.
Mr James Manny	— Director (Non-executive)
Qualifications	— Bachelor of Business
Experience	— Non-executive Director of Credit New Holland Group Limited. Previously,
	Executive Chairman of iCash Payment System Limited. Mr Manny has
	held numerous investment banking positions and expertise in treasury,
	IPO project management and capital raising.
Interest in Shares and	— 477,825 ordinary shares of Montec International Limited held indirectly.
Options	1,600,000 options held directly of Montec International Limited.
Special Responsibilities	— Chairman of the Nomination and Remuneration Committee and the Audit
	Committee.
Directorships held in other	— None.
listed entities
Mr Peter Herd	— Director (Non-executive)
Qualifications	— Bachelor of Economic (Honours), 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	— 40,000 ordinary shares of Montec International Limited directly, and an
Options	additional 1,910,205 Montec International Limited shares held indirectly.
Special Responsibilities	— Member of the Audit Committee and Nomination and Remuneration
	Committee.
Directorships held in other	— Sun Biomedical Limited.
listed entities

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DIRECTORS’ REPORT (CONTINUED)

Information on Directors (continued)

Mr David Yu	— Director (Non-executive)
Qualifications	— None.
Experience	— Mr Yu has established several businesses in Australia to complement
	business interests in China in the areas of finance, travel and retail.
Interest in Shares and	— Mr Yu has beneficiary interests in Aviation Travel Holdings Pty Ltd.
Options	16,523,651 ordinary shares of Montec International Limited held by
	Aviation Travel Holdings Pty Ltd.
Special Responsibilities	— Key relationship holder with local business in Guangdong Province,
	including dairy company, and integral to China business development.
Directorships held in other	— None.
listed entities

Remuneration Report (Audited)

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.

• 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.

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 (Audited) (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, 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 Non-Executive Director has not received a fee for being a director of the company.

Employment contracts were 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

Pursuant to an executive service agreement between Montec International Limited and Mr Andrew Teoh dated 24 May 2010, Mr Teoh is on a three year contract commencing 1 May 2010 and expiring 1 May 2013. The contract was terminated by mutual agreement effective 15 March 2011. Mr Teoh was paid a salary of $75,000 and a superannuation contribution at a rate of 9 percent of the salary earned from 1 July 2010 to 31 December 2010. Mr Teoh also received termination benefits of $24,545 as at 30 June 2011, part of the termination benefits of $16,869 was scheduled to be paid over the 7 months from July 2011.

Chief Financial Officer

Since 1 November 2008, Mr Lee was not remunerated.

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DIRECTORS’ REPORT (CONTINUED)

Remuneration Report (continued)

Use of remuneration consultants

The Company did not engage any remuneration consultants during the year.

Voting and comments made at the Company’s 2011 Annual General Meeting (AGM)

The Company received more than 99% of “yes” votes on its remuneration report for the 2011 financial year. The Company did not receive any specific feedback at the AGM on its remuneration report.

Details of Key Personnel Remuneration for the year ended 30 June 2012

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

2012 Mr Terry Cuthbertson Mr Peter Herd Mr David Yu Mr James Manny Mr Kenneth Lee Total Key Management Personnel	Salary & Fees Superannuation Contribution Termination Benefits Non-Cash Benefits Options Total Performance Related % $ $ $ $ $ $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
	- - - - - - -

Details of Key Personnel Remuneration for the year ended 30 June 2011

2011 Mr Terry Cuthbertson Mr Andrew Teoh (i) Mr Peter Herd Mr David Yu Mr James Manny Mr Kenneth Lee Total Key Management Personnel (i) Remuneration paid for	Salary & Fees Superannuation Contribution Termination Benefits Non-Cash Benefits Options Total Performance Related % $ $ $ $ $ $ - - - - - - - 75,000 6,750 24,545 - - 106,295 - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
	75,000 6,750 24,545 - - 106,295 - the period 1 July 2010 to 31 December 2010.

Options issued as Part of Remuneration for the year ended 30 June 2012

There were no options issued as part of remuneration for the year ended 30 June 2012 (2011: nil).

End of Audited Remuneration Report

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DIRECTORS’ REPORT (CONTINUED)

Meetings of Directors

During the financial year, 11 meetings of directors (including committees) were held. Attendances by each director during the year were as follows:

Mr Terry Cuthbertson Mr Peter Herd Mr James Manny Mr David Yu	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
	10	10	1	1	-	-
	10	10	1	1	-	-
	10	7	1	-	-	-
	10	-	-	-	-	-

• 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

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.

Mr Terry Cuthbertson Mr James Manny

Mr Peter Herd Mr David Yu

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 2012 no ordinary shares of Montec International Limited were issued on the exercise of options granted under the Montec International Limited Employee Option Plan. No shares have been issued since that date.

At the date of this report, the unissued ordinary shares of the Company under option are nil.

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DIRECTORS’ REPORT (CONTINUED)

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 2012 (2011: $nil).

Auditor’s Independence Declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 42 and forms part of this director’s report.

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

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Terry Cuthbertson Chairman

Dated this 28[th] September 2012

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ANNUAL REPORT 30 JUNE 2012

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STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2012

Note Revenue 2 Raw materials sold/used Compliance and professional fees Advertising and marketing expenses Employee benefits expenses Administrative expenses Travel expenses Insurance expenses Depreciation and amortisation expense Impairment of PPE Reversal of prior year impairment 15 Finance costs Reversal of prior year accruals Loss before income tax 3 Income tax expense 4 Loss for the year Other comprehensive income Exchange differences on translating foreign operations Other comprehensive income for the period, net of tax Total comprehensive income for the period Loss for the period attributable to members of the parent entity Total comprehensive income for the period attributable to members of the parent entity Basic and diluted earnings per share (cents per share) 8	Consolidated Group 2012 2011 $ $ 124,008 138,191 - (9,213) (131,928) (145,660) - (818) - (267,902) (19,217) (49,678) (3,631) (9,755) (23,291) (25,120) (100,144) (67,452) - (7,069) - 115,000 (48,962) - 79,610 -
	(123,555) (329,476) - -
	(123,555) (329,476)
	(20,584) 17,142
	(20,584) 17,142
	(144,139) (312,334)
	(123,555) (329,476)
	(144,139) (312,334)
	(0.0004) (0.001)

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

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STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2012

Note CURRENT ASSETS Cash and cash equivalents 9 Trade and other receivables 10 Financial assets 14 Other current assets 11 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Financial assets 14 Intangible assets 15 TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables 16 Short-term provisions 17 Financial liabilities 18 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Financial liabilities 18 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 19 Reserves 20 Accumulated losses TOTAL EQUITY	Consolidated Group 2012 2011 $ $ 203,627 130,529 48,577 31,137 350,000 - 3,915 4,639
	606,119 166,305
	- 350,000 - 100,144
	- 450,144
	606,119 616,449
	130,845 163,163 16,193 50,066 550,000 -
	697,038 213,229
	- 350,000
	- 350,000
	697,038 563,229
	(90,919) 53,220
	20,200,910 20,200,910 135,038 155,622 (20,426,867) (20,303,312)
	(90,919) 53,220

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

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STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2012

Consolidated Group Balance at 1 July 2010 Total comprehensive income for the period Employee options lapsed Shares issued during the year Balance at 30 June 2011 Total comprehensive income for the period Balance at 30 June 2012	Reserves Issued Capital $ Accumulated Losses $ Share Options $ Foreign Exchange $ Total $ 20,131,221 (20,515,002) 541,166 138,480 295,865 - (329,476) - 17,142 (312,334) - 541,166 (541,166) - - 69,689 - - - 69,689
	20,200,910 (20,303,312) - 155,622 53,220 - (123,555) - (20,584) (144,139)
	20,200,910 (20,426,867) - 135,038 (90,919)

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2012

Note CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Net cash used in operating activities 24a CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of property, plant and equipment Net cash provided by investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Proceeds from borrowings 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 2012 2011 $ $ 102,599 136,588 (233,416) (487,144) 3,915 6,458
	(126,902) (344,098)
	- -
	- -
	- 69,689 200,000 -
	200,000 69,689
	73,098 (274,409) 130,529 404,938
	203,627 130,529

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

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial statement is a general purpose financial statement 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 statements cover Montec International Limited and its controlled entities as a consolidated entity (“Group”). Montec International Limited is a company limited by shares, incorporated and domiciled in Australia.

Compliance with Australian Accounting Standards ensures that the financial statements and notes of Montec International Limited and its controlled entities comply with International Financial Reporting Standards (IFRS).

The financial statements were authorised for issue by the directors on 28 September 2011.

Basis of Preparation

The financial statements has been prepared on an accruals basis and are 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.

Significant Accounting Policies

a. Principles of Consolidation

A controlled entity is any entity that Montec International Limited has the power to control the financial and operating polices of the entity so as to obtain benefits from its activities. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are considered.

A list of controlled entities is contained in Note 12 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.

As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the year then ended. Where controlled entities have entered the consolidated group during the year, their operating results have been included from the date control was obtained.

All inter-company balances and transactions between entities in the Group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed to ensure consistencies 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.

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.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

b. Income Tax (Continued)

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. 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.

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 statement of comprehensive income.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

d. 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.

e. 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) 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.

(ii) Financial liabilities

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

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.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

e. Financial Instruments (continued)

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.

f. 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.

g. 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.

h. 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 expired on 12 June 2012. The carrying amount of patents and acquired rights are reviewed annually to ensure they do not exceed the recoverable amount.

i. 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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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

i. 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.

j. 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.

k. 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.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

l. Cash and Cash Equivalents

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

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

m. 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 raw materials to customers 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).

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

o. Comparative Figures

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

p. Going concern

The financial report has been prepared on the basis of a going concern notwithstanding, the consolidated group incurred a loss of $123,555 and had net cash used in operating activities of $126,902 during the year ended 30 June 2012, and had net liabilities of $90,919 at 30 June 2012. The cash flow projections of the consolidated entity evidence that the consolidated entity will require positive cash flows from additional capital or financing to continue operations. The Directors anticipate the funding provided will be sufficient to cover its liabilities when they fall due.

The consolidated group’s ability to continue as a going concern is contingent upon successfully raising additional capital. Whilst the directors are confident of raising funds either through a capital raising or financing, should the need arise, if additional funds are not generated or raised, the going concern basis may not be appropriate. As a result the consolidated group may have to realise its assets and discharge its liabilities, other than in the ordinary course of business and in amounts different from those stated in the financial report. No allowance for such circumstances has been made in the financial report.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

p. Going concern (continuted)

Whilst there is significant uncertainty, the directors consider it appropriate to prepare the accounts on a going concern basis as they are satisfied that, based on the cash flow forecasts prepared including receipts from future fund raising, the consolidated group will be able to meet its debts as and when they become due and payable for a period of at least 12 months from the date of this report.

q. Critical accounting estimates and judgments

The directors evaluate estimates and judgments incorporated into the financial statement 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 indicated that the recoverable amount of the patent exceeded the carrying value by $115,000. As a result, the group has reversed a prior year impairment provision. The review was based on a 0% growth rate and a discount rate of 17.1%.

r. Adoption of new and revised accounting standards

During the current year the Group adopted all of the new and revised Australian Accounting Standards and Interpretations applicable to its operations which became mandatory. There were no significant effects on current period or future periods arising from the first-time application of these standards in respect of presentation, recognition and measurement of accounts.

s. New Accounting Standards for Application in Future Periods

The following Australian Accounting Standards have been issued or amended and are applicable to the 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 financial statements.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

s. New Accounting Standards for Application in Future Periods (continued)

AASB 9: Financial Instruments and AASB 2009-11: Amendments to Australian Accounting Standards arising from AASB 9 (applicable for annual reporting periods commencing on or after 1January 2015).

The changes made to accounting requirements include:

• simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value;

• simplifying the requirements for embedded derivatives;

• removing the tainting rules associated with held-to-maturity assets;

• removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost;

• allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; and

• reclassifying financial assets where there is a change in an entity's business model as they are initially classified based on:

• a. the objective of the entity's business model for managing the financial assets; and

• b. the characteristics of the contractual cash flows.

AASB 10 Consolidated Financial Statements (applicable for annual reporting periods ending on or after to 31 December 2013)

AASB 10 establishes a revised control model that applies to all entities. It replaces the consolidation requirements in AASB 127 Consolidated and Separate Financial Statements and AASB Interpretation 112 Consolidation – Special Purpose Entities.

The revised control model broadens the situations when an entity is considered to be controlled by another entity and includes additional guidance for applying the model to specific situations, including when acting as an agent may give control, the impact of potential voting rights and when holding less than a majority voting rights may give ‘de facto’ control. This is likely to lead to more entities being consolidated into the group.

AASB 13 Fair Value Measurement (applicable for annual reporting periods ending on or after to 31 December 2013)

AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted by other Standards. Application of this definition may result in different fair values being determined for the relevant assets.

AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 2: REVENUE

Operating activities: — Royalties — sales of raw materials — interest income – other persons — Other revenue Total Revenue NOTE 3: LOSS BEFORE INCOME TAX EXPENSE Loss before income tax has been determined after: Depreciation of non-current assets: — plant and equipment Amortisation of non-current assets: — patents and acquired rights Rental expense on property Foreign currency translation gains/(losses) Other expenses: — Legal fees — Loss on disposal of plant and equipment — Obsolete stock Reversal of prior year impairment Reversal of prior year accruals

Consolidated Group 2012 2011 $ $ 86,348 120,203 - 6,029 35,160 6,459 2,500 5,500

124,008 138,191 - (2,596) (100,144) (64,856) (7,418) (22,783) - 1,300 (13,756) (4,031) - (5,408) - (11,579) - 115,000 79,610 -

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 4: INCOME TAX EXPENSE

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% (2011:30%) 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 2012 2011 $ $ (37,067) (98,843) 3,089 3,530 33,105 76,301 - - (169,268) (161,255) 170,141 180,267
	- -
	-% -%

The directors estimate that the Group has carry-forward income tax losses of $11,180,843 (2011: $11,010,702) 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 Group derives 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 Group continues 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 2012

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 Director — Non-Executive Mr James Manny Director — Non-Executive Mr David Yu Director — Non-Executive Mr Kenneth Lee Acting Chief Financial Officer

b. Options and Rights Holdings

No options are held by Key Management Personnel.

c. Shareholdings

Number of shares held by Key Management Personnel

Key Management Personnel Mr Terry Cuthbertson Mr Peter Herd Mr James Manny Mr David Yu (i) Mr Kenneth Lee	Balance 1/7/11 Received as Compensation Options Exercised Net Change Other Balance 30/6/12 7,951,352 - - - 7,951,352 1,950,205 - - - 1,950,205 477,825 - - - 477,825 16,523,651 - - - 16,523,651 400,000 - - - 400,000
	27,303,033 - - - 27,303,033

(i) Note that Mr David Yu as at 30 June 2012 has beneficiary interests in Aviation Travel Holdings Pty Ltd. 16,523,651 ordinary shares hold by Aviation Travel Holdings Pty Ltd.

NOTE 6: AUDITORS’ REMUNERATION

NOTE 6: AUDITORS’ REMUNERATION	Consolidated Group
	2012	2011
	$	$
Remuneration of the auditor of the parent entity (Grant Thornton Audit
Pty Ltd) for:
— auditing and reviewing the financial statements	50,765	43,850

NOTE 7: DIVIDENDS

No interim and final 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.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 8: EARNINGS PER SHARE

NOTE 8: EARNINGS PER SHARE	Note	Consolidated Group	Consolidated Group
		$	$
		2012	2011
a. Reconciliation of earnings to net loss
Net loss		(123,555)	(329,476)
Earnings used in the calculation of basic and diluted EPS		(123,555)	(329,476)
b. Applying AASB 133:
Weighted average number of ordinary shares outstanding
during the year used in calculation of basic EPS		356,188,438	326,276,247
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		356,188,438	326,276,247
(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
Cash at bank and in hand		203,627	130,529
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		203,627	130,529
NOTE 10: TRADE AND OTHER RECEIVABLES
CURRENT
Trade receivables		8,110	21,861
Provision for doubtful debts	10a	-	-
		8,110	21,861
Term receivables		9,295	9,276
Other receivables		31,172	-
		48,577	31,137

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.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 10: TRADE AND OTHER RECEIVABLES (Continued)

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

Consolidated Group Current trade receivable	Opening Balance Charge for the Year Amounts Written Off Closing Balance 1.07.2011 30.06.2012 $ $ $ $ - - - -
	- - - -

The aging of trade and other receivables are within 30 days.

NOTE 11: OTHER CURRENT ASSETS

NOTE 11: OTHER CURRENT ASSETS	Consolidated Group
	$	$
	2012	2012
Prepayments	3,915	4,639

NOTE 12: CONTROLLED ENTITIES

a. Controlled Entities	Country of		Percentage
	Incorporation		Owned
		2012		2011
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 2012.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 13: PLANT AND EQUIPMENT

NOTE 13: PLANT AND EQUIPMENT
Note PLANT AND EQUIPMENT Plant and equipment At cost Accumulated depreciation Impairment of plant and equipment Total Plant and Equipment 13a	Consolidated Group 2012 2011 $ $ - 106,709 - (99,640) - (7,069)
	- -

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.

2012 Consolidated Group: Balance at 1 July 2010 Disposals Impairment of plant and equipment Depreciation expenses Balance at 30 June 2011 Disposals Depreciation expenses Balance at 30 June 2012	Plant and Equipment Total $ $ 14,293 14,293 (4,628) (4,628) (7,069) (7,069) (2,595) (2,595)
	- - - - - -
	- -

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 14: FINANCIAL ASSETS

NOTE 14: FINANCIAL ASSETS CURRENT Loan – Ellsar Investments Pty Ltd NON-CURRENT Loan – Ellsar Investments Pty Ltd	Consolidated Group 2012 2011 $ $ 350,000 -
	- 350,000

The terms of the loan agreement is for 18 months, with interest at 8% per annum payable quarterly in arrears. The Company may require Ellsar Investments Pty Ltd to repay the loan amount by either:

• issue the Company such number of shares as is required to satisfy the loan amount and any outstanding interest at a deemed issue price of $0.0000001 each; or

• exercising a call option to acquire all of the issued capital of Ellsar at a purchase price of $1.00.

NOTE 15: INTANGIBLE ASSETS

Patents and acquired rights, at cost Accumulated amortization Impairment write down of patents Total Intangible Assets Consolidated Group Year ended 30 June 2011 Balance at the beginning of year Reversal of impairment provision Amortisation charge Closing value at 30 June 2011 Year ended 30 June 2012 Balance at the beginning of year Amortisation charge Closing value at 30 June 2012	Patent $ 50,000 115,000 (64,856) 100,144 100,144 (100,144) -	3,423,601 (1,686,348) (1,737,253) - Acquired Rights $ - - - - - - -	3,423,601 (1,686,348) (1,737,253)	3,423,601 (1,586,204) (1,737,253)
				100,144 Total $ 50,000 115,000 (64,856)
				100,144
				100,144 (100,144)
				-

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

Royalty income beyond 12 June 2012 is subject to further arrangement with Dairy Farmers.

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ANNUAL REPORT 30 JUNE 2012

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 16: TRADE AND OTHER PAYABLES CURRENT Unsecured liabilities Trade creditors Sundry creditors and accrued expenses NOTE 17: SHORT-TERM PROVISIONS CURRENT Redundancy Provision NOTE 18: FINANCIAL LIABILITIES CURRENT Loan – Nebral Pty Ltd and Trandara Pty Ltd (i) Loan – Nebral Pty Ltd and Trandara Pty Ltd (ii) NON-CURRENT Loan – Nebral Pty Ltd and Trandara Pty Ltd (i)	Consolidated Group 2012 2011 $ $ 35,891 44,181 94,954 118,982
	130,845 163,163 16,193 50,066
	350,000 - 200,000 -
	550,000 - - 350,000

• (i) The loan agreement between Nebral Pty Ltd (Nebral) and Trandara Pty Ltd (Trandara) and the Company. The loan is for 18 months with interest rate at 8% per annum payable quarterly in arrears. The Company may repay the loan amount by either:

• making cash repayments to Nebral and Trandara;

• subject to the Company obtaining all requisite regulatory approvals, issuing Nebral and Trandara shares in the Company at an issue price which is lower of $0.0025 or if the Company carries out a pro-rata right issue, the issue price of the shares being offered under that rights issue; or

• assigning all the Company’s rights under the loan agreement and call option agreement(refer to note 15) it entered into with Ellsar Investments Pty Ltd to Nebral and Trandara.

• (ii) The Convertible note agreement between Nebral and Trandara and the Company. The convertible note agreement of $200,000 to provide working capital needs of the Company. The convertible note is issued for 18 months with interest rate at 12% per annum payable quarterly in arrears and convertible to ordinary shares at $0.0025 per share.

.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 19: ISSUED CAPITAL

NOTE 19: ISSUED CAPITAL 356,188,438 (2011: 356,188,438) fully paid ordinary shares 19a a. Ordinary shares At the beginning of the reporting period Share movements during the year: - Share placement of 46,459,360 ordinary shares at $0.0015 per share on 7/02/2011 At reporting date b. Number of ordinary shares At the beginning of reporting period Shares issued during the financial year ended 30 June 2011: - Share placement of 46,459,360 ordinary shares at $0.0015 per share on 7/02/2011 At reporting date

Consolidated Group 2012 2011 $ $ 20,200,910 20,200,910 20,200,910 20,131,221 - 69,689 20,200,910 20,200,910 Consolidated Group 2012 2011 No. No. 356,188,438 309,729,078 - 46,459,360 356,188,438 356,188,438

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 26.

At 30 June 2012, there were no options outstanding (30 June 2011: nil).

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

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 Group debt and capital includes ordinary share capital, and financial liabilities, supported by financial assets. The group entered a secured loan agreement of $350,000 with Ellsar Investment Pty Ltd which was financed by a secured loan agreement with Trandara Pty Ltd and Nebral Pty Ltd during the year ended 30 June 2011 (2010: $nil). Therefore there are no externally imposed capital requirements.

NOTE 20: RESERVES

a. Option Reserve

The Company has no option reserve during the financial year ended 30 June 2012. The employee share options were lapsed during the year ended 30 June 2011, and the value of the employee share options had been transferred back from option reserve to accumulated losses.

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

The Group has no capital lease commitments during the financial year ended 30 June 2012 and previous financial year ended 30 June 2011.

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.

NOTE 23: SEGMENT REPORTING

Identification of reportable segments

Montec International Limited has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources.

The Group has only one line of business, that being the sale and marketing of monounsaturated dairy technology and products in Australia and China. Operating segments are therefore determined on the same basis.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 23: SEGMENT REPORTING (CONTINUED)

Basis of accounting for purposes of reporting by operating segments

Accounting policies adopted

Unless stated otherwise, all amounts reported to the Board of Directors as the chief decision maker with respect to operating segments are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group.

Inter segment transactions

Segment revenues, expenses and results 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.

Segment assets

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

Liabilities consist principally of accounts payable, employee entitlements, accrued expenses, provisions and borrowings.

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 23: SEGMENT REPORTING (CONTINUED)

2012 REVENUE External sales Interest income Other revenue Total segment revenue Total revenue SEGMENT RESULT Reversal of prior year accruals 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 Depreciation and amortisation of segment assets OTHER NON-CASH SEGMENT INCOME Reversal of accruals OTHER NON-CASH SEGMENT EXPENSES Impairment of loan in subsidiary	Australia China Eliminations Consolidated Group $ $ $ $ 86,348 - - 86,348 35,160 - - 35,160 2,500 - - 2,500	Australia China Eliminations Consolidated Group $ $ $ $ 86,348 - - 86,348 35,160 - - 35,160 2,500 - - 2,500
	124,008 - - 124,008
	124,008 - 79,610 - 79,610 (325,890) (11,492) 10,209 (327,173)
	(201,882) 68,118 10,209 (123,555) - (123,555) 604,746 2,471 - 607,217
		(123,555)
		- 607,217
	604,746 2,471	- 607,217
	655,108 395,731 (352,703) 698,136
	655,108 395,731 (352,703) 698,136
	100,144 - - 100,144 - 79,610 - 79,610 10,209 - (10,209) -

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 23: SEGMENT REPORTING (CONTINUED)

2011 REVENUE External sales Interest income Other revenue Total segment 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 Depreciation and amortisation of segment assets OTHER NON-CASH SEGMENT INCOME Reversal of impairment of patents and acquired rights OTHER NON-CASH SEGMENT EXPENSES Impairment of loan in subsidiary	Australia China Eliminations Consolidated Group $ $ $ $ 120,203 6,029 - 126,232 6,459 - - 6,459 5,500 - - 5,500	Australia China Eliminations Consolidated Group $ $ $ $ 120,203 6,029 - 126,232 6,459 - - 6,459 5,500 - - 5,500
	132,162 6,029	- 138,191
	(233,163) (234,504)	138,191 - (467,667)
	(101,001) (228,475) - (329,476) - (329,476) 565,266 297,057 (245,874) 616,449	- (329,476) -
		(329,476)
	565,266 297,057 (245,874) 616,449
	461,448 347,655 (245,874) 563,229
	461,448 347,655 (245,874) 563,229
	49,730 17,722 - 67,452 (115,000) - - (115,000) 10,083 - (10,083) -

Major customer

The Group has a number of customers to which it provides products and services. The Group supplies one single customer in the Australia segment which accounts for 100% of external revenue (2011: 87%).

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

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 Impairment write down of property, plant and equipment Reversal of impairment write down of patents Reversal of accruals 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 in prepayments Decrease in inventories (Decrease)/Increase in trade creditors and accruals Decrease in provisions Cash flow used in operations

Consolidated Group 2012 2011 $ $ (123,555) (329,476) 100,144 64,856 - 2,595 - 7,069 - (115,000) (79,610) - - 11,579 - 5,408 1,159 40,753 (9,494) 24,626 724 2,976 - 14,995 15,738 (57,823) (32,008) (16,656)

(126,902) (344,098)

Page 33

ANNUAL REPORT 30 JUNE 2012

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

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 2012 was $0.001 (30 June 2011: $0.003).

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	Consolidated Group 2012 2011 No. No. - 13,200,000 - - - - - (13,200,000) - -
	- - - -

• (i) This includes options held by employee who left the company during the year.

There were no options exercised during the year ended 30 June 2012.

Included under employee benefits expenses in the income statement is nil (2011: nil), and relates, in full, to equity-settled share-based payment transactions.

• b. There were no share options outstanding as at end of year.

• c. Details of Shares Granted

• There were no shares granted to employees as remuneration in the financial year ended 30 June 2012 (2011: nil granted).

NOTE 26: EVENTS SUBSEQUENT TO REPORTING DATE

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 Group, the results of those operations, or the state of affairs of the Group in future financial years.

Page 34

ANNUAL REPORT 30 JUNE 2012

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 27: RELATED PARTY TRANSACTIONS

NOTE 27: RELATED PARTY TRANSACTIONS
	Consolidated Group
	2012	2011
	$	$
Transactions between related parties are on normal commercial terms
and conditions no more favorable than those available to other parties
unless otherwise stated.
Transactions with related parties:
i. Controlled entities
The outstanding receivables between the inter-companies have been
eliminated on consolidation.
ii. Director-related Entities
During the year ended 30 June 2012, the Company paid rent to South
American Iron and Steel Limited (SAY) in which Mr Terry Cuthbertson
also holds the position of non-executive chairman. The rental lease is
on month to month base at $1,000 per month.	4,000	-
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 2012.
iv. Share Transactions of Key Management Personnel
There is no share transactions of directors during the financial year
ended 30 June 2012.

Page 35

ANNUAL REPORT 30 JUNE 2012

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

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 2012.

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

b. Financial Instruments

i. Derivative Financial Instruments

The 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 36

ANNUAL REPORT 30 JUNE 2012

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 28: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

Weighted Average Effective Interest Rate Floating Interest Rate Non-interest Bearing Total $ $ $ 2012 2011 2012 2011 2012 2011 2012 2011 Financial Assets: Cash 3.05% 2.27% 203,627 130,529 - - 203,627 130,529 Trade and other receivables - - - - 48,577 31,137 48,577 31,137 Fixed Interest Rate Total $ 2012 2011 2012 2011 Financial Assets: Loan – Ellsar Investments Pty Ltd 8% 8% 350,000 350,000 Financial Liabilities: Loan – Nebral Pty Ltd and Trandara Pty Ltd 8% 8% 550,000 350,000	Weighted Average Effective Interest Rate	Weighted Average Effective Interest Rate	Floating Interest Rate	Floating Interest Rate	Non-interest Bearing	Non-interest Bearing	Total	Total
			$		$		$
	2012	2011	2012	2011	2012	2011	2012	2011
	3.05% 2.27% 203,627 130,529 - - 203,627 130,529 - - - - 48,577 31,137 48,577 31,137

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

Less than 6 months Over 6 months	Consolidated Group 2012 2011 $ $ 7,777 44,181 123,068 169,048
	130,845 213,229

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.

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ANNUAL REPORT 30 JUNE 2012

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 28: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

Interest Rate Sensitivity Analysis

At 30 June 2012, 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
	2012	2011
	$	$
Change in profit
- Increase in interest rate by 2%	703	129
- Decrease in interest rate by 2%	(703)	(129)
Change in equity
- Increase in interest rate by 2%	703	129
- Decrease in interest rate by 2%	(703)	(129)

Foreign Currency Risk Sensitivity Analysis

At 30 June 2012, 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
	2012	2011
	$	$
Change in profit
- Improvement in AUD to RMB by 5%	(514)	(1,492)
- Decline in AUD to RMB by 5%	514	1,492
Change in equity
- Improvement in AUD to RMB by 5%	(514)	(1,492)
- Decline in AUD to RMB by 5%	514	1,492

NOTE 29: ECONOMIC DEPENDENCY

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

Page 38

ANNUAL REPORT 30 JUNE 2012

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 30: MONTEC INTERNATIONAL LIMITED PARENT COMPANY INFORMATION

	2012	2011
	$	$
Parent entity
ASSETS
Current Assets	604,861	162,937
Non-current assets	-	450,144
TOTAL ASSETS	604,861	613,081
LIABILITIES
Current liabilities	655,108	111,447
Non-current liabilities	-	350,000
TOTAL LIABILITIES	655,108	461,447
EQUITY
Issued capital	20,200,910	20,200,910
Retained earnings	(20,261,949)	(20,060,068)
Share options reserves	-	-
Foreign currency revaluation reserves	10,792	10,792
TOTAL EQUITY	(50,247)	151,634
FINANCIAL PERFORMANCE
Loss for the year	(201,881)	(309,730)
Other comprehensive income	-	-
TOTAL COMPREHENSIVE INCOME	(201,881)	(309,730)
GUARANTEES IN RELATION TO RELATION TO THE
DEBTS OF SUBSIDIARIES
No guarantees provided under the deed of cross guarantee.

CONTINGENT LIABILITIES

No contingent liabilities of a material nature identified as at the date of this report.

CONTRACTUAL COMMITMENTS

There is no contractual commitment as at 30 June 2012.

Page 39

ANNUAL REPORT 30 JUNE 2012

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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 30 JUNE 2012

NOTE 31: COMPANY DETAILS

The registered office of the Company is:

Montec International Limited C/O Australian Company Secretaries Pty Ltd Level 3, Suite 302, 70 Pitt Street Sydney NSW 2000 Australia

The principal places of business are:

Montec International Limited

C/O Australian Company Secretaries Pty Ltd Level 3, Suite 302, 70 Pitt 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 Sky Trend Accounting Services Centre Room 1215-1216, 12/F., Houston Centre, 63 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong

Page 40

ANNUAL REPORT 30 JUNE 2012

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DIRECTORS’ DECLARATION

The directors of the Company declare that:

1. The financial statements and notes, as set out on pages 9 to 40 are in accordance with the Corporations Act 2001 and :

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

3. b. give a true and fair view of the financial position as at 30 June 2012 and of the performance for the year ended on that date of the consolidated entity; and

4. c. complies with International Financial Reporting Standard as disclosed in Note 1.

5. The Chief Executive Officer and Chief Finance Officer have each declared that:

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

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

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

9. 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.

==> picture [144 x 60] intentionally omitted <==

Terry Cuthbertson Chairman

Dated this 28[th] September 2012

Page 41

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ANNUAL REPORT 30 JUNE 2012

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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. All the good practice recommendations of the ASX Corporate Governance Council have been applied for the entire financial year ended 30 June 2012. Each of the eight principles are listed below.

Recently ASX Corporate Governance Council released amendments on 30 June 2010 to the Second Edition of the Corporate Governance Principles and Recommendations in relation to diversity, remuneration, trading policies and briefings. As the Company’s activities develop in size, nature and scope, the changes will be given further consideration.

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 four independent non-executive directors.

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;

Page 46

ANNUAL REPORT 30 JUNE 2012

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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 three independent non-executive directors. The chief financial officer attends audit committee meetings as an invitee.

Nomination and Remuneration Committee

The nomination and remuneration committee consists of three independent non-executive directors. 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 GOVERNANCE STATEMENT (CONTINUED)

Diversity Policy

The Company does not have a formal policy concerning diversity. Given the small size of the Company’s workforce, the Board has determined that it is not currently practicable to implement a policy concerning diversity. The Board will further consider the establishment of a diversity policy as the Company grows.

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 senior management to trading in the Company’s shares during the one month periods followings the annual and half yearly results announcements and the Annual General Meeting. At all other times the Chairman must be approached, prior to trading, to determine whether trading at that particular time is appropriate.

Principle 4 – Safeguard integrity in financial reporting

Reporting standards

The financial statements 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 Statement complies with all relevant accounting standards; and

• the Financial Statement give a true and fair view.

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

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CORPORATE GOVERNANCE STATEMENT (CONTINUED)

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.

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.

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CORPORATE GOVERNANCE STATEMENT (CONTINUED)

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 other key management personnel, including all monetary and non-monetary components, are detailed in Note 5 to the financial statement. All remuneration paid to executives is valued at the cost to the Company and expensed. Options are valued using the BlackScholes Option Pricing Model.

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

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

The Company did not undertake a performance evaluation for its executives and Directors during the financial year. As a consequence of the level of the Company’s operations during the financial year, the Company did not undertake a formal evaluation of the performance of the Board, individual Directors and key executives.

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ADDITIONAL INFORMATION

1. Shareholding

• a. Distribution of Shareholders Number as at 24 September 2012

Category (size of Holding) Number of Shares 1 – 1,000 34 1,001 – 5,000 121 5,001 – 10,000 116 10,001 – 100,000 311 100,001 – and over 234

• b. The number of shareholdings held in less than marketable parcels is 708.

• c. There names of the substantial shareholders listed in the Company’s register as at 20 September 2012 are:

Shareholder Number of Shares Miss Marie-Louise Katrine Brzoz 23,516,591 Trandara Pty Ltd 23,229,680 Nebral Pty Ltd 23,229,680 Mr Phillip Antony Riolo & Ms Cathleen Mary Dickson 19,380,470

• d. 20 Largest Shareholders as at 20 September 2012 – Ordinary Shares

	Name	Number of Ordinary Fully Paid Shares Held	% Held of Issued Ordinary Capital
1	MISS MARIE-LOUISE KATRINE BRZOZ	23,516,591	6.60
2	TRANDARA PTY LTD	23,229,680	6.52
3	NEBRAL PTY LTD	23,229,680	6.52
4	MR PHILLIP ANTHONY RIOLO & MS CATHLEEN MARY DICKSON	19,380,470	5.44
5	AVIATION TRAVEL HOLDINGS PTY LTD	16,523,651	4.64
6	MR ANTHONY GRANT MELVILLE & MRS ELAINE SANDRA MELVILLE	15,000,000	4.21
7	MR ANDREW MCMILLAN & MRS SALLY MCMILLAN <THE MCMILLAN	9,081,826	2.55
8	KANGSAV PTY LIMITED	8,912,315	2.50
9	KORE MANAGEMENT SERVICES PTY LTD <CUTHBERTSON SUPER	7,931,352	2.23
10	BAIC AUSTRALIA PTY LIMITED	7,692,308	2.16
11	MR TREVOR NEIL HAY	7,130,741	2.00
12	BT PORTFOLIO SERVICES LIMITED	6,096,612	1.71
13	MR NATHAN SWEENEY & MRS JULIE SWEENEY <BLUE LAGOON S/F	5,973,326	1.68
14	MR ROBERT PETER SAVILLE & MISS MELISSA KATE SAVILLE SAVILLE SUPER FUND A/C>	5,730,915	1.61
15	MR HENRY HERRON	5,062,800	1.42
16	DALBOW SUPERANNUATION PTY LIMITED <EXECUTIVES SUPER FUND	4,000,000	1.12
17	TRIFERN PTY LTD	4,000,000	1.12
18	AVANTEOS INVESTMENTS LIMITED <1823205 A/C>	4,000,000	1.12
19	MISS HUONG THANH THI PHAM	3,896,588	1.09
20	TWELFTH PICOT PTY LTD	3,728,291	1.05
	TOTAL	204,117,146	57.31

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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 – Chartered Secretaries Australia

Fellow – Chartered Institute of Chartered Secretaries

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

Level 3, 70 Pitt Street Sydney NSW 2000 Telephone: 1300 134 875

4. Registers of securities are held at the following address

New South Wales Registries Limited Level 7, 207 Kent 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. Restricted Securities

Ordinary Shares Of the 356,188,438 ordinary shares on issue as at 30 June 2012, all were quoted on the Australian Stock Exchange. No ordinary shares are subject to escrow restrictions.

Options

No options are subject to escrow restrictions.

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CORPORATE DIRECTORY

Principal Registered Office

Level 3, 70 Pitt Street Sydney NSW 2000 Phone: 1300 134 875 Facsimile: 02 9233 4497

Investor Relations

Email: investors@montec-international.com.au

Auditors

Grant Thornton Audit Pty Ltd Level 17, 388 Kent Street Sydney NSW 2000

Solicitors

Norton Rose Level 18, Grosvenor Place 225 George Street Sydney NSW 2000

Share Registry

Registries Limited Level 7, 207 Kent Street Sydney NSW 2000 Phone: 02 9290 9600 Facsimile: 02 9279 0664

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