annual report 2007 - nzx · annual report 2007 31 march 2007 ... furthermore, the strategy also...

ANNUAL REPORT200731 MARCH 2007

COMPANY DIRECTORY AS AT 31 MARCH 2007CONTENTS

Contents Page

Table of Contents 1

Company Directory 1

Chairman and Chief Executive’s Report 2–7

Statement of Financial Performance 8

Statement of Movements In Equity 9

Statement of Financial Position 10–11

Statement of Cash Flows 12–13

Notes to the Financial Statements 15–39

Additional Stock Exchange Information 40–41

Statutory Information 42–46

Auditors’ Report 47

Notice of Annual General Meeting 48

Instrument Appointing Proxy 49

Company Number 1014105

Issued Capital 151 ,087 ,500 Ordinary Shares

Registered Office Level 5235 Broadway

NewmarketAuckland 1023

New Zealand

Shareholders Listed on NZAX (from 21 April 2004)

Share Registrar Link Market Services LimitedPO Box 384

AshburtonTelephone (03) 308 8887

Directors Mr C J Cook (Chairman)Dr A J Allison

Dr W L BurtMr G P Hinton

Mr R G PatersonMr R O Le Grice

Accountants Deloitte PO Box 1245

Dunedin

Auditors Ernst & Young PO Box 2091Christchurch

Bankers ASB Bank PO Box 35

Auckland

Solicitors – Commercial Simpson GriersonPrivate Bag 92518

Wellesley StreetAuckland

Solicitors – Intellectual Property Baldwins PO Box 852

Wellington

2 A2 CORPORATION LIMITED

CHAIRMAN AND CHIEF EXECUTIVE’S REPORT ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2007

Dear Shareholder

THE YEAR IN REVIEWThe directors of A2 Corporation Limited (“A2C” or“the Company”) are pleased to present this reportand the audited financial statements for the yearended 31 March 2007 .

Now in its third year of operations as an NZAX listedcompany A2C can report that it has successfullymade the transformation from a start up BiotechCompany, whose primary activity was the licensingof intellectual property, to an international fastmoving consumer goods (FMCG) company. Thistransformation is reflected in the now establishedand growing operations in Australia and the UnitedStates (US) where the Company has materialinvolvement in the commercialisation of itstechnology by way of joint venture associatecompanies. Collectively referred to as the “Group” .

As highlighted in previous reports to shareholders, ithas been identified that the most effective methodof commercialising A2C’s technology in overseasmarkets is through direct means, withoutrelinquishing control of its core assets, andultimately its future, to third parties. Although thisinvolves the initial upfront contribution of resourcesand capital, this approach of directcommercialisation ensures greater medium to longterm benefits for the Company and its shareholders.Furthermore, the strategy also provides the ability to

maintain, via joint ventures, the quality control andconsistent management of operations and productpromotion in rapidly growing and diverseinternational markets.

FINANCIAL RESULTSFor the year ended 31 March 2007 , A2C posted aGroup pre-tax consolidated loss of $5 .082 million(last year $925 ,847).

Group consolidated operating revenue increased by518 percent to $7 .590 million (last year $1 .228million) largely as a result of the A2 Australia PtyLtd (A2A) business repurchase in May 2006 andthe sales associated with that. Increasedexpenditure by the Group was primarily owing to acombination of the investment in the a2 Milk™launch in the US market as well as resuming controlof the important Australian business operation.

A2C’s investment back into key parts of itsoperations will in the long term benefit theexpansion of the Group, although in the short termit has resulted in a higher loss for the year.Nonetheless we are confident that investing in thegrowth of the business and establishing a presencein key markets that will yield ongoing revenuestreams is critically important at this stage of theCompany’s development.

The Company’s US Joint Venture company A2 MilkCompany LLC (“A2MCo”) will continue to expand its

operations on the back of the launch of a2 Milk™into the Midwest states. While this will require moreresources, we are certain that the return oninvestment will be significant as the market andconsumer appetite for our premium milk increases.

The Group Statement of Financial Position includesthat of A2A on a consolidated basis.

BOARD AND MANAGEMENTIn February as part of the A2C’s natural evolution,the Board appointed FMCG executive Anthony Lawleras CEO to manage Group interests under the revisedcompany structure. The goal of the restructure wasto develop an organisation that is correctly placed tofurther commercialise its core assets into a rapidlyscalable and successful international FMCGbusiness. Mr Lawler brings a wide range of FMCGskills to the Group, skills that when coupled with hisextensive knowledge and experience in valued addedfunctional foods, will prove invaluable to the futuresuccess of the Company.

Richard Le Grice, former joint CEO (International)was appointed as an Executive Director of theCompany. The Board of A2C is also extremely pleasedto be able to retain Dr Andrew Clarke as an ExecutiveOfficer where his responsibilities include overseeingthe Operations and Science activities of the Group.

Both Mr Le Grice and Dr Clarke have contributedtremendous management, commercial skills, and

CHAIRMAN AND CHIEF EXECUTIVE’S REPORT CONTINUED

scientific knowledge to the Company. In particular,Dr Clarke was instrumental in successfullydeveloping A2C from a bio-tech start-up into aFMCG company. The ongoing contribution of thesetwo former joint CEO’s, working closely with MrLawler, will play a significant role in the future ofA2C.

KEY HIGHLIGHTSThe past financial year saw A2C focus strongly onthe consolidation of its business operations inAustralia, and market development work in theUnited States through its 50 percent ownedassociate company A2MCo.

Following the consolidation of the Company’sAustralian operations, as recently disclosed to themarket and shareholders, A2C entered into a jointventure partnership with ASX listed FreedomNutritional Products (FNP) to expand the Australianmarket and develop exports into the Japanesemarket.

The US market development was a process thatinvolved detailed and comprehensive consumer andmarket research and analysis. Subsequently itrequired the formation of a US commercialisationstrategy and the implementation of its initial stagesleading to the recently announced product launchthroughout the Mid-Western states which isdiscussed in further detail below.

AUSTRALIA In April 2006 A2C announced the repurchase of A2Australia Pty Ltd (A2A) as part of a planned strategyto have a controlling or equal interest in all of itsworldwide markets. Thus in line with this strategy,A2C initiated discussions with F&N DairyInvestments Limited, a subsidiary of Fraser andNeave Limited (SGX: FNN), for the repurchase ofthe business and assets of A2A.

Within the Australian market, F&N had done anexcellent job of producing and marketing a2 Milk™,with the product being made available in over 600supermarkets in the Queensland, NSW, Victoria andSouth Australian markets.

Australian operations were further consolidated inDecember 2006 with the repurchase of the licencerights previously granted to Fairbrae Milk Co Pty Ltd(“Fairbrae”), who were based in Lismore, NewSouth Wales and had limited rights with regards tosupply and distribution. The Fairbrae repurchaseresulted in the Company’s wholly owned subsidiary,A2A, as the sole licensee in Australia selling a2Milk™ and a2 Milk™ products.

At the time of this report, a2 Milk™ can now befound across most Australian states and in morethan 1 ,000 leading retail stores such as Coles,Woolworths, Bilo, Metcash and Drakes.

The consolidation of A2C’s business in Australiais another indication that the Company is

A2 CORPORATION LIMITED 3

A2C are of the firm view that the joint venture withFNP will bring several market advantages includingadding significant dairy industry knowledge, retailgrocery expertise, and extensive managementexperience to our Australian operations.

The Perich Family, the majority shareholder in FNP,is a diversified food, agribusiness and propertydevelopment group, and the relationship with A2Cwill provide access to a significant supply of freshmilk for the Australian market.

The CEO of FNP Geoff Babidge (a former ManagingDirector of National Foods Dairy Division) believesthat the partnership with A2C will be beneficial toboth parties not only in Australia but Asia as well.

“We’re delighted to be partnering with A2C and willbring significant value to the a2 Milk™ business inAustralia. The a2 Milk™ brand has a natural synergywith our existing functional foods and beveragebrands such as So Natural and Freedom Foods. Wealso believe that consumers for both A2C’s and FNP’sbrands are seeking healthy food options andtherefore a2 Milk™ is a natural fit for the FNPproduct portfolio.


achieving its strategic goals. Again this strategyinvolves the direct involvement in the productionand sale of a2 Milk™ and a2 Milk™ products, asopposed to previously only l icensing these rightsto outside parties.

In late 2006 the Company was approached byFreedom Nutritional Products Limited (ASX: FNP)(“FNP”) with the proposal that FNP would purchase50 percent of A2A. FNP saw the potential of a2Milk™ and believed that they have the managementexpertise to accelerate the growth plans of A2A. Thejoint venture with FNP was finalised in May 2007 .

FNP has as its majority shareholder the Perichfamily led by Michael Perich, CEO of theLeppington Pastoral Company. The Perich familyowns the largest dairy farming operation in NSWwith the third generation dairy family having 3 ,000cows on their farm near Sydney’s south westCampbelltown. The Leppington Pastoral Companyhas also diversified into property, mining and soymilk and A2C’s relationship with the Perich familywill provide access to a significant supply of freshmilk in the Australian market as required.

FNP and A2C signed a JV agreement whereby thejoint venture company was granted rights for theproduction and sale of a2 Milk™ products inAustralia as well as Japan. Accordingly, theCompany’s existing Australian operations weretransferred into the new entity called A2 Dairy

Products Australia Pty Ltd (“A2DP”), taking effecton 1 June 2007 .

A2C are of the firm view that the joint venture withFNP will bring several market advantages includingadding significant dairy industry knowledge, retailgrocery expertise, and extensive managementexperience to our Australian operations. Moreover,A2C will also benefit from the joint venture byaccessing FNP’s milk supply through its majorityshareholder. In addition, FNP currently distributesan extensive range of functional foods including thebrands Freedom and So Natural, with exclusiverights to the ‘Thorpedo’ brand of food andnutritional products which are widely distributed inJapan. FNP’s business in Japan is operated througha relationship with the major functional dairy groupYakult Honsha. A2C is excited about the potentialthat access to one of Asia’s largest markets mightbring for the growth of its premium milk products,and this does present a significant opportunity toaccelerate the expansion and growth of theCompany’s business in the wider Asia-Pacificregion.

A long established participant in soy and ricebeverages in Australia with a prime focus on wholebean soy products FNP is highly regarded as acontract packer to the liquid beverages and foodsindustry. FNP supplies packaged product to all themajor retailers and a number of blue-chipmarketing companies. FNP is also active in the

canned seafood market through its leadingAustralian canned salmon business, ParamountSeafoods, and strategic alliance with Bumble BeeSeafoods, the world’s largest full line cannedseafood group, as well as Brunswick Seafoods.

Accordingly, the Board of A2C has the strong beliefthat there is a natural fit between A2C and FNP’sfocus on functional and nutritional products. FNP’sstrategy is to build a leading position in functionaland nutritional foods in Australia and targetedinternational markets through a concentration onbrand development, product innovation, sales,marketing and distribution.

FNP also sees the joint venture with A2Crepresenting a significant step in its strategy toinvest in unique and specialised nutrition segmentsidentified for future growth, as well asstrengthening their Australian and potentiallyJapanese presence. Importantly, both A2C and FNPshare the view that this partnership will helpexpand the distribution of a2 Milk™ into furtherAustralian states and cities, as well as thedevelopment of new product lines and exportinitiatives.

NORTH AMERICAA2C continues to view North America to be one ofthe most important markets for the Company and inthe financial period in review we saw significantprogress made. The commercialisation of A2C’s



technology in North America is conducted throughassociate company A2MCo, a 50:50 joint venturewith IdeaSphere Incorporated (ISI).

ISI is a manufacturer and distributor of over 2 0 0nutrition products including tablets, capsules,powder drink mixes, nutritional snacks and barsas well as high-quality, ready-for-sale natural andorganic vitamins, and nutrients. This includes theTwinlab business, an internationally recognisedleader in the health and wellness industry.Twinlab is a 3 5-year old brand comprised of timetested , high quality daily health and condition-specific nutritional products. ISI also is closelyaffi l iated with Rebus, a leader in health educationand publishing.

ISI has a leading management team includingExecutive Chairman and CEO Bill Nicholson ,President and COO Mark Fox and Anthony J.Robbins – Vice Chairman and Chief MarketingOfficer. B ill Nicholson previously spent nine yearsas CEO of Alticor Inc . , then known as AmwayCorporation , where he led the company’s revenuegrowth from less than $1 . 0 billion to over $5 . 0billion . Prior to Alticor, he served as White HouseAppointments Secretary to President Ford . Heserves on the advisory board of Houston’s M .D .Anderson Cancer Center, one of the nation’s mostprominent cancer research hospitals, and is amember of a variety of other corporate and civicboards. Mark Fox is a leader in the health and

wellness sector, having developed businessstrategy and new ventures for leading companiesin the health care sector, such as DuPont andWebMD . He is treasurer of the board of theInternational AIDS Trust , a global initiative co-chaired by Presidents Clinton and Mandela .Meanwhile , Mr. Robbins is a leader in thepsychology of peak performance and personal ,professional and organisational turnaround andwas listed in 2002 as one of the world’s Top 50Business Thinkers. He pioneered the life coachingindustry 25 years ago.

Following extensive research and several years ofpreparatory work , A2MCo announced in April 2007


“Naturally, the US holds tremendous potential forrevenue growth and for expanding our business as itremains one of the largest and wealthiest consumer andbeverage markets in the world.”

Our joint venture partner in the US is ISI, a manufacturerand distributor of over 200 nutrition products includingtablets, capsules, powder drink mixes, nutritional snacksand bars as well as high-quality, ready-for-sale naturaland organic vitamins, and nutrients.

Mark Fox, President and COO of IdeaSphere Inc., saysthat the a2 milk™ positioning in the US market throughthe distribution with Original Foods and Hy-Vee is justthe right springboard for the company to move itsproducts to even bigger markets.

“The launch of a2 milk™ in the US has been a realsuccess with the product resonating with consumers fromNebraska, Iowa, Kansas, Illinois, Missouri, South Dakota,to Minnesota. We have no doubt that this has alreadycreated significant momentum for the brand and productthat will drive ongoing sales and revenue for A2 Milk LLCin the US. Furthermore we are particularly excited by thepotential a2 milk™ offers in other food forms such asmilk powders and baby formulas as they represent highvalue opportunities.”

A2 CEO, Anthony Lawler in a Hy-Vee store in Des Moines, Iowa.



the inaugural launch of its premium a2 Milk™ intothe US market through an exclusive arrangementwith Hy-Vee , a leading supermarket chain whichranks among the top 15 supermarket chains in theUS . The a2 Milk™ launch into the US is a majorplatform for growth and will allow the Company totake key learnings and expand the A2C propositioninto other geographic regions of USA .

A2MCo, in partnership with Original FoodsCompany LLC , launched a2 Milk™ product intoHy-Vee stores throughout the key US Mid-Westernstates comprising Nebraska , Iowa , Kansas,

Il l inois, Missouri , South Dakota , and Minnesota .Hy-Vee has sales of more than US$ 4 . 6 bill ion andover 2 0 0 retail stores across the seven importantMid-Western states.

A2C is very pleased that it has established afoothold with its brand and milk product in theUS market . The Mid-West states were an idealf irst base from which A2MCo plans to expand itsdistribution in other states and regionsthroughout the US . Naturally, the US holdstremendous potential for revenue growth and forexpanding our business as it remains one of thelargest and wealthiest consumer and beveragemarkets in the world .

A2C now understands the US beverages market indetail via consumer and market studies as well asin depth discussions conducted with producers,distributors and retailers. These discussions haveserved to raise the awareness of the potentialoffered by a2 Milk™, and this was underscored bythe presentation of a2 Milk™ and its associatedtechnologies to the International Dairy FoodsAssociation (IDFA) conference held in Denver inJune 2007 .

We look forward to extending a2 Milk™ beyondthe init ial select market of the Mid-West intoother parts of the US which presently providesthe best opportunity in the world to grow ourproduct .

ASIAThe Company has continued to explore potentialmarkets in the Asian region , with theestablishment of an export subsidiary, A2 ExportsLimited (A2E) to concentrate on this regionscapacity for growth in the premium dairy beveragecategory. Key partnerships are in the process offormalisation and A2E is putting in place a supplychain and the logistics required to meet pendingexpressions of interest .

Furthermore as discussed earlier, the joint venturewith FNP will assist with opening up opportunitiesin markets in which FNP already have a presencethrough their existing businesses, such asThorpedo nutritional products.

SCIENCE AND INTELLECTUAL PROPERTYThe Company has continued the development andregistration of its key patents and widerintellectual property portfolio. This is in line withthe intellectual property strategy of A2C , whichwill continue to provide protection and thus anadvantage in commercial activities in growing newinternational markets.

In addition , the Company has continued itsprogramme of basic and commercial research anddevelopment (R&D) with the goal of furthersupporting the concepts from which a2 Milk™stems.

a2 milk™ on the shelf in a Hy-Vee store in Des Moines, Iowa.


Further to last year’s report , A2C has initiated R&Dprogrammes that serve to support the belief thata2 Milk™ allows the consumer to further realisethe benefits that are imparted by the manycomponents of milk . The outcomes of suchprogrammes will be submitted for peer review andpublication in international journals. Some ofthese outcomes will be directly applied to productdevelopment and commercial processes associatedwith the commercialisation of a2 Milk™ and a2Milk™ products.

In the past financial year the Company wasgranted a further US patent relating to the testingand breeding of a2 Milk™ producing animals, aswell as patent rights in Asian territories that relateto the production and application of a2 Milk™.

Additionally, market and consumer research in theUS led to the design and adopting of a newtrademark for that market which will be tested andapplied to existing and future markets.

Patents and trademarks areregarded as highly significantfactors in establishing the a2Milk™ brand which play animmeasurable role in thesuccessful commercialisationof our products in globalmarkets.

In addition , A2C is also actively pursing newproduct opportunities other than liquid milkparticularly in the area of powders where theCompany believes there is significant potential fora2 Milk™.

a2 Milk™ is an extendable product and so can beused in a wide array of functional milk-basedapplications such as infant formula , proteinpowders and dietary supplements. Moreover, theseadditional opportunities will enable A2C to launchshelf stable , high margin products, which willprovide consumers worldwide with the premiumbenefits of a2 Milk™.

CAPITAL RAISINGA2C has previously indicated that it was likely thata capital raising would be undertaken in the firsthalf of the 2008 financial year.

The Company will soon be in a position to advisethe market about the approach A2C intends totake following completion of an assessment ofcapital requirements based on the various projectscurrently under way or under investigation .

Looking ahead , A2C is going to use the positivemomentum from the last 12 months to investadditional capital to rapidly expand the business inthe Australian , United States and Asian markets.

LOOKING AHEADWe pay tribute to the Board , management andstaff of A2C for the tremendous commitment andservice that they have given the Company in thelast 12 months. While there is a still a lot toachieve on the journey to becoming a significantplayer in the premium beverages market , A2C isnow more than ever clearly established on a robustplatform from which it can grow its businessacross and into multiple markets. Where newopportunities and markets present themselves weare now better placed than ever to act quickly torealise and benefit from them . We also thank ourloyal shareholders for staying with us on thejourney and hope we can continue to report onever more positive market developments over thefollowing 12 months.

CLIFF COOK ANTHONY LAWLER

CHAIRMAN CEO4 JULY 2007 4 JULY 2007


STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 31 MARCH 2007

THIS STATEMENT SHOULD BE READ IN CONJUNCTION WITH THE NOTES ON PAGES 15 TO 39


NOTE GROUP GROUP COMPANY COMPANY2007 2006 2007 2006

$ $ $ $

Revenue 8 7 ,590 ,446 – 571 ,882 1 ,227 ,504Expenses 8 12 ,672 ,607 – 3 ,067 ,788 2 ,153 ,351

Operating surplus (deficit) before income tax 8 (5 ,082 ,161) – (2 ,495 ,906) (925 ,847)

Taxation expense 7 – – – –

Operating Surplus (deficit) after income tax $(5 ,082 ,161) – $(2 ,495 ,906) $(925 ,847)

STATEMENT OF MOVEMENTS IN EQUITY FOR THE YEAR ENDED 31 MARCH 2007




$ $ $ $

Net surplus/(deficit) (5 ,082 ,161) – (2 ,495 ,906) (925 ,847) Foreign currency translation reserves 4 (9 ,526) – (50 ,894) 27 ,005

Total recognised revenue and expenses for the year (5 ,091 ,687) – (2 ,546 ,800) (898 ,842)

Contributions by owners 2 – – – 4 ,837 ,099

Movement for the year (5 ,091 ,687) – (2 ,546 ,800) 3 ,938 ,257

Equity at the beginning of the year 3 ,714 ,501 3 ,714 ,501 (223 ,756)

Equity at the end of the year $(1 ,377 ,186) – $1 ,167 ,701 $3 ,714 ,501

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2007




$ $ $ $

EQUITYShare capital 2 21 ,193 ,512 – 21 ,193 ,512 21 ,193 ,512Retained earnings (deficit) 3 (22 ,588 ,177) – (20 ,001 ,922) (17 ,506 ,016)Reserves 4 17 ,479 – (23 ,889) 27 ,005

Total equity $(1 ,377 ,186) – $1 ,167 ,701 $3 ,714 ,501

CURRENT ASSETSCash and short term deposits 18 371 ,798 – 68 ,240 3 ,196 ,475Accounts receivable and accruals 2 ,288 ,153 – 169 ,665 255 ,149Inventories 6 138 ,977 – – –Taxation refund due 47 ,028 – 37 ,724 7 ,703Advances to subsidiaries 19 – – 2 ,836 ,892 –

Total current assets 2 ,845 ,956 – 3 ,112 ,521 3 ,459 ,327

STATEMENT OF FINANCIAL POSITION CONTINUED




$ $ $ $

CURRENT LIABILITIESBank overdraft (secured) 18 3 ,081 ,053 – 2 ,000 ,000 –Accounts payable and accruals 27 1 ,708 ,965 – 253 ,730 198 ,933Employee entitlements 230 ,216 – 91 ,916 31 ,093

Total current liabilities 5 ,020 ,234 – 2 ,345 ,646 230 ,026

WORKING CAPITAL SURPLUS/(DEFICIT) (2 ,174 ,278) – 766 ,875 3 ,229 ,301

NON CURRENT ASSETSProperty, plant and equipment 10 69 ,628 – 43 ,671 48 ,934Investments 5 357 ,042 – 357 ,155 436 ,266Intangible assets 11 370 ,422 – – –

Total non current assets 797 ,092 – 400 ,826 485 ,200

NET ASSETS $(1 ,377 ,186) – $1 ,167 ,701 $3 ,714 ,501

For and on behalf of the Board of Directors, which authorised the issue ofthe financial report on the 4th day of July 2007 .

C J Cook G P HintonDirector Director

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2007




$ $ $ $

CASH FLOWS FROM OPERATING ACTIVITIESCash was provided from:Receipts from customers 5 ,252 ,652 – 497 ,014 1 ,107 ,148Interest received 50 ,071 – 165 ,242 23 ,335Tax refunds received 6 ,633 – 6 ,633 18 ,630Other income 364 364

Cash was disbursed to:Payments to suppliers and employees 10 ,279 ,698 – 2 ,479 ,649 2 ,004 ,657Research costs 96 ,683 – 96 ,683 9 ,943Interest expense 89 ,190 – 27 ,893 30 ,212RWT paid 45 ,958 – 36 ,654 7 ,703

Net cash flows from (used in) operating activities 23 (5 ,201 ,809) – (1 ,971 ,626) (903 ,402)

CASH FLOWS FROM INVESTING ACTIVITIESCash was received from:Sale of fixed assets 50 – 50 249

Cash was applied to:Purchase of property, plant and equipment 48 ,313 – 15 ,282 33 ,418Purchase of assets in A2 Australia Pty Limited 392 ,654 – – –Purchase of shares in A2 Australia Pty Limited – – 113 –Purchase of shares in A2 Milk Company LLC – – – 595 ,927Funds advanced to A2 Milk Company LLC 304 ,372 – 304 ,372 –

Net cash flows from (used in) investing activities (745 ,289) – (319 ,717) (629 ,096)

STATEMENT OF CASH FLOWS CONTINUED




$ $ $ $

CASH FLOWS FROM FINANCING ACTIVITIESCash was provided from:Increase in share capital – – – 4 ,837 ,099

Cash was applied to:BNZ term loan (repayment) – – – –Intercompany loans – – 2 ,836 ,892 –

Net cash flows from (used in) financing activities – – (2 ,836 ,892) 4 ,837 ,099

NET INCREASE (DECREASE) IN CASH BALANCES (5 ,947 ,098) – (5 ,128 ,235) 3 ,304 ,601

Opening cash brought forward 3 ,196 ,475 – 3 ,196 ,475 (108 ,126)Effect of exchange rate changes on cash 41 ,368 – – –

ENDING CASH CARRIED FORWARD (2 ,709 ,255) – (1 ,931 ,760) 3 ,196 ,475

COMPOSITION OF CASHCash and short term deposits 371 ,798 – 68 ,240 3 ,196 ,475Less bank overdraft (3 ,081 ,053) – (2 ,000 ,000) –

$(2 ,709 ,255) – $(1 ,931 ,760) $3 ,196 ,475

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007


1. STATEMENT OF ACCOUNTING POLICIES

REPORTING ENTITY

The financial statements presented here are for thereporting entity A2 Corporation Limited(“Company”) and its subsidiaries (“Group”). A2 Corporation Limited is a company registeredunder the Companies Act 1993 and is an issuerunder the Financial Reporting Act 1993 .

These financial statements are presented andprepared in accordance with the Companies Act1993 and the Financial Reporting Act 1993 .

a) MEASUREMENT BASE

The Company and Group follow general acceptedaccounting policies recognised as appropriate forthe measurement and reporting of financialperformance, and the financial position on thehistorical cost basis, except in relation to certaininvestments which are stated at market value.

b) SPECIFIC ACCOUNTING POLICIES

The following specific accounting policies whichsignificantly affect the reporting of financialperformance and financial position have beenapplied:

i) Consolidation of SubsidiariesSubsidiaries are those entities that are controlled bythe Company. The Group financial statements

incorporate the financial statements of the Companyand its subsidiaries, which have been consolidatedusing the purchase method. The results of anysubsidiaries that become or cease to be part of theGroup during the year are consolidated from thedate that control commenced or until the date thatcontrol ceased.

All inter-company transactions, balances andunrealised profits are eliminated on consolidation.

Investments in subsidiaries are recorded at cost,less provision for any impairment. Impairmentprovisions are recognised in order to write down theinvestment in subsidiaries to the net assets of thesubsidiary company.

ii) Goodwill on AcquisitionGoodwill arising on the acquisition of subsidiaries isrecognised as an asset and separately disclosed.Goodwill is amortised in the statement of financialperformance on a straight line basis over the periodof expected benefits.

To the extent that the unamortised balance ofgoodwill is no longer probable of being recoveredfrom the expected future economic benefits, it isrecognised immediately as an expense.

iii) Revenue RecognitionTurnover shown in the financial statements

comprises the amounts received and recoverable bythe Company and Group for goods/services suppliedto customers in the ordinary course of business,excluding goods and services tax.

iv) DepreciationDepreciation is provided on a diminishing valuebasis on all property, plant and equipment at ratescalculated to allocate the assets’ cost or valuation,less estimated residual value, over their estimateduseful lives.

Depreciation rates areOffice and computer equipment 10%–60%Furniture and fittings 10%–60%

v) Property, Plant and EquipmentThe cost of property, plant and equipment is thevalue of the consideration given to acquire theassets and the value of other directly attributablecosts which have been incurred in bringing theassets to the location and condition necessary fortheir intended service.

vi) Intangible AssetsPatent rights and trade mark costs are expensed asincurred to the statement of financial performance .The value of these intangibles will be recognisedwhen the future benefits attributable to them canbe measured reliably and will benefit the Companyand Group . Intangible assets arising on the

NOTES TO THE FINANCIAL STATEMENTS CONTINUED


acquisition of an associate are included within thecarrying amount of the investment in theassociate .

vii) ImpairmentIf the recoverable amount of an asset is less than itscarrying amount, the item is written down to itsrecoverable amount. The write down of an assetrecorded at historical cost is initially recognised asan expense in the statement of financialperformance. When a revalued asset is written downto the recoverable amount the write down isrecognised as a downward revaluation to the extentthat the revaluation reserve of the class of assetconcerned is in credit.

The carrying amount of an asset that has previouslybeen written down to recoverable amount isincreased to its current recoverable amount if therehas been a reversal of the impairment loss. Theincreased carrying amount of the item will notexceed the carrying amount that would have beendetermined if the write down to recoverable amounthad not occurred. Reversals of impairment writedowns are accounted for as follows:

On assets that are not revalued the reversal isrecognised in the statement of financialperformance.

On revalued assets the reversal is recognised as

revenue to the extent that the impairment wasrecognised as an expense, and the balance istreated as an upward revaluation.

viii) ReceivablesReceivables are stated at their net realisable value.

ix) Bad and Doubtful DebtsA specific provision is established to cover allidentified doubtful debts and is recognised whenthere is reasonable doubt over the collectability ofthe debt. The amounts provided are assessed andthe expected losses are written off in the period inwhich they are classified as irrecoverable. Allreceivables are subject to continuous managementreview.

x) InvestmentsInvestments in publicly traded companies arerecorded at their estimated market value. Otherinvestments are recorded at cost.

xi) Consumable SuppliesConsumable supplies are recorded at cost.

xii) InventoriesAll inventories are valued at the lower of cost andnet realisable value. Cost is calculated on the first-in-first-out basis. Costs include a systematicallocation of appropriate production overheads thatrelate to putting inventories in their present location

and condition. The allocation of productionoverheads is based on the normal capacity of theproduction facilities.

xiii) Research and Development CostsResearch expenditure is expensed in the periodincurred. Development costs are expensed asincurred, except to the extent that such costs meetthe criteria for recognition of an asset under FRS 13– Accounting for Research and DevelopmentActivities. Any costs considered recoverable willthen be amortised on a systematic basis over theperiod in which the corresponding benefits areexpected to arise. Unamortised costs are reviewed ateach balance date to determine the amount (if any)that is no longer recoverable. Any amount soidentified is written off.

xiv) TaxationThe income tax expense charged to the statement offinancial performance includes both the currentyear’s provision and the income tax effect of timingdifferences calculated using the liability method.

Tax effect accounting is applied on a comprehensivebasis to all timing differences. A debit balance inthe deferred tax account, arising from timingdifferences or income tax benefits from income taxlosses, is only recognised if there is virtual certaintyof realisation.



xv) Goods and Services Tax (GST) All items in the statement of financial position arestated exclusive of GST, with the exception ofreceivables and payables which include GST. Thestatement of financial performance and statementof cash flows have been prepared so that allcomponents are stated exclusive of GST.

xvi) F inancial InstrumentsFinancial instruments recognised in the statementof financial position include cash balances,receivables, loans and payables. The Company isnot party to any off balance sheet financialinstruments.

xvii) Foreign CurrenciesForeign Currency TransactionsTransactions denominated in a foreign currency areconverted to New Zealand dollars at the exchangerates in effect at the date of the transaction.Monetary assets and liabilities arising are translatedat closing rates. Gains and losses due to currencyfluctuations on these items are included in thestatement of financial performance.

Translation of the Financial Statements of ForeignSubsidiaries & AssociatesAssets and liabilities of foreign subsidiaries andassociates are translated at the closing rate atbalance date. Exchange differences are taken tothe foreign currency translation reserve and

recognised in the statement of movements inequity.

Revenue and expense items are translated at aweighted average of exchange rates over the period,as a surrogate for the spot rates at transactiondates. Foreign currency exchanges and gains areincluded in the statement of financial performance.

xviii) LeasesOperating lease payments, where the lessorseffectively retain substantially all the risks andbenefits of ownership of the lease items, areincluded in the determination of the net surplus inequal instalments over the period of the lease.

xix) Statement of Cash F lowsThe Statement of Cash Flows has been preparedusing the direct method. Cash and cash equivalentsreflect the balance of cash and liquid assets used inthe day to day cash management of the entity.

xx) Associated CompaniesAn associate is an investee, not being a subsidiaryor joint venture arrangement, over which theCompany has the capacity to exercise significantinfluence through participation in the financial andoperating policy decisions of the investee.

The Company and group financial statementsincorporate the Company’s interest in associates,

using the equity method, as from the date thatsignificant influence commenced or until the datethe significant influence ceased. The investmentsare recorded at the lower of carrying value andrecoverable amount.

The Company recognises its share of the associate’snet surplus or deficit for the year as operatingrevenue or expenditure in its statement of financialperformance. The Company recognises its share ofother post-acquisition movements in reserves in itsstatement of movements in equity. In the statementof financial position the investment and thereserves are increased by the group’s share of thepost-acquisition retained surplus and other post-acquisition reserves of the associates. The impactof the associated company on the FinancialStatements is detailed under note 24 .

c) COMPARATIVES

Certain prior year comparatives have been restatedto be consistent with current years presentation.There are no comparatives for the group as allsubsidiaries were acquired or formed during theyear.

d) CHANGES IN ACCOUNTING POLICIES

There have been no specific changes in accountingpolicies for the period reported for.



2. SHARE CAPITALNumber Number Value Value

2007 2006 2007 2006

Issue DateOrdinary shares fully paid 151 ,087 ,500 50 ,362 ,500 21 ,193 ,512 16 ,356 ,412Ordinary shares November 2005 rights issue – 100 ,725 ,000 – 5 ,036 ,250

151 ,087 ,500 151 ,087 ,500 21 ,193 ,512 21 ,392 ,662

Less: Capital raising costs November 2005 rights issue – – – 199 ,150

Total share capital 151 ,087 ,500 151 ,087 ,500 21 ,193 ,512 21 ,193 ,512

Other Notes on SharesThe number of shares on issue at balance date was 151 ,087 ,500 , allfully paid. All shares on issue are of the same class and all have thesame rights attached for voting and dividends. In the event ofliquidation of the Company, all shareholders have an equal right in thedivision of the proceeds of the whole or part of the assets of theCompany. All of the authorised share capital of the Company has beenissued to shareholders.



SHARE OPTIONS

On 6 December 2005 , the Board adopted a new Employee Share OwnershipPlan . Prior to doing so, the Board effectively halted the operation andactivity of the old scheme . Obligations to recipients of options under theold scheme will be honoured until the expiry of those options on 30September 2008 .

OLD SCHEME: Option Scheme Limited, a wholly owned subsidiary of theCompany, holds an option to subscribe for the cumulative total of 1 ,500 ,000ordinary shares in the Company at $0 .50 per share at any time up to 30September 2008 , as agent for persons determined by the directors of A2Corporation Limited as having made or making a significant contribution to thedevelopment and commercialisation of the Company’s business including butnot limited to, Directors and employees of the Company. Option SchemeLimited then has the power to decide which of the persons so determined bythe Directors of the Company are to be entitled to subscribe for shares and themaximum number of shares that Option Scheme Limited may subscribe for onbehalf of each such person. At balance date a total of 145 ,000 shares fromthose allocated had been subscribed for and had been paid for in full. In termsof employees still in the employ of the Company, the Board elected to re-negotiate the surrender of their options under this scheme for replacementoptions under the new Employee Share Ownership Plan. After suchnegotiation, the amount of options remaining allocated under the old schemeis 990 ,000 pursuant to the exercise of the option and those options remainingunallocated amounted to 510 ,000 .

NEW EMPLOYEE SHARE OWNERSHIP PLAN: In terms of the New Employee ShareOwnership Plan (“New Plan”), the Company has issued options to subscribefor shares in the capital of the Company to certain key employees (andcontractors) to create an incentive for those persons and ensure that theirinterests and those of the Company are aligned. The holder of an option is

entitled to subscribe for one fully paid ordinary share for each option. Theexercise price for the options is determined by the board at the time of issuebut will generally be set by reference to the weighted average market price ofordinary shares in the Company for the period of five business days beforeeither (a) the date on which allocations are decided by the Board; or (b) thedate on which allocations are issued.

The first issue of options under the New Plan was made on 17 February2006 and is effective from 1 April 2006 . No options are exercisable withinthe period of 36 months from 1 April 2005 (in order to line up with the 3year business plan adopted by the Board). If options are not exercised by thefourth anniversary of that date they will lapse (although the date is capable ofextension by the Board). Options will lapse on expiry of the period of sixmonths from the date on which an option holder ceases to be engaged on afull time basis in the business of the Company except in cases of death orpermanent disability. In circumstances of death or permanent disability, theoptions may be transferred as contemplated by clause 4 of the New Plan.

Options are issued under the New Plan at the discretion of the Board, subjectto the provisions of the NZAX Listing Rules, which limit the number ofoptions which may be issued without shareholder approval. As at balance datethe Board had approved the allocation of 6 ,000 ,000 options under theconditions described above at the exercise price of NZ$0 .10 . No advanceshave been made to Option Scheme Ltd or anyone else, either by the Companyor any other party, for the purposes of exercising any options on issue atbalance date.

The Board has approved the making available of 12 ,990 ,000 options (or8 .6% of share capital) under the share option plan. At balance date all12 ,990 ,000 share options have been allocated.



2007 2006

Current employees, contractors or directors who hold options (at balance date):Dr Andrew Clarke 4 ,000 ,000 2 ,000 ,000Richard Le Grice 4 ,000 ,000 2 ,000 ,000John Ryall 1 ,500 ,000 750 ,000Mark Verster 1 ,500 ,000 750 ,000Ricardo Tan 1 ,000 ,000 500 ,000Wayne Burt 360 ,000 360 ,000Dr Arthur J Allison 100 ,000 100 ,000Grant Paterson 60 ,000 60 ,000

12 ,520 ,000 6 ,520 ,000

Former employees, contractors or directors who hold options (at balance date):James Guthrie 360 ,000 360 ,000David Walden 28 ,000 28 ,000Antony Rosen 28 ,000 28 ,000Michael McLachlan 20 ,000 20 ,000Daniel Malloy 20 ,000 20 ,000Donna Stuut 4 ,000 4 ,000Felix Olssen 10 ,000 10 ,000

470 ,000 470 ,000

Total options issued 12 ,990 ,000 6 ,990 ,000




$ $ $ $

3. RETAINED EARNINGS (DEFICIT)Balance (deficit) at the beginning of the year (17 ,506 ,016) – (17 ,506 ,016) (16 ,580 ,169)Net surplus (deficit) for the year (5 ,082 ,161) – (2 ,495 ,906) (925 ,847)

Balance (deficit) at the end of the year (22 ,588 ,177) – (20 ,001 ,922) (17 ,506 ,016)

Represented by:Group (22 ,056 ,508) – (19 ,470 ,253) (17 ,303 ,462)Associate company 9 (531 ,669) – (531 ,669) (202 ,554)

$(22,588,177) – $(20,001,922) $(17,506,016)

4. FOREIGN CURRENCY TRANSLATION RESERVEBalance at the beginning of the year 27 ,005 – 27 ,005 –Arising on translation of independent foreign operations (9 ,526) – (50 ,894) 27 ,005

Balance at the end of the year $17 ,479 – $(23 ,889) $27 ,005

5. INVESTMENTSMarket ValueLiving Cell Technologies Pty Limited 67 ,895 @ AUD $0 .16 (Last year – 67 ,895 @ AUD $0 .20) 12 ,301 – 12 ,301 15 ,888A2 Australia Limited 100 @ AUD$1 .00 – – 113 –A2 Finance Limited 100 uncalled shares – – –A2 Exports Limited 1000 uncalled share – – –Investment in associate 24 344 ,741 – 344 ,741 420 ,378

Total Investments $357 ,042 – $357 ,155 $436 ,266




$ $ $ $

6. INVENTORIESFinished products 63 ,428 – – –Carton and label stock 75 ,549 – – –

$138 ,977 – – –

7. TAXATIONi) Income Tax ExpenseThis has been calculated as follows:Net surplus (deficit) for the year before taxation (5 ,082 ,161) – (2 ,495 ,906) (925 ,847)Taxation at 33% – – – –

ii) Imputation Credit AccountBalance at the beginning of the year 7 ,786 18 ,674

Plus: creditsRWT attached to interest received 36 ,571 7 ,703Other credits – 760

44 ,357 27 ,137Less debits:Income tax refunds 6 ,633 19 ,351

Balance at the end of the year $37 ,724 $7 ,786



iii) Losses Carried Forward

CompanyAs at balance date the Company had losses of $4 ,295 ,220 (March 2006$2 ,300 ,628) carried forward and available to be offset against futureassessable income. The tax benefit of these losses has not been recognisedas an asset but will be calculated when required at the specified companytax rate at that time. Subsequent utilisation of these losses is subject to therequirements of the income tax legislation being met.

GroupAs a balance date, the Group had losses of $6 ,673 ,813 (March 2006$2 ,300 ,628) carried forward and available to be offset against future groupassessable income.

The Group loss at 31 March 2007 includes a loss from the Australiansubsidiary, A2 Australia Pty Limited of $2 ,406 ,786 and is subject toAustralian tax rules. The tax benefit of the New Zealand Group losses will becalculated when utilised at the specified company tax rate at the time andwill be available to the group on the basis the requirements of tax legislationare met.




$ $ $ $

8. OPERATING SURPLUS (DEFICIT) BEFORE TAXATIONAfter charging:Audit Fees related to Annual Financial Statements 41 ,040 – 26 ,275 20 ,722Bad debts written off – – – –Provision for doubtful debts 182 ,988 – 1 ,809 5 ,156Depreciation on office & computer equipment 19 ,466 – 18 ,986 13 ,782Depreciation of furniture & fittings 8 ,018 – 1 ,424 1 ,281Directors fees 75 ,000 – 75 ,000 76 ,250Loss on disposal of property, plant & equipment 85 – 85 –Rent 157 ,396 – 45 ,565 44 ,365Research costs 103 ,648 – 96 ,683 9 ,943Royalties paid 35 ,960 – 35 ,960 91 ,318Write down of investments to estimated market value 3 ,589 – 3 ,589 10 ,263Amortisation of goodwill 22 ,232 – – –Share of associate’s loss for year 329 ,115 – 329 ,115 202 ,554Foreign exchange loss 194 ,783 – 194 ,783 –Realised loss on investment 10 ,162 – 10 ,162 38 ,256Interest expense 89 ,088 – 27 ,893 30 ,212Licence termination payment 332 ,632 – 332 ,632 –

After receiving:Interest received 50 ,069 – 165 ,242 87 ,612Milk sales 7 ,515 ,901 – – –Doubtful debt recoveries – – – 160 ,626Licence fees – – – 578 ,553Milk royalties 24 ,110 – 24 ,110 235 ,416Foreign exchange gain – – – 79 ,362Management fees – – 382 ,166 –




$ $ $ $

9. SHARE OF ASSOCIATE’S NET SURPLUS/(DEFICIT)Retained earnings deficit at beginning of the year (202 ,554) – (202 ,554) –Net deficit for period (329 ,115) – (329 ,115) (202 ,554)

Retained earnings deficit at end of the year $(531 ,669) – $(531 ,669) $(202 ,554)

10.PROPERTY, PLANT AND EQUIPMENTOffice & Computer EquipmentAt cost 117 ,855 – 111 ,949 101 ,200Accumulated depreciation 78 ,881 – 78 ,401 59 ,546

Book value 38 ,974 – 33 ,548 41 ,654

Furniture and fittingsAt cost 44 ,507 – 17 ,530 13 ,263Accumulated depreciation 13 ,853 – 7 ,407 5 ,983

Book value 30 ,654 – 10 ,123 7 ,280

Total Property, Plant and Equipment $69 ,628 – $43 ,671 $48 ,934




$ $ $ $

11.INTANGIBLE ASSETSGoodwillOriginal cost April 2006 392 ,654 – – –Less amortisation of goodwill 22 ,232 – – –

Total Intangible Assets $370 ,422 – – –

Goodwill represents the goodwill paid on acquiring A2 Australia PtyLimited and is to be amortised over a 20 year period.

Due to recent developments in relation to the Australian operation and theformation of a joint venture agreement as detailed under Note 25 , thedirectors believe that the carrying amount is appropriate and is notimpaired.

12.CAPITAL COMMITMENTSThere were no capital commitments as at 31 March 2007 (31 March 2006$Nil). Note 25 refers to events subsequent to balance date.

13.CONTINGENT LIABILITYi) Child Health Research Foundation (CHRF)On or about 20 April 2004 , A2 Corporation Limited and the Child HealthResearch Foundation (“CHRF”) agreed upon an amendment to their October2000 agreement. CHRF will now receive 5% of A2 Corporation’s earningsbefore interest, tax and amortisation (“EBITA”) provided that no royalty shallbe payable by A2 Corporation Limited on any earnings before 26 May 2007 ,which date falls three years after the issue of shares arising from the rights

issue of April 2004 . A2 Corporation Limited paid CHRF $50 ,000 in June2005 and $50 ,000 upon completion of the 2004 rights issue, and has nofurther obligations other than the royalty as described above.

ii) GuaranteesAt balance date a term deposit held by A2 Australia Pty Limited was subjectto a security deposit guarantee in favour of Capital Finance AustraliaLimited. The amount of the guarantee was AUD$38 ,619 .

In addition a further bank deposit with National Australia Bank was subjectto a bank guarantee in favour of Tribune Properties Pty Limited. The amountof the guarantee was AUD$33 ,688 .



14.CAPITAL RAISINGThe 2006 Half Year Report stated that the Company said that it was likely thatanother capital raising would be launched in the first half of 2007 . The capitalraising has deliberately been postponed as the Directors continue to develop anumber of major business initiatives. Interim funding has been provided bythe Company’s bankers supported by the guarantee of interests associated withCliff Cook. The quantum and structure of a capital raising is expected to beannounced upon completion of an assessment of capital requirements basedon the various projects currently under way or under investigation. The capitalraising will be by either placements of shares to major investors and/or a non-renounceable pro rata cash issue to all shareholders.

15.INVESTMENTS IN SUBSIDIARIESSubsidiary Principal ActivityA2 Australia Pty Limited Sales of a2 milk™ in Australia(formerly known as Barley Grange Pty Limited, formed April 2006)

A2 Exports Limited Facilitating worldwide exporting (incorporated 29 June 2006) of a2 milk™.

A2 Finance Limited Group financing(incorporated 19 April 2006)

All subsidiaries are 100% owned and have a balance date of 31 March.

16.PAYABLE TO SUBSIDIARYThe Company incorporated a subsidiary in Australia in April 2006 , BarleyGrange Pty Limited. That subsidiary acquired the stock and plant andequipment of A2 Australia Pty Limited with settlement occurring on 24 April2006 . The acquisition was effected by the payment of AUD$469 ,618

advanced from A2 Corporation Limited to Barley Grange Pty Limited. As partof the transaction, the newly formed subsidiary, Barley Grange Pty Limitedsubsequently changed its name to A2 Australia Pty Limited.

Formation of SubsidiaryIn April 2006 A2 New Zealand Limited created a new subsidiary calledBarley Grange Pty Limited. A2 Corporation Limited was a 100% shareholderof this newly created entity. Barley Grange Pty Limited then acquired theassets and liabilities of A2 Australia Pty Limited. Subsequent to theacquisition of these assets and liabilities, Barley Grange Pty Limitedchanged its name to A2 Australia Pty Limited.

Assets2007

Property, plant & equipment 26 ,583Inventories 112 ,542

139 ,125

Purchase Price 531 ,779Goodwill $392 ,654

The acquisition of the stock, plant and equipment of A2 Australia PtyLimited by Barley Grange Pty Limited in April 2006 was initially funded byway of an intercompany loan from A2 Corporation Limited, but wassubsequently refinanced through A2 Finance Limited.

A2 Corporation Limited formed A2 Finance Limited and A2 Exports Limitedduring the year. Both of these entities are 100% owned by A2 CorporationLimited. The entities were established to carry out the financing andexporting arrangements for the A2 Corporation Limited group activities.



17.GOING CONCERNThe financial statements have been prepared on a going concern basis. The Group has recorded a net deficit of $5 ,082 ,161 for the year ended 31 March 2007and has cash and short term deposits of $371 ,798 on hand and an overdraft balance of $3 ,081 ,053 at 31 March 2007 .

The Directors intend to carry out a capital raising later this year once the full quantum of the capital required to fund the Company’s various projects has beendetermined. Mountain Road Investments Limited (a company controlled by Mr Cliff Cook) has provided a letter of comfort to the Company, and will provideadequate funds that may be required to meet any financial obligations as and when they become due and payable.

The Directors therefore believe that the going concern assumption is a valid basis on which to prepare the financial statements. The Directors reached this conclusionhaving regard to the circumstances, which they consider likely to affect the Company and Group during the period of one year from the date these financialstatements are approved, and to circumstances, which they believe will occur after that date which could affect the validity of the going concern assumption.

18.FINANCIAL INSTRUMENTSa. Liquidity riskLiquidity risk is the risk that the Company may encounter difficulty in raising funds at short notice to meet its commitments, which arises from the mismatch ofmonetary assets and liabilities. The Directors monitor the risk on a regular basis and actively manage the lending and borrowing portfolios to ensure the netexposure to liquidity risk is minimised.

b. Credit RiskFinancial instruments which potentially subject the Company to credit risk, principally consist of bank balances, inter-company loans and accounts receivable.

The Company has a credit policy which is used to manage this exposure to credit risk. As part of this policy, limits on exposures with counter parties have beenset and approved by the Board of Directors and are monitored on a regular basis.


$ $ $ $

Maximum exposures to credit risk at balance date are:Cash and short term deposits 371 ,798 – 68 ,240 3 ,196 ,475Accounts receivable and accruals 2 ,288 ,153 – 169 ,655 255 ,149Inter company loans – – 2 ,836 ,892 –

$2 ,659 ,951 – $3 ,074 ,787 $3 ,451 ,624



c. Concentrations of Credit RiskA2 Corporation Limited banks with the ASB Banking Corporation andmaintains a variety of operating and investment accounts. The Company doesnot have any other significant concentrations of credit risk.

d. Currency RiskThe Group and Company have exposure to foreign exchange risk as a result oftransactions dominated in foreign currencies arising from normal tradingactivities.

The currencies in which the Group primarily deals are the Australian Dollarand United States Dollar.

e. Interest Rate RiskASB Banking Corporation current account balances are subject to interestreceivable at floating interest rates. The ASB investment account is an on calldeposit account and at 31 March 2007 the current interest rate on thisaccount was 6 .55%. Interest rate risk is exposed to movements in themarket.

The Group also has fixed and floating rate borrowings with ASB Bank andNational Australia Bank which are used to fund ongoing activities.Management monitors the level of interest rates on an ongoing basis andfrom time to time will lock in fixed rates on the next floating reset when theyconsider that interest rates may rise. Current interest rates on borrowingsrange from 8 .89% to 11 .6%.

f. Credit FacilitiesDuring the year, the Company was advanced a credit facility from ASB Bankof $2 ,000 ,000 . This facility was guaranteed by PHC Treasury Ltd. Mr CCook, a director of A2 Corporation Ltd, is also a director of PHC Treasury Ltd.

In addition the Group has an available credit facility of $AUD1 ,200 ,000 withNational Australia Bank Limited which is subject to a subordinationagreement and is secured by an assignment over trade debtors.



NOTE2007 2007 2006 2006

g. Fair ValuesThe estimated fair values of the financial instruments are as follows: Carrying Fair Carrying Fair

Amount Value Amount Value$ $ $ $

GroupCash and short term deposits 371 ,798 371 ,798 – –Accounts receivable and accruals 2 ,288 ,153 2 ,288 ,153 – –Accounts payable and accruals (1 ,708 ,965) (1 ,708 ,965) – –Short term debt (3 ,081 ,053) (3 ,081 ,053) – –

CompanyCash and short term deposits 68 ,240 68 ,240 3 ,196 ,475 3 ,196 ,475Accounts receivable and accruals 169 ,665 169 ,665 255 ,149 255 ,149Accounts payable and accruals 253 ,730 253 ,750 198 ,933 198 ,933Short term debt (2 ,000 ,000) (2 ,000 ,000) – –Advance to subsidiary (2 ,836 ,892) (2 ,836 ,892) – –

19.ADVANCES TO SUBSIDIARIESA2 Finance Limited – – 2 ,836 ,892 –

– – $2 ,836 ,892 –

The terms of the loan from A2 Corporation Limited to A2 Finance Limitedare as follows:Term : On DemandInterest Rate: 7% per annum.



$ $ $ $

20.OPERATING LEASE COMMITMENTSCommitments in respect of non-cancellable operating leases:Not later than one year 79 ,110 – 58 ,801 65 ,701Later than one year and not later than two years 31 ,072 – 31 ,072 60 ,719Later than two years and not later than five years 3 ,589 – 3 ,589 92 ,432Later than five years – – – –

$113 ,771 – $93 ,462 $218 ,851

21.SEGMENTAL INFORMATIONAs at 31 March 2007 , the Group operates in one industry; the market for sale and production of beta-casein A2 milk products, and in three geographical areas;New Zealand, USA and Australia. All inter-segment transactions are conducted on an arms length basis.

The parent operates in only one geographic segment, New Zealand.

Geographical Segments Total Total New Zealand New Zealand Australia Australia USA USA Elimination Elimination

2007 2006 2007 2006 2007 2006 2007 2006 2007 2006

$ $ $ $ $ $ $ $ $ $

Revenue:From Customers outside the group 7,590,446 1,227,504 74,227 1,227,504 7,516,219 - - - - -

Inter-segment - - 613,514 - - - - - (613,514) -

Total Revenue 7,590,446 1,227,504 687,741 1,227,504 7,516,219 - - - (613,514) -

Net Surplus/(Deficit)(5,082,161) (2,136,625) (2,136,625) (723,293) (2,616,421) - (329,115) (202,554) - -

Segment Assets 3,643,048 3,944,527 6,039,762 3,524,149 2,976,578 - 344,741 420,378 (5,718,033) -




22.TRANSACTIONS WITH RELATED PARTIESa. A2 Corporation Limited paid legal fees to Anderson Lloyd Caudwellbarristers and solicitors of which Mr J K Guthrie was a consultant. The legalfees were charged at commercial rates. This year $Nil; last year $18 ,512 .At balance date $Nil was outstanding; last year $Nil. Mr Guthrie resignedhis position as Director in April 2005 due to ill health.

A2 Corporation Limited paid guarantee fees to Mr C J Cook who is a Directorand shareholder of the Company. The fees were charged at commercialrates. This year $Nil; last year $6 ,000 .

A2 Corporation Limited paid underwriting fees to Mountain RoadInvestments Limited, a company in which Mr C J Cook and Mr G P Hinton,both Directors of A2 Corporation Limited, hold all the shares. The fees werecharged at commercial rates. This year $Nil; last year $125 ,906 .25 .

A2 Corporation Limited refunded Directors for costs incurred in attendingBoard meetings from time to time. All costs refunded were as incurredwithout mark-up and no Directors gained in any way from the transaction.

A2 Corporation Limited paid consultancy fees to Golconda InvestmentsLimited, a company in which Mr R Le Grice, an executive director of A2Corporation Limited, is a shareholder. This year $138 ,108 , last year$11 ,250 .

b. A2 Corporation Limited has re-charged A2 Milk Company LLC (in theUnited States in which the Company has a 50% shareholding) for overseastravel and accommodation incurred by A2 Corporation Limited management,in relation to the business activities of A2 Milk Company LLC. All costsrefunded were without mark-up and neither entity gained in any way fromthe transaction. This year $118 ,903; last year $86 ,471 .

A2 Corporation Limited was paid interest by a 100% owned subsidiary, A2Australia Pty Limited. This year $47 ,430 , last year $Nil.

A2 Corporation Limited was paid interest by a 100% owned subsidiary A2Finance Limited. This year $68 ,058 , last year $Nil.

A2 Corporation Limited received management fees paid by A2 Australia PtyLimited. This year $382 ,166 , last year $Nil.

At 31 March 2007 the outstanding balance owing by A2 Milk Company LLCto A2 Corporation Limited was $60 ,778 . This amount is due within thenormal terms of business for settlement of trade debtors. Last year$86 ,471 .

A2 Australia Pty Limited paid interest to A2 Finance Limited. This year$115 ,860 . Last year $Nil.




$ $ $ $

23.RECONCILIATION OF NET SURPLUS AFTER TAXATIONWITH CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIESNet Surplus (Deficit) after Taxation (5 ,082 ,161) – (2 ,495 ,906) (925 ,847) Plus (less) Non-cash items:Depreciation 27 ,484 – 20 ,410 15 ,063Loss on sale of property, plant and equipment 85 – 85 –Write down of investments to estimated market value 3 ,589 – 3 ,589 10 ,263Amortisation of goodwill 22 ,232 – – –

Share of associates retained deficit for the year 9 329 ,115 – 329 ,115 202 ,554

382 ,505 – 353 ,199 227 ,880

Plus (less) Movements in working capital:Accounts payable and accruals 1 ,703 ,902 – 110 ,366 (119 ,341) RWT refund due (39 ,325) – (30 ,022) 10 ,927Inventories (138 ,977) –Accounts receivable and accruals (2 ,027 ,753) – 90 ,737 (97 ,011)

(502 ,153) – 171 ,081 (205 ,425)

Plus (less) Items classified as investing or financing activities:Depreciation recovered – – – (10)

(502 ,153) – 171 ,081 (10)

Net Cash Flows from (used in) Operating Activities $(5 ,201 ,809) – $(1 ,971 ,626) $(903 ,402)



24.INVESTMENT IN ASSOCIATEThe group has a 50% participating interest in A2 Milk Company LLC a joint venture set up on 30 June 2005 to commercialise the sales and licensing rights forthe supply, distribution and marketing of a2 Milk™ in the USA. The Company contributed an amount of US$400 ,000 for its initial equity share, and IdeaSphereInc assigned their license to sell A2 Milk in the USA (acquired from A2 Corporation Limited initially) which has been included in the Statement of FinancialPosition of the Joint Venture at US$400 ,000 . Further capital of US$200 ,000 was advanced to the joint venture during the 2007 year. Under the Joint Venturearrangement revenue and costs are shared equally. The balance date for A2 Milk Company LLC is 31 December. Trading results for the 12 months to 31 March2007 for the Joint Venture are unaudited and a 50% participating interest has been included in the statement of financial performance and statement offinancial position of A2 Corporation Limited. The Company’s interest in this joint venture has the following effect on the financial statements:

Ownership & Voting CarryingInterest Amount

Name of Company Principal Activities 2007 2006 2007 2006

A2 Milk Corporation LLC Sales & licensing rights 50% 50% 344 ,741 420 ,378for the supply, distribution & marketing of a2 Milk™ in USA.

NOTE GROUP GROUP2007 2006

$ $

Carrying Value of AssociatesCarrying value at beginning of year 420 ,378 –Funds advanced 304 ,372 –Acquisition of associate – 595 ,929Share of net surplus/(deficit) 9 (329 ,115) (202 ,554)Foreign exchange translation movement (50 ,894) 27 ,003

Carrying value at end of year $344 ,741 $420 ,378

The carrying value is comprised of:Working capital 64 ,668 99 ,299License Agreement 280 ,073 321 ,079

$344 ,741 $420 ,378



NOTE GROUP GROUP2007 2006

$ $

Associates Share of Net Surplus/(Deficit)Share of surplus/(deficit) before taxation (329 ,115) (202 ,554)Share of taxation expense – –

Share of net surplus/(deficit) (329 ,115) (202 ,554)Amortisation of License Agreement – –

Share of total recognised revenues and expenses 9 $(329 ,115) $(202 ,554)

License AgreementCost at beginning and end of year 321 ,079 –License Agreement acquired during year – 321 ,079Foreign exchange translation movement (41 ,006) –

License Agreement relating to associate at end of year $280 ,073 $321 ,079

Company’s Aggregate Share of AssociatesContingent liabilities – –Capital commitments contracted for – –Other commitments contracted for, other than for supply of inventories – –

25.EVENTS SUBSEQUENT TO BALANCE DATEThe Company made an announcement to the exchange on 14 May 2007 relating to Australian operations. In association with Freedom Nutritional ProductsLimited (ASX: FNP) both have signed an agreement for the formation of a 50:50 joint venture company which will be the granted rights for the production andsale of a2 milk™ products in Australia and Japan. Trading commenced under the new subsidiary company from 1 June 2007 with no disruptions of delivery orservice either to or from customers.



On 24 April 2007 , A2 Corporation’s United States associate, A2 Milk Company LLC, in partnership with Original Foods Company LLC, launched a2 Milk™ intothe US market through an exclusive deal with a leading supermarket chain Hy-Vee into markets within Nebraska, Iowa, Kansas, Illinois, Missouri, South Dakotaand Minnesota.

26.FOREIGN CURRENCY BALANCESAs at balance date the Group reports the following monetary assets and liabilities held in foreign currencies. These balances are not hedged.


$ $ $ $

USD Bank 165 – 165 301 ,471

AUD Bank (704 ,707) – – 5 ,540Accounts Receivable 1 ,962 ,678 – – 67 ,696Accounts Payable 818 ,899 – – (33 ,788)

27.ACCOUNTS PAYABLETrade creditors 1 ,511 ,799 – 124 ,568 75 ,702Accruals 178 ,416 – 92 ,934 85 ,731Owing to subsidiaries – – 17 ,478 –Director fees payable 18 ,750 – 18 ,750 37 ,500

$1 ,708 ,965 – $253 ,730 $198 ,933



28.COMPARISON TO FORECAST FINANCIAL STATEMENTSA2 Corporation Limited issued a prospectus dated 19 December 2000 forthe subscription of 6 ,000 ,000 ordinary shares which included forecastfinancial statements for the six years ended 31 March 2006 . A comparisonof the actual and forecast results for the year ended 31 March 2006 is setout on the following page. The 2000 prospectus provided forecast up to andincluding the financial year ended March 2006 only. Therefore there is noforecast showing for the financial year ending March 2007 .



NOTE ACTUAL FORECAST2006 2006

$ (CONSERVATIVE) $

Statement of Financial PerformanceTotal revenue 1 ,227 ,504 317 ,174 ,000

Net Surplus/ (Deficit) before Tax (925 ,847) 268 ,424 ,000Tax Charge (Benefit) – 88 ,580 ,000

Net Surplus after Tax $ (925 ,847) $179 ,844 ,000

Statement of Financial PositionEquity 3 ,714 ,501 58 ,454 ,000Represented by:Current Assets 3 ,459 ,327 48 ,569 ,000Non Current Assets 485 ,200 13 ,681 ,000

Total Assets 3 ,944 ,527 62 ,250 ,000Less Liabilities:Current Liabilities 230 ,026 3 ,796 ,000

Net assets $3 ,714 ,501 $58 ,454 ,000

Cash Flow from Operating Activities (903 ,402) 172 ,882 ,000Cash Flow applied to Investing Activities (629 ,096) (20 ,000)Cash Flow from (applied to) Financing Activities 4 ,837 ,099 (170 ,500 ,000)

Net Increase/(Decrease) in Cash Flows 3 ,304 ,601 2 ,362 ,000

Closing Cash and Deposits 3 ,196 ,475 23 ,195 ,000



In relation to the 2006 year:i) The actual financial performance, financial position and cash flows are nolonger comparable to the forecast due to the effect of the following notcontemplated in the forecasts:

ii) Strategic redirection of the Company with the adoption of a new businessmodel in November 2004 by the new Board of Directors.

iii) The Board believes that the actual financial performance, financial positionand cash flows of the Company reflect and are consistent with the newemphasis of consolidating operations and the new direction of the Company.

29.TRANSITION TO NEW ZEALAND EQUIVALENTS TO INTERNATIONALFINANCIAL REPORTING STANDARDSIn December 2002 , the New Zealand Accounting Standards Review Board(ASRB) announced that New Zealand equivalents to the InternationalFinancial Reporting Standards (NZ IFRS or IFRS) will apply to all NewZealand entities for financial periods commencing on or after 1 January2007 .

A2 Corporation Limited intends to adopt from 1 April 2007 . Accordingly, theadoption of NZ IFRS will be reflected in the Company and Group’s half yearreport for the six month period ended 30 September 2007 .

The Directors of A2 Corporation Limited will manage the transition to NZIFRS by evaluating the Company’s existing accounting policies and potentialimpacts of adopting NZ IFRS. The Directors have begun this evaluationexercise.

In the first year of compliance, entities are required to restate comparativefinancial statements to reflect the new standards. The majority of

adjustments required on transition to NZ IFRS will be to retained earnings.Whilst the implementation of NZ IFRS has no impact on A2 CorporationLimited’s underlying economic strength, risk management practices or cashflows, it may result in key, material differences in the financial statements.Key differences in accounting policies that are expected from adoption ofNZ IFRS include the accounting for intangible assets, share basedpayments, impairment and revenue recognition. At this stage the impact onthe financial statements, had they been prepared using NZ IFRS, has notbeen determined or quantified. However the most significant impact isexpected to arise from the following:

i) Share Based PaymentsAll share based payments will require recognition in the financial statementsof A2 Corporation Limited.

The equity settled share options issued by A2 Corporation Limited should bemeasured at fair value using an appropriate valuation technique.

ii) ImpairmentImpairment testing of certain intangible assets and goodwill will be requiredon an annual basis.

The recoverable amount of each intangible asset, or cash generating unit towhich the intangible belongs, needs to be estimated. In the event therecoverable amount of the individual intangible asset, or cash generatingunit, is less than the carrying amount, impairment will be recognised.

Where the financial impact of NZ IFRS can be reliably estimated to have amaterial impact, disclosure will be made in subsequent financial reports.The actual impact of adopting NZ IFRS may vary from the informationpresented and this variation may be material.

ADDITIONAL STOCK EXCHANGE INFORMATION FOR THE YEAR ENDED 31 MARCH 2007


The Company’s ordinary shares are listed on the New Zealand Stock Exchange. Details in regard to such securities are as follows.

1. Substantial Security HoldersThe Company’s register of substantial security holders, prepared in accordance with section 26 of the Securities Amendment Act 1988 recorded the followinginformation as at 12 June 2007:

Name Date of Notice No’s %

Mountain Road Investments Limited 03 Nov 2005 82 ,038 ,733 54 .298Ulrike McLachlan 03 Nov 2005 7 ,378 ,563 4 .883

2. Directors’ ShareholdingsDirectors held the following equity securities in the Company at 31 March 2007:

Name of Director Associated Entity Beneficial No’s % Non Beneficial No’s %

C J Cook Mountain Road Investments Ltd 73 ,834 ,860 48 .868 8 ,203 ,873 5 .430G P Hinton Mountain Road Investments Ltd 8 ,203 ,873 5 .430 73 ,834 ,860 48 .868W Burt Lotus Capital Biotechnology 4 ,713 ,066 3 .119 Nil –A J Allison Private 877 ,500 0 .581 Nil –R G Paterson Private 137 ,256 0 .091 Nil –

ADDITIONAL STOCK EXCHANGE INFORMATION CONTINUED


3. Twenty Largest Equity Security HoldersThe names of the 20 largest holders of equity securities as at 31 May 2007are listed below:

Top 20 Shareholders No’s %Mountain Road Investments Limited 82 ,038 ,733 54 .298Ulrike McLachlan 7 ,378 ,563 4 .883Forbar Custodians Limited 5 ,971 ,215 3 .952New Zealand Central Securities Depository 4 ,825 ,500 3 .194Lotus Capital Biotechnology Limited 4 ,713 ,066 3 .119Edinburgh Securities Limited 2 ,495 ,000 1 .651Peter Bruce Hinton 1 ,893 ,064 1 .252Melissa Cherie Batten 1 ,656 ,609 1 .096Marint Limited 1 ,500 ,000 0 .993Gregory John Paterson & Nicola Ann Marie Williams 1 ,161 ,225 0 .769Horton Corporation Limited 973 ,399 0 .644Nicholas Alastair Lautz 681 ,703 0 .451Lee Paterson Family Trust 947 ,712 0 .627Jock Allison & Hilary Allison 877 ,500 0 .581Custodial services Ltd 814 ,890 0 .539Rio Keith Bond 619 ,530 0 .410Titmotu Holdings Limited 608 ,550 0 .403ASB Nominees Limited 600 ,000 0 .397Garry Robertson 600 ,000 0 .397Sundry Investments Limited 600 ,000 0 .397Raewyn Hall 525 ,943 0 .348Forbar Custodians Limited 520 ,625 0 .344

122 ,002 ,827 80 .745

4. Spread of Security Holders at 31 May 2007

No. of Holders % No’s1–1000 146 0 .061 92 ,1571 ,001–5 ,000 378 0 .680 1 ,027 ,5115 ,001–10 ,000 213 1 .071 1 ,618 ,55410 ,001–100 ,000 334 7 .331 11 ,076 ,160100 ,000 shares or more 93 90 .857 137 ,273 ,118Total 1 ,164 100 .000 151 ,087 ,500

5. Credit Rating StatusNot applicable.

6. Waivers Granted by NZX or Market Surveillance PanelNo material waivers were sought or granted during the financial year.

7. Corporate Governance PoliciesIn conjunction with its advisors, the Company applies best practicephilosophy wherever possible in the execution of its operations, financialmanagement, corporate business administration and practices. In every arena,due regard is given to the consideration of compliance in operationalperformance and reporting in order to ensure this outcome.

8. Appointed DirectorsOn 28 February 2007 , the Company announced the appointment of RichardLe Grice as an Executive Director.

In accordance with Listing Rule B2 . 1 . 2 , the opening date for thenomination of directors by shareholders was 22 June 2007 and the closingdate was 24 July 2007 .

STATUTORY INFORMATION FOR THE YEAR ENDED 31 MARCH 2007


Particulars of notices or statements given to or approved by the Board

Interests RegisterDirectors have declared interests during the period as follows:

– Mr C J Cook, in his capacity as shareholder and Director of A2 CorporationLimited, recorded an interest in guarantee fees paid by the Company onbank overdraft facilities. These fees were charged at commercial rates.

– The Company has arranged and paid for policies for Directors’ liabilityinsurance which ensure that the Directors are protected against liabilitiesand costs for acts or omissions by them in their capacity as Directors ofthe Company.

Other Positions HeldDirectors also hold the following positions with the following entities. Thisdeclaration serves as notice that the director may benefit from any transactionsbetween the Company and the disclosed entities.

Name of Director Entity Position

C J Cook Private Health Care (NZ) Limited DirectorParnell Investment Holdings Ltd Director/ShareholderWaiheke Retirement Village Ltd DirectorMountain Road Investments Ltd DirectorArran Bay Estates Ltd Director/ShareholderGingold Holdings Ltd Director/ShareholderCastle Drive Securities Ltd Director/ShareholderNSI Management Ltd DirectorMartinborough Cottage Grove Ltd DirectorWRV Holding Company Ltd Director/Shareholder


Shubourne Holdings Ltd DirectorDHT Ltd Director/Shareholder25 Broadway Ltd DirectorChain Hill Farm Ltd Director/ShareholderThode Knife and Saw Ltd DirectorChesapeake Tasman Ltd DirectorChesapeake Cook Ltd DirectorNewmarket Ltd DirectorChesapeake Ltd DirectorMRIHHL Ltd DirectorRail Land Lease Ltd ShareholderCook Advisory Services Limited Director/ShareholderGreat Northern Land Company Limited DirectorPHC Treasury Limited DirectorChesapeake Lake View Limited Director45 South Exports Limited Director/ShareholderPHC Equities Limited DirectorCook Retirement Village Holdings Limited DirectorCook Property Holdings Limited DirectorPHC Yacht Charters Limited DirectorCook Retirement Village Group Limited Director46 Parnell Road Properties Limited DirectorTasman Retirement Village Limited DirectorRenaissance Lifecare Limited DirectorRenaissance Lifecare Plc DirectorCook Industrial Holdings Limited DirectorPHC Treasury (UK) Limited Director/Shareholder

STATUTORY INFORMATION CONTINUED



G P Hinton Belmont Trading Coy Limited DirectorPrivate Health Care (NZ) Limited DirectorNSI Management Limited DirectorWaiheke Retirement Village Limited DirectorGingold Holdings Limited DirectorArney Developments Limited Director/ShareholderCastle Drive Securities Limited DirectorShubourne Holdings Limited DirectorSouthern Nursing Bureau Limited Director45 South Cherries Limited Director/ShareholderMartinborough Cottage Grove Limited DirectorRail Land Lease Limited Director/ShareholderNikau Investments (2001) Limited Director/ShareholderDHT Limited DirectorChesapeake Limited Director25 Broadway Limited DirectorChesapeake Tasman Limited DirectorChesapeake Cook Limited DirectorNewmarket Limited DirectorMountain Road Investments Limited Director/ShareholderGreat Northern Land Company Limited Director/ShareholderHobsonville Land Company Limited DirectorHousing New Zealand Limited DirectorCommunity Housing Limited DirectorJefton Investments Limited DirectorPHC Treasury Limited DirectorCheaspeake Lake View Limited DirectorMRIHHL Limited DirectorHealthphone Holdings Limited Director


11 Bridge Street (NZ) Limited DirectorMarne Street Hospital Limited DirectorCook Advisory Services Limited Director45 South Exports Limited Director/ShareholderPHC Equities Limited DirectorFerryhill Holdings Limited DirectorNorth Harbour Property 369 Limited ShareholderMolyneux Management Limited DirectorCook Retirement Village Holdings Limited DirectorCook Property Holdings Limited DirectorPHC Yacht Charters Limited DirectorCook Retirement Village Group Limited Director46 Parnell Road Properties Limited DirectorTasman Retirement Village Limited DirectorRenaissance Lifecare Limited DirectorChain Hill Farm Limited ShareholderCook Industrial Holdings Limited Director

R G Paterson Southland Dairy Consultants Limited DirectorOtago Consultants Limited DirectorWhitecoomb Farming Co. Limited DirectorPopotunoa Dairy Farms Limited DirectorKaihiku Dairy Farm Limited DirectorClydevale Dairy Farms Limited DirectorSouthern Dairy Farms Limited DirectorMandeville Dairy Farms Limited DirectorWaipahi Dairy Farms Limited DirectorSouthern New Zealand Dairy Limited Director




R G Paterson Hope Holdings Limited Directorcontinued Organic Milk Company of

New Zealand Limited DirectorCon-Agra Limited DirectorBlue Mountain Dairy Farms Limited DirectorDowns Road Dairy Farm Limited DirectorE-Media Limited DirectorSouth Otago Dairy Holdings Limited DirectorRG Paterson Holding Limited DirectorHillend Developments Limited DirectorBeecroft Holdings Limited DirectorArthurton Dairy Farm Limited DirectorWinton Dairy Holdings Limited DirectorOtamita Dairy Farm Limited DirectorCentre Road Dairy Farm Limited DirectorGreenfield Farming Limited DirectorParatai Dairy Farm Limited DirectorOtago Spraying Limited DirectorWyndham Dairy Farms Limited DirectorMandell Limited DirectorDairy Trust Limited Director

A J Allison AJA Consulting Limited Director

W L Burt Bear III Investments Limited DirectorArgus Holdings (2001) Limited Director


Richard Le Grice Colorite Group Limited Director/ShareholderEady Le Grice Limited Director/ShareholderPreprint Solutions Limited Director/ShareholderMultivision Technologies Limited Director/ShareholderTronic Colour Holdings Limited DirectorThode Knife & Saw Limited Director/ShareholderGolconda Investments Limited Director/ShareholderLaser Plate Limited DirectorNZ Saw Limited Director/ShareholderColortronic Holdings Limited DirectorColorite Engraving Limited DirectorNew Zealand Lifecare Management Limited ShareholderHighbury Developments Limited ShareholderLonsdale 2005 Limited ShareholderBraveheart Moke Lake Limited ShareholderRiverside Lodge (2005) Limited ShareholderFoxton Properties Limited ShareholderVancouver Land Company Limited ShareholderGlaisnoor Limited ShareholderPacifica Trading Company Limited Shareholder



Directorships of Subsidiary CompaniesDirectors also hold the position of director with the following companies inwhich A2 Corporation Limited has ownership interests. No Director of anysubsidiary company received any director fees or any other benefits during theyear.

Name of Director Name of Subsidiary Ownership Interest

C J Cook Option Scheme Limited 100%

G P Hinton Option Scheme Limited 100%A2 Exports Limited

R Le Grice A2 Finance Limited 100%A2 Exports Limited 100%A2 Australian Investments Limited 100%



Directors’ RemunerationThe following fees were paid or payable to Directors during the year for theirservices as Directors of the Company:

A J Allison 15 ,000W L Burt 15 ,000C L Cook 15 ,000G P Hinton 15 ,000R G Paterson 15 ,000

Share OptionsThe share options held by Directors at 31 March 2007 in accordance with Note2 of the Financial Statements were:

Name of Director Options Held Dates Allocated Expiry Date

W L Burt 360 ,000 October 2003 September 2008A J Allison 100 ,000 October 2003 September 2008R G Paterson 60 ,000 October 2003 September 2008R Le Grice 4 ,000 ,000 October 2003 September 2008(Appointed 28 Feb 2007)

Directors Loans

There were no loans from the Company to Directors.

Use of Company InformationThe Board received no notices during the period from Directors requesting touse the Company information received in their capacity as Directors which wouldnot have been otherwise available to them.

Employee RemunerationDuring the year the following numbers of employees received remuneration of atleast $100 ,000 .

Number of employees$100 ,000 to $110 ,000 1$110 ,000 to $120 ,000 –$120 ,000 to $130 ,000 2$130 ,000 to $140 ,000 –$140 ,000 to $150 ,000 –$150 ,000 to $160 ,000 –$160 ,000 to $170 ,000 1

DonationsThe Company made no donations during the period ended 31 March 2007 .

Sub-CommitteesThe Board has formally constituted the following sub-committees, whichconvene twice annually or as required:

Audit: Remuneration: Research & Development: Compliance:Dr A J Allison C J Cook Dr A J Allison G P HintonG P Hinton G P HintonR A Paterson R G Paterson

AUDITOR’S REPORT


Auditor’s Report

To the Shareholders of A2 Corporation Limited

We have audited the financial statements on pages 8 to 39. The financial state-ments provide information about the past financial performance of the companyand group and their financial position as at 31 March 2007. This information isstated in accordance with the accounting policies set out on pages 15 to 17.

This report is made solely to the company’s shareholders, as a body, in accordancewith Section 205(1) of the Companies Act 1993. Our audit has been undertakenso that we might state to the company’s shareholders those matters we arerequired to state to them in an auditor’s report and for no other purpose. To thefullest extent permitted by law, we do not accept or assume responsibility to any-one other than the company and the company’s shareholders as a body, for ouraudit work, for this report, or for the opinions we have formed.

Directors’ ResponsibilitiesThe directors are responsible for the preparation of financial statements whichcomply with generally accepted accounting practice in New Zealand and give atrue and fair view of the financial position of the company and group as at 31March 2007 and of their financial performance and cash flows for the year endedon that date.

Auditor’s ResponsibilitiesIt is our responsibility to express an independent opinion on the financial state-ments presented by the directors and report our opinion to you.

Basis of OpinionAn audit includes examining, on a test basis, evidence relevant to the amountsand disclosures in the financial statements. It also includes assessing:• the significant estimates and judgements made by the directors in the

preparation of the financial statements; and• whether the accounting policies are appropriate to the circumstances of the

company and group, consistently applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standardsin New Zealand. We planned and performed our audit so as to obtain all theinformation and explanations which we considered necessary in order to provideus with sufficient evidence to give reasonable assurance that the financial state-ments are free from material misstatements, whether caused by fraud or error. Informing our opinion we also evaluated the overall adequacy of the presentationof information in the financial statements.

Other than in our capacity as auditor we have no relationship with, or interest in,the company or any of its subsidiaries.

Unqualified OpinionWe have obtained all the information and explanations we have required.

In our opinion:• proper accounting records have been kept by the company as far as appears

from our examination of those records; and• the financial statements on pages 8 to 39:- comply with generally accepted accounting practice in New Zealand; and- give a true and fair view of the financial position of the company and group as

at 31 March 2007 and their financial performance and cash flows for the yearended on that date.

Our audit was completed on 4 July 2007 and our unqualified opinion is expressedas at that date.

Christchurch

NOTICE OF ANNUAL GENERAL MEETING

NOTICE OF ANNUAL GENERAL MEETING

NOTICE is hereby given that an Annual General Meeting of shareholders of A2Corporation Limited (the “Company”) for the year ended 31 March 2007 will beheld at the Downstairs function suite at Parnell’s on the Rose Garden, 85Gladstone Road, Parnell, Auckland on Friday 24 August 2007 , commencing at2 .00 pm.

BUSINESS The business of the meeting is comprised of ordinary business as follows: • Receiving and considering the Company’s financial statements for the year

ended 31 March 2007 . • The election of directors. • Reappointment of auditors. • Considering any general business. All necessary resolutions are set out below.

Terms which are used frequently in this notice have been capitalised, and aredefined in the definitions sections at the end of this notice.

RESOLUTIONS Ordinary Business

FINANCIAL STATEMENTS 1 . To receive and consider the financial statements for the year ended 31 March

2007 together with the Directors’ and Auditors’ reports.

ELECTION OF DIRECTORS In accordance with the Company’s constitution:

2 . Mr Richard Grant Paterson; and3 . Dr Wayne Burt, each retires by rotation and, being eligible, offer themselves

for re-election4 . Mr Richard Oram Le Grice, being eligible, offers himself for confirmation of

the appointment made by the A2C board on 28 February 2007 .

AUDITORS 5 . To record the re-appointment of Ernst & Young as auditors of the Company

and to authorise the Board of Directors to fix their remuneration for theensuing year.

PROXIES A shareholder entitled to attend and vote may appoint a proxy to attend and voteon that shareholder’s behalf. The proxy need not be a shareholder of theCompany. Proxy forms must be received at the office of the Share Registrar,Link Market Services Limited, not less than 48 hours prior to the date and timeof the meeting. A proxy form is enclosed with this notice.

CORPORATE REPRESENTATIVES A corporation which is a shareholder may appoint a representative to attend themeeting on its behalf in the same manner as it could appoint a proxy.

POSTAL VOTING A shareholder is entitled to exercise his/her vote at the meeting by casting apostal vote. A postal voting form is incorporated in the proxy form.

REQUISITE MAJORITIES 1 . Ordinary resolutions require the approval of a simple majority of the votes of

those shareholders entitled to vote and voting (in person or by proxy) in orderfor them to be passed.

2 . Special resolutions require the approval of a 75% majority of the votes ofthose shareholders entitled to vote and voting (in person or by proxy) in orderfor them to be passed.

By order of the Board of Directors.

Cliff Cook Chairman 4 July 2007


INSTRUMENT APPOINTING PROXY


A2 CORPORATION LIMITED INSTRUMENT APPOINTING PROXY

I/We __________________________________________________________________of ____________________________________________________________________Shareholder Number ____________________________________________________being a shareholder of A2 Corporation Limited (the "Company"), hereby appoint:

______________________________________________________________________of ____________________________________________________________________or failing him/her ______________________________________________________of ____________________________________________________________________as my/our proxy to vote for me/us and on my/our behalf at the Annual GeneralMeeting of the Company to be held on 24 August 2007 and at any adjournmentthereof. In respect of the matters listed below, I/we direct my/our proxy to vote in thefollowing manner:

AGENDA ITEM Tick appropriate box ORDINARY BUSINESS

In Favour Against 1 . Receive the annual report, including the financial statements 2 . Re-elect Mr Richard Grant Paterson as a Director 3 . Re-elect Dr Wayne Burt as a Director 4 . Re-elect Mr Richard Oram Le Grice as a Director 5 . Record re-appointment of Auditors and to authorise Directors to fix their

remuneration for the ensuing year

Unless directed otherwise, the proxy will vote as he or she thinks fit, or abstainfrom voting. Signed this day of 2007 Signature/s: ____________________________________________________________

______________________________________________________________________

NOTES 1. 1. To be valid, this proxy form and the power of attorney or other authority, if

any, under which it is signed or a notarially certified copy of that power ofattorney must be received by Link Market Services Limited, 138 TancredStreet, PO Box 384 , Ashburton, not less than 48 hours before the timefixed for the meeting.

2. 2. Any shareholder is entitled to appoint a proxy to attend the AnnualShareholders' Meeting of the Company in place of such shareholder. Aproxy need not be a shareholder of the Company.

3. 3. If this form is returned without a direction as to how the proxy shall vote onany particular resolution, the proxy will exercise the proxy's discretion as towhether to vote and, if so, how.

EXPLANATORY NOTES PROXIES AND REPRESENTATIVES 1 . Proxies must reach the Company's registered office 48 hours before the

time of the special meeting. If a shareholder wishes to post the proxy form,it should be posted to A2 Corporation Limited, C/- Link Market ServicesLimited, 138 Tancred Street, PO Box 384 , Ashburton, to arrive not laterthan 48 hours prior to the date and time of the meeting.

2 . Any shareholder entitled to attend and vote may appoint another person asproxy to attend and vote on their behalf. A proxy need not necessarily be ashareholder of the Company.

3 . A corporation which is a shareholder of the Company may by resolution ofits directors or other governing body authorise such person as it thinks fit toact as its representative at the special meeting.

A2 Corporation LimitedLevel 5, 235 BroadwayNewmarket 1023AucklandNew Zealand

A2 Australia Pty LimitedCentral Brunswick CentreUnit 15A421 Brunswick StreetFortitude ValleyQueensland 4060Australia

A2 Milk Company LLC 632 Broadway, 11th FloorNew York, NY 10012USA

TMTM

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