Table ofContents

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 20-F**

 

| **o**      | **REGISTRATION STATEMENT PURSUANT  TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT OF 1934**                                            |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                        |
| **OR**     |
| ** ** | ** **                                                                                                                                        |
| **x**      | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended June 30, 2009** |
| ** ** | ** **                                                                                                                                        |
| **OR**     |
| ** ** | ** **                                                                                                                                        |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                           |
| ** ** | ** **                                                                                                                                        |
| **OR**     |
| ** ** | ** **                                                                                                                                        |
| **o**      | **SHELL COMPANY REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                        |

 

Dateof event requiring this shell company report . . . . . . . . . . . . . . . . ... .

 

**For the transition period from                      to                        **

 

Commissionfile number 0-51504

 
| **GENETIC TECHNOLOGIES LIMITED**                                                                                                                                                         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of Registrant as specified in its charter)                                                                                                                                   |
|                                                                                                                                                                                     |
| **N/A**                                                                                                                                                                                  |
| (Translation of Registrant’s name into English)                                                                                                                                     |
|                                                                                                                                                                                     |
| **AUSTRALIA**                                                                                                                                                                            |
| (Jurisdiction of incorporation or organization)                                                                                                                                          |
|                                                                                                                                                                                     |
| **60-66 Hanover Street, Fitzroy, Victoria, 3065,  Australia**

**Telephone: 011 61 3 8412 7000; Facsimile: 011 61  3 8412 7040**                                                         |
| (Address of principal executive offices)                                                                                                                                                 |
|                                                                                                                                                                                     |
| **Thomas G. Howitt**

**Telephone: 011 61 3 8412 7050; Facsimile: 011 61  3 8412 7040**

**Email: tom.howitt@gtglabs.com**

**60-66 Hanover Street, Fitzroy Victoria, 3065,  Australia** |
| (Name, Telephone, E-mail and/or Facsimile number and Address of  Company Contact Person)                                                                                                 |

 

Securitiesregistered or to be registered pursuant to Section 12(b) of the Act. **None**

 

Securitiesregistered or to be registered pursuant to Section 12(g) of the Act.

 
| **American Depositary Shares each representing 30  Ordinary Shares and evidenced by American Depositary Receipts** |
|--------------------------------------------------------------------------------------------------------------------|
| Title of each Class                                                                                                |

 

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Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act. **None**

 

Numberof outstanding shares of each of the issuer’s classes of capital or commonstock as of the close of the period covered by the annual report.
|   | 374,644,801  Ordinary Shares |
|--------|------------------------------|

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

o Yes   x No

 

Ifthis report is an annual or transition report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.

o Yes   x No

 

Note— Checking the box above will not relieve any registrant required to filereports pursuant to Section 13 or 15(d) of the Securities ExchangeAct of 1934 from their obligations under those Sections.

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

x Yes   o No

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such flied).

o Yes   o No

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicateby check mark which basis of accounting the registrant has used to prepare thefinancial statements included in this filing:

 

| U.S. GAAP o |   | International Financial Reporting Standards as issued  by the International Accounting Standards Board x |   | Other o |
|-------------|--------|----------------------------------------------------------------------------------------------------------|--------|---------|

 

If“Other” has been checked in response to the previous question, indicate bycheck mark which financial statement item the registrant has elected to follow.

o Item 17   o Item 18

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

 

(APPLICABLEONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court.

 

o Yes   o No

 

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**TABLE OF CONTENTS**

 
| INTRODUCTION                                       | 1                                                      |
|----------------------------------------------------|--------------------------------------------------------|
|                                               |                                                   |   |
| FORWARD-LOOKING  STATEMENTS                        | 1                                                      |
|                                               |                                                   |   |
| ENFORCEMENT  OF LIABILITIES AND SERVICE OF PROCESS | 1                                                      |
|                                               |                                                   |   |
| ITEM 1.                                            | IDENTITY  OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 2 |
|                                               |                                                   |   |
| ITEM 1.A                                           | DIRECTORS  AND SENIOR MANAGEMENT                       | 2 |
|                                               |                                                   |   |
| ITEM 1.B                                           | ADVISERS                                               | 3 |
|                                               |                                                   |   |
| ITEM 1.C                                           | AUDITOR                                                | 3 |
|                                               |                                                   |   |
| ITEM 2.                                            | OFFER  STATISTICS AND EXPECTED TIMETABLE               | 3 |
|                                               |                                                   |   |
| ITEM 3.                                            | KEY  INFORMATION                                       | 3 |
|                                               |                                                   |   |
| ITEM 3.A                                           | SELECTED  FINANCIAL DATA                               | 3 |
|                                               |                                                   |   |
| ITEM 3.B                                           | CAPITALIZATION AND  INDEBTEDNESS                       | 5 |
|                                               |                                                   |   |
| ITEM 3.C                                           | REASONS  FOR THE OFFER AND USE OF PROCEEDS             | 5 |
|                                               |                                                   |   |
| ITEM 3.D                                           | RISK FACTORS                                           | 6 |
|                                               |                                                   |   |
| ITEM 4.                                            | INFORMATION  ON THE COMPANY                            | 13 |
|                                               |                                                   |   |
| ITEM 4.A                                           | HISTORY AND DEVELOPMENT OF  THE COMPANY                | 13 |
|                                               |                                                   |   |
| ITEM 4.B                                           | BUSINESS OVERVIEW                                      | 15 |
|                                               |                                                   |   |
| ITEM 4.C                                           | ORGANIZATIONAL  STRUCTURE                              | 39 |
|                                               |                                                   |   |
| ITEM 4.D                                           | PROPERTY,  PLANT AND EQUIPMENT                         | 39 |
|                                               |                                                   |   |
| ITEM 5.                                            | OPERATING  AND FINANCIAL REVIEW AND PROSPECTS          | 40 |
|                                               |                                                   |   |
| ITEM 5.A                                           | OPERATING  RESULTS                                     | 40 |
|                                               |                                                   |   |
| ITEM 5.B                                           | LIQUIDITY  AND CAPITAL RESOURCES                       | 53 |
|                                               |                                                   |   |
| ITEM 5.C                                           | RESEARCH AND DEVELOPMENT,  PATENTS, LICENSES, ETC.     | 55 |
|                                               |                                                   |   |
| ITEM 5.D                                           | TREND INFORMATION                                      | 56 |
|                                               |                                                   |   |
| ITEM 5.E                                           | OFF-BALANCE SHEET ARRANGEMENTS                         | 56 |
|                                               |                                                   |   |
| ITEM 5.F                                           | INFORMATION ABOUT CONTRACTUAL  OBLIGATIONS             | 56 |
|                                               |                                                   |   |
| ITEM 6.                                            | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES            | 57 |
|                                               |                                                   |   |
| ITEM 6.A                                           | DIRECTORS  AND SENIOR MANAGEMENT                       | 57 |
|                                               |                                                   |   |
| ITEM 6.B                                           | COMPENSATION                                           | 59 |
|                                               |                                                   |   |
| ITEM 6.C                                           | BOARD  PRACTICES                                       | 63 |
|                                               |                                                   |   |
| ITEM 6.D                                           | EMPLOYEES                                              | 65 |
|                                               |                                                   |   |
| ITEM 6.E                                           | SHARE  OWNERSHIP                                       | 65 |
|                                               |                                                   |   |
| ITEM 7.                                            | MAJOR SHAREHOLDERS AND  RELATED PARTY TRANSACTIONS     | 66 |
|                                               |                                                   |   |
| ITEM 7.A                                           | MAJOR  SHAREHOLDERS                                    | 66 |
|                                               |                                                   |   |
| ITEM 7.B                                           | RELATED  PARTY TRANSACTIONS                            | 66 |

 

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| ITEM 8.   | FINANCIAL  INFORMATION                                              | 66     |
|-----------|---------------------------------------------------------------------|--------|
|      |                                                                |   |
| ITEM 8.A  | CONSOLIDATED  STATEMENTS AND OTHER FINANCIAL INFORMATION            | 66     |
|      |                                                                |   |
| ITEM 8.B  | LITIGATION  AND OTHER LEGAL PROCEEDINGS                             | 67     |
|      |                                                                |   |
| ITEM 8.C  | DIVIDENDS                                                           | 67     |
|      |                                                                |   |
| ITEM 8.D  | SIGNIFICANT  CHANGES TO FINANCIAL INFORMATION                       | 67     |
|      |                                                                |   |
| ITEM 8.E  | SIGNIFICANT OTHER CHANGES                                           | 68     |
|      |                                                                |   |
| ITEM 9.   | THE OFFER AND LISTING                                               | 69     |
|      |                                                                |   |
| ITEM 9.A  | OFFER  AND LISTING DETAILS                                          | 69     |
|      |                                                                |   |
| ITEM 9.B  | PLAN OF  DISTRIBUTION                                               | 70     |
|      |                                                                |   |
| ITEM 9.C  | MARKETS                                                             | 70     |
|      |                                                                |   |
| ITEM 9.D  | SELLING  SHAREHOLDERS                                               | 70     |
|      |                                                                |   |
| ITEM 9.E  | DILUTION                                                            | 71     |
|      |                                                                |   |
| ITEM 9.F  | EXPENSES  OF THE ISSUE                                              | 71     |
|      |                                                                |   |
| ITEM 10.  | ADDITIONAL  INFORMATION                                             | 71     |
|      |                                                                |   |
| ITEM 10.A | SHARE CAPITAL                                                       | 71     |
|      |                                                                |   |
| ITEM 10.B | OUR  CONSTITUTION                                                   | 72     |
|      |                                                                |   |
| ITEM 10.C | MATERIAL  CONTRACTS                                                 | 73     |
|      |                                                                |   |
| ITEM 10.D | EXCHANGE  CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS | 73     |
|      |                                                                |   |
| ITEM 10.E | TAXATION                                                            | 74     |
|      |                                                                |   |
| ITEM 10.F | DIVIDENDS  AND PAYING AGENTS                                        | 80     |
|      |                                                                |   |
| ITEM 10.G | STATEMENT  BY EXPERTS                                               | 80     |
|      |                                                                |   |
| ITEM 10.H | DOCUMENTS  ON DISPLAY                                               | 80     |
|      |                                                                |   |
| ITEM 10.I | SUBSIDIARY  INFORMATION                                             | 80     |
|      |                                                                |   |
| ITEM 11.  | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK         | 80     |
|      |                                                                |   |
| ITEM 12.  | DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES             | 81     |
|      |                                                                |   |
| ITEM 12.A | DEBT  SECURITIES                                                    | 81     |
|      |                                                                |   |
| ITEM 12.B | WARRANTS  AND RIGHTS                                                | 81     |

 

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| ITEM 12.C                                   | OTHER  SECURITIES                                                             | 81     |
|---------------------------------------------|-------------------------------------------------------------------------------|--------|
|                                        |                                                                          |   |
| ITEM 12.D                                   | AMERICAN  DEPOSITARY SHARES                                                   | 81     |
|                                        |                                                                          |   |
| ITEM 13.                                    | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES                              | 82     |
|                                        |                                                                          |   |
| ITEM 14.                                    | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 82     |
|                                        |                                                                          |   |
| ITEM 15.                                    | CONTROLS  AND PROCEDURES                                                      | 82     |
|                                        |                                                                          |   |
| ITEM 15.A                                   | DISCLOSURE CONTROLS AND  PROCEDURES                                           | 82     |
|                                        |                                                                          |   |
| ITEM 15.B                                   | MANAGEMENT’S ANNUAL REPORT ON  INTERNAL CONTROL OVER FINANCIAL REPORTING | 82     |
|                                        |                                                                          |   |
| ITEM 15.C                                   | ATTESTATION REPORT OF THE  REGISTERED PUBLIC ACCOUNTING FIRM                  | 83     |
|                                        |                                                                          |   |
| ITEM 15.D                                   | CHANGES IN INTERNAL  CONTROL OVER FINANCIAL REPORTING                         | 83     |
|                                        |                                                                          |   |
| ITEM 16.A                                   | AUDIT COMMITTEE FINANCIAL  EXPERT                                             | 83     |
|                                        |                                                                          |   |
| ITEM 16.B                                   | CODE OF ETHICS                                                                | 84     |
|                                        |                                                                          |   |
| ITEM 16C.                                   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       | 84     |
|                                        |                                                                          |   |
| ITEM 16D.                                   | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 85     |
|                                        |                                                                          |   |
| ITEM 16E.                                   | PURCHASES  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 85     |
|                                        |                                                                          |   |
| ITEM 16.F                                   | CHANGE IN COMPANY’S  CERTIFYING ACCOUNTANT                               | 85     |
|                                        |                                                                          |   |
| ITEM 16.G                                   | CORPORATE GOVERNANCE                                                          | 85     |
|                                        |                                                                          |   |
| ITEM 17.                                    | FINANCIAL  STATEMENTS                                                         | 86     |
|                                        |                                                                          |   |
| ITEM 18.                                    | FINANCIAL  STATEMENTS                                                         | 86     |
|                                        |                                                                          |   |
| GENETIC  TECHNOLOGIES LIMITED               | 86                                                                            |
|                                        |                                                                          |   |
| INDEX TO CONSOLIDATED  FINANCIAL STATEMENTS | 86                                                                            |
|                                        |                                                                          |   |
| ITEM 19.                                    | EXHIBITS                                                                      | 86     |
|                                        |                                                                          |   |
| SIGNATURES                                  |                                                                          | 88     |

 

iii

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**Tableof Contents**

 

**INTRODUCTION**

** **

In this Annual Report, the “Company,” “GeneticTechnologies”, “we,” “us” and “our” refer to Genetic Technologies Limited andits consolidated subsidiaries.

 

Ourconsolidated financial statements are set out on pages F1 to F43 of thisAnnual Report (refer to Item 18 “Financial Statements”).

 

References to the “ADSs” are to our ADSs described inItem 12.D, “American Depositary Shares,” and references to the “Ordinary Shares”are to our Ordinary Shares described in Item 10.A, “Share Capital.”

 

Our fiscal year ends on June 30, and referencesin this Annual Report to any specific fiscal year are to the twelve monthperiod ended on June 30 of such year.

 

**FORWARD-LOOKING STATEMENTS**

** **

This Annual Report contains forward-looking statementsthat involve risks and uncertainties.  Weuse words such as “anticipates”, “believes”, “plans”, “expects”, “future”, “intends”and similar expressions to identify such forward-looking statements.  This Annual Report also containsforward-looking statements attributed to certain third parties relating totheir estimates regarding the growth of Genetic Technologies and relatedservice markets and spending.  You shouldnot place undue reliance on these forward-looking statements, which apply onlyas of the date of this Annual Report. Our actual results could differ materially from those anticipated inthese forward-looking statements for many reasons, including the risks faced byus described below under the caption “Risk Factors” and elsewhere in thisAnnual Report.

 

Although we believe that the expectations reflected insuch forward-looking statements are reasonable at this time, we can give noassurance that such expectations will prove to be correct.  Given these uncertainties, readers arecautioned not to place undue reliance on such forward-looking statements.  Important factors that could cause actualresults to differ materially from our expectations are contained in cautionarystatements in this Annual Report including, without limitation, in conjunctionwith the forward-looking statements included in this Annual Report andspecifically under Item 3.D, “Risk Factors.”

 

All subsequent written and oral forward-lookingstatements attributable to us are expressly qualified in their entirety byreference to these cautionary statements.

 

**ENFORCEMENT OF LIABILITIES ANDSERVICE OF PROCESS**

** **

We are incorporated under the laws of WesternAustralia, in the Commonwealth of Australia. All of our directors and executive officers, and any experts named inthis Annual Report, reside outside the U.S. Substantially all of our assets, our directors’ and executive officers’assets and such experts’ assets are located outside the U.S.  As a result, it may not be possible forinvestors to affect service of process within the U.S. upon us or ourdirectors, executive officers or such experts, or to enforce against them or usin U.S. courts, judgments obtained in U.S. courts based upon the civil liabilityprovisions of the federal securities laws of the U.S.  In addition, we have been advised by ourAustralian solicitors that there is doubt that the courts of Australia willenforce against us, our directors, executive officers and experts named herein,judgments obtained in the U.S. based upon the civil liability provisions of thefederal securities laws of the U.S. or will enter judgments in original actionsbrought in Australian courts based upon the federal securities laws of the U.S.

 

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Table of Contents

 

**PART I**

 

**Item1.            Identity of Directors,Senior Management and Advisers**

** **

**Item 1.A         Directors and Senior Management**

** **

The Directors of the Company as of the date of thisAnnual Report are as follows:

 
| **Name**                    | ** ** | **Position/Function**  | ** ** | **Business  Address**                                  |
|-----------------------------|------------|------------------------|------------|--------------------------------------------------------|
| ** **                  | ** ** | ** **             | ** ** | ** **                                             |
| Sidney C. Hack              |       | Chairman               |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                        |       |                   |       |                                                   |
| Tommaso Bonvino             |       | Non-Executive Director |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                        |       |                   |       |                                                   |
| Dr. Malcolm R. Brandon |       | Non-Executive Director |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                        |       |                   |       |                                                   |
| Huw D. Jones                |       | Non-Executive Director |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |

 

The members of SeniorManagement of the Company as of the date of this Annual Report are as follows:

 
| **Name**                    | ** ** | **Position/Function**                           | ** ** | **Business  Address**                                  |
|-----------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------|
| ** **                  | ** ** | ** **                                      | ** ** | ** **                                             |
| Dr. Paul D.R. MacLeman |       | Chief Executive Officer                         |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                        |       |                                            |       |                                                   |
| Thomas G. Howitt            |       | Chief Financial Officer  and Company Secretary  |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                        |       |                                            |       |                                                   |
| Alison J. Mew               |       | Chief Operating Officer                         |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                        |       |                                            |       |                                                   |
| Dr. David J. Sparling  |       | Vice President Legal and Corporate  Development |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                        |       |                                            |       |                                                   |
| Gregory J. McPherson        |       | Vice President Sales and  Marketing             |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                        |       |                                            |       |                                                   |
| Catherine M. Barclay        |       | General Manager Human  Resources                |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |

 

2

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**Tableof Contents**

 

**Item 1.B**                          Advisers

 

Ourprincipal bankers, accountants and legal advisers are as follows:

 
| **Name of Adviser**          | ** ** | **Function**                    | ** ** | **Business Address**                                            |
|------------------------------|------------|---------------------------------|------------|-----------------------------------------------------------------|
| ** **                   | ** ** | ** **                      | ** ** | ** **                                                      |
| Ernst & Young       |       | Auditors                        |       | 8 Exhibition Street  Melbourne Victoria 3000  Australia         |
|                         |       |                            |       |                                                            |
| St. George Bank Limited      |       | Bankers - Australia             |       | 530 Collins Street  Melbourne Victoria 3000  Australia          |
|                         |       |                            |       |                                                            |
| KeyBank National Association |       | Bankers - USA                   |       | 1130 Haxton Drive  Fort Collins Colorado 80525  USA             |
|                         |       |                            |       |                                                            |
| Baker & McKenzie    |       | General Counsel                 |       | 181 William Street  Melbourne Victoria 3000  Australia          |
|                         |       |                            |       |                                                            |
| Sheridan Ross PC             |       | Licensing and Patent  Attorneys |       | 1560 Broadway, Suite 1200  Denver Colorado 80202-5141

USA |
|                         |       |                            |       |                                                            |
| Greenberg Traurig, LLP       |       | U.S. Securities Counsel         |       | 200 Park Avenue  New York New York 10166  USA                   |

 

**Item 1.C         Auditor**

** **

The auditor of the Group’s financial statements forthe years ended June 30, 2009, 2008, 2007, 2006 and 2005 was Ernst &Young, whose address is 8 Exhibition Street, Melbourne, Victoria, 3000,Australia.  Ernst & Young is theCompany’s current independent registered public accounting firm, an appointmentratified at the Annual General Meeting held on November 28, 2003.  At the Annual General Meeting held on November 25,2009, the independent registered public accounting firm ofPricewaterhouseCoopers was appointed as the Group’s auditor in respect of theyear ending June 30, 2010 and subsequent years.

 

**Item2.            Offer Statistics AndExpected Timetable**

** **

Not applicable.

 

**Item3.            Key Information**

** **

**Item 3.A         Selected Financial Data**

** **

The following selected financial data for the fiveyears ended June 30, 2009 is derived from the audited consolidatedfinancial statements of Genetic Technologies Limited, prepared in accordancewith International Financial Reporting Standards (“IFRS”), which became effective forour company as of our fiscal year ended June 30, 2006.  Under IFRS 1, “*First-time Adoption of International Financial Reporting Standards*,”or IFRS 1, a company adopting IFRS for the first time is required to adoptaccounting policies that comply with IFRS and related interpretations that arein effect at the reporting date of its first annual financial statementsprepared in accordance with IFRS, in our case June 30, 2006.

 

The balance sheet data as of June 30, 2009 and2008 and the income statement data for fiscal years 2009, 2008 and 2007 arederived from our audited consolidated financial statements included in thisannual report.  Balance sheet data as of June 30,2007, 2006 and 2005 and income statement data for the 2006 and 2005 financialyears are derived from our audited consolidated financial statements which arenot included in this Annual Report.  The data should be read in conjunction with the consolidated financialstatements, related notes and other financial information included herein.

 

All amounts are stated in Australian dollars as of June 30as noted.

 

3

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**GENETICTECHNOLOGIES LIMITED**

 

**CONSOLIDATEDINCOME STATEMENTS**

**FOR 2009, 2008, 2007, 2006 AND 2005**

** **
| ** **                                                               | ** ** | **Year ended********June 30, 2009** | ** ** | **Year ended********June 30, 2008** | ** ** | **Year ended********June 30, 2007** | ** ** | **Year ended********June 30, 2006** | ** ** | **Year ended********June 30, 2005** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                               | ** ** | **AUD**                                  | ** ** | **AUD**                                  | ** ** | **AUD**                                  | ** ** | **AUD**                                  | ** ** | **AUD**                                  | ** ** |
| ** **                                                               |       |                                     |       |                                     |       |                                     |       |                                     |       |                                     |       |
| **Revenue from operations**                                              |       |                                     |       |                                     |       |                                     |       |                                     |       |                                     |       |
| Genetic testing services                                                 |       | 4,599,286                                |       | 3,918,692                                |       | 3,119,131                                |       | 2,550,221                                |       | 2,391,948                                |       |
| Reproductive services                                                    |       | 782,803                                  |       | —                                   |       | —                                   |       | —                                   |       | —                                   |       |
| Total revenue from  operations                                           |       | 5,382,089                                |       | 3,918,692                                |       | 3,119,131                                |       | 2,550,221                                |       | 2,391,948                                |       |
| Less: cost of sales                                                      |       | (2,203,839                               | )          | —                                   |       | —                                   |       | —                                   |       | —                                   |       |
| Gross profit from  operations                                            |       | 3,178,250                                |       | 3,918,692                                |       | 3,119,131                                |       | 2,550,221                                |       | 2,391,948                                |       |
| Other revenue                                                            |       | 6,012,014                                |       | 11,689,120                               |       | 11,595,297                               |       | 7,407,982                                |       | 6,957,046                                |       |
| Other income                                                             |       | 787,529                                  |       | 276,606                                  |       | 340,486                                  |       | 708,411                                  |       | 782,714                                  |       |
| Employee benefits expenses                                               |       | (6,439,549                               | )          | (6,568,966                               | )          | (5,556,644                               | )          | (5,432,506                               | )          | (4,853,853                               | )          |
| Amortization and  depreciation expenses                                  |       | (3,987,996                               | )          | (4,755,155                               | )          | (4,602,992                               | )          | (4,817,277                               | )          | (4,411,685                               | )          |
| Legal and patent fees                                                    |       | (1,386,393                               | )          | (873,854                                 | )          | (748,605                                 | )          | (1,440,929                               | )          | (4,555,642                               | )          |
| Administration expenses                                                  |       | (1,304,682                               | )          | (839,226                                 | )          | (901,380                                 | )          | (910,776                                 | )          | (1,068,232                               | )          |
| Contract research and trial  expenses                                    |       | (1,209,260                               | )          | (1,267,748                               | )          | (1,247,775                               | )          | (1,345,916                               | )          | (873,501                                 | )          |
| Genetic testing expenses                                                 |       | (748,254                                 | )          | (1,599,644                               | )          | (1,989,098                               | )          | (2,008,546                               | )          | (1,752,495                               | )          |
| Rent and outgoings                                                       |       | (584,980                                 | )          | (533,644                                 | )          | (535,045                                 | )          | (511,050                                 | )          | (495,749                                 | )          |
| Royalties, license fees and  commissions paid                            |       | (354,684                                 | )          | (889,520                                 | )          | (580,122                                 | )          | (177,283                                 | )          | (921,548                                 | )          |
| Impairment losses and other  write-downs                                 |       | (318,025                                 | )          | (2,378,000                               | )          | (1,306,960                               | )          | (97,500                                  | )          | —                                   |       |
| Marketing and promotion  expenses                                        |       | (272,726                                 | )          | (221,644                                 | )          | (437,087                                 | )          | (502,353                                 | )          | (504,974                                 | )          |
| Finance costs                                                            |       | (89,499                                  | )          | (66,763                                  | )          | (90,929                                  | )          | (112,082                                 | )          | (69,965                                  | )          |
| Net foreign exchange losses                                              |       | —                                   |       | (254,954                                 | )          | (317,317                                 | )          | —                                   |       | (186,222                                 | )          |
| Other expenses                                                           |       | (1,140,066                               | )          | (1,086,938                               | )          | (1,086,662                               | )          | (1,218,519                               | )          | (1,211,777                               | )          |
| **Loss before income tax**                                               |       | (7,858,321                               | )          | (5,451,638                               | )          | (4,345,702                               | )          | (7,908,123                               | )          | (10,773,935                              | )          |
| Income tax expense                                                       |       | —                                   |       | —                                   |       | —                                   |       | —                                   |       | —                                   |       |
| **Loss for the year**                                                    |       | (7,858,321                               | )          | (5,451,638                               | )          | (4,345,702                               | )          | (7,908,123                               | )          | (10,773,935                              | )          |
| Net loss / (profit)  attributable tominority interests                   |       | 17,248                                   |       | 5,549                                    |       | 17,159                                   |       | (10,650                                  | )          | (46,292                                  | )          |
| Net loss attributable to  equity holdersof Genetic Technologies  Limited |       | (7,841,073                               | )          | (5,446,089                               | )          | (4,328,543                               | )          | (7,918,773                               | )          | (10,820,227                              | )          |
| **Loss per share (cents per  share)**                                    |       |                                     |       |                                     |       |                                     |       |                                     |       |                                     |       |
| Basic and diluted net loss  per ordinary share                           |       | (2.1                                     | )          | (1.5                                     | )          | (1.2                                     | )          | (2.2                                     | )          | (3.4                                     | )          |
| Weighted-average shares  outstanding                                     |       | 373,906,149                              |       | 362,389,899                              |       | 362,389,899                              |       | 362,386,940                              |       | 315,264,068                              |       |

 

Note:           Refer Item 8Din respect of changes to the presentation of these financial statementsrelating to the disclosure of cost of sales data.

 

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**GENETICTECHNOLOGIES LIMITED**

 

**CONSOLIDATED BALANCE SHEET DATAFOR 2009, 2008, 2007, 2006 AND 2005**

 

 
| ** **                      | ** ** | **Year ended********June 30, 2009** | ** ** | **Year ended********June 30, 2008** | ** ** | **Year ended********June 30, 2007** | ** ** | **Year ended********June 30, 2006** | ** ** | **Year ended********June 30, 2005** | ** ** |
|---------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                      | ** ** | **AUD**                                  | ** ** | **AUD**                                  | ** ** | **AUD**                                  | ** ** | **AUD**                                  | ** ** | **AUD**                                  | ** ** |
| ** **                      |       |                                     |       |                                     |       |                                     |       |                                     |       |                                     |       |
| **Assets**                      |       |                                     |       |                                     |       |                                     |       |                                     |       |                                     |       |
| Current assets                  |       | 10,103,166                               |       | 15,893,852                               |       | 14,600,846                               |       | 13,960,666                               |       | 19,693,325                               |       |
| Non-current assets              |       | 7,874,565                                |       | 8,200,726                                |       | 14,848,181                               |       | 19,756,241                               |       | 23,805,732                               |       |
| Total assets                    |       | 17,977,731                               |       | 24,094,578                               |       | 29,449,027                               |       | 33,716,907                               |       | 43,499,057                               |       |
| **Liabilities**                 |       |                                     |       |                                     |       |                                     |       |                                     |       |                                     |       |
| Current liabilities             |       | (3,779,385                               | )          | (3,047,002                               | )          | (3,248,763                               | )          | (2,946,212                               | )          | (4,871,674                               | )          |
| Non-current liabilities         |       | (86,301                                  | )          | (262,503                                 | )          | (97,455                                  | )          | (528,556                                 | )          | (944,144                                 | )          |
| Total liabilities               |       | (3,865,686                               | )          | (3,309,505                               | )          | (3,346,218                               | )          | (3,474,768                               | )          | (5,815,818                               | )          |
| Net assets                      |       | 14,112,045                               |       | 20,785,073                               |       | 26,102,809                               |       | 30,242,139                               |       | 37,683,239                               |       |
| **Shareholders’ equity**   |       |                                     |       |                                     |       |                                     |       |                                     |       |                                     |       |
| Contributed equity              |       | 71,285,663                               |       | 70,243,996                               |       | 70,243,996                               |       | 70,243,996                               |       | 70,235,396                               |       |
| Reserves                        |       | 1,701,899                                |       | 1,588,804                                |       | 1,456,895                                |       | 1,237,524                                |       | 779,101                                  |       |
| Accumulated losses              |       | (59,030,262                              | )          | (51,189,189                              | )          | (45,743,100                              | )          | (41,414,557                              | )          | (33,495,784                              | )          |
| Minority interests              |       | 154,745                                  |       | 141,462                                  |       | 145,018                                  |       | 175,176                                  |       | 164,526                                  |       |
| Total shareholders’ equity |       | 14,112,045                               |       | 20,785,073                               |       | 26,102,809                               |       | 30,242,139                               |       | 37,683,239                               |       |

 

**Exchange rates**

 

Thefollowing table sets forth, for the periods and dates indicated, certaininformation concerning the noon buying rate in New York City for Australiandollars expressed in U.S. dollars per $1.00 as certified for customs purposesby the Federal Reserve Bank of New York.

 
| **Period ended**           | ** ** | **At period end** | ** ** | **Average rate** | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------------------|------------|-------------------|------------|------------------|------------|----------|------------|---------|------------|
| ** **                 |       |              |       |             |       |     |       |    |       |
| **Yearly  data**           |       |              |       |             |       |     |       |    |       |
|                       |       |              |       |             |       |     |       |    |       |
| June 2005             |       | 0.7618            |       | 0.7564           |       | 0.7792   |       | 0.7498  |       |
| June 2006             |       | 0.7423            |       | 0.7475           |       | 0.7781   |       | 0.7056  |       |
| June 2007             |       | 0.8491            |       | 0.7899           |       | 0.8491   |       | 0.7407  |       |
| June 2008             |       | 0.9562            |       | 0.8965           |       | 0.9644   |       | 0.7672  |       |
| June 2009             |       | 0.8055            |       | 0.7513           |       | 0.9797   |       | 0.6073  |       |
| ** **                 |       |              |       |             |       |     |       |    |       |
| **Monthly  data**          |       |              |       |             |       |     |       |    |       |
|                       |       |              |       |             |       |     |       |    |       |
| June 2009             |       | 0.8055            |       | 0.8025           |       | 0.8195   |       | 0.7851  |       |
| July 2009             |       | 0.8339            |       | 0.8049           |       | 0.8339   |       | 0.7751  |       |
| August 2009           |       | 0.8439            |       | 0.8353           |       | 0.8439   |       | 0.8201  |       |
| September 2009        |       | 0.8824            |       | 0.8622           |       | 0.8824   |       | 0.8306  |       |
| October 2009          |       | 0.9038            |       | 0.9084           |       | 0.9275   |       | 0.8656  |       |
| November 2009         |       | 0.9131            |       | 0.9196           |       | 0.9369   |       | 0.8985  |       |
| December 2009  (note) |       | 0.9092            |       | 0.9203           |       | 0.9265   |       | 0.9092  |       |

 

Note:           Data for December 2009 covers theperiod up to December 7, 2009.

 

**Item 3.B****                         ****Capitalization and Indebtedness**

 

Notapplicable.

 

**Item 3.C         Reasons for the Offer and Use ofProceeds**

** **

Notapplicable.

 

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**Item 3.D         Risk Factors**

** **

Before you purchase our ADSs, you should be aware thatthere are risks, including those described below.  You should consider carefully these riskfactors together with all of the other information contained elsewhere in thisAnnual Report before you decide to purchase our ADSs.

 

**RisksRelated to Us**

 

**Our stock price is volatile and can fluctuate significantly based onevents not in our control and general industry conditions.  As a result, the value of your investment maydecline significantly.**

 

The biotechnology sector canbe particularly vulnerable to abrupt changes in investor sentiment.  Stock prices of companies in thebiotechnology industry, including ours, can swing dramatically, with littlerelationship to operating performance. Our stock price may be affected by a number of factors including, butnot limited to:

 

·                  product development events;

·                  the outcome of litigation;

·                  decisions relating to intellectualproperty rights;

·                  the entrance of competitive productsor technologies into our market;

·                  new medical discoveries;

·                  the establishment of strategicpartnerships and alliances;

·                  changes in reimbursement policies orother practices related to the pharmaceutical industry; or

·                  other industry and market changes ortrends.

 

Since our listing on the Australian Securities Exchange in August 2000,the price of our Ordinary Shares has ranged from a low of $0.03 to a high of$1.05 per share.  Further fluctuationsare likely to occur due to events not within our control and general marketconditions affecting the biotechnology sector or the stock marketgenerally.  The most significant suchevent of which we have knowledge took place in August 2003 after atelevision report in Australia on our company was broadcast.  During that week, the price of our sharesincreased from $0.58 to $0.87 on a volume of 26,000,000 shares traded, whichwas exceptionally high for us.  The shareprice subsequently retreated.

 

In addition, low tradingvolume may increase the volatility of the price of our ADSs.  Trading volume in our Ordinary Shares onother markets has not been historically high, and the trading volume of ourADSs on the NASDAQ Global Market has typically also been low.  Further, because each of our ADSs represents30 of our Ordinary Shares, trading volume in our ADSs is lower than that forour Ordinary Shares.  A thin trading marketcould cause the price of our ADSs to fluctuate significantly more than thestock market as a whole.  For example,trades involving a relatively small number of our ADSs may have a greaterimpact on the trading price for our ADSs than would be the case if the tradingvolume were higher.

 

The following chart graphically illustrates the fluctuation in theprice of our shares (in Australian dollars) over the last five years:

 

 

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** **

**The fact that we do not expect to pay cash dividendsmay lead to decreased prices for our stock.**

** **

We have never paid a cash dividend on our OrdinaryShares and we do not anticipate paying a cash dividend in the foreseeablefuture.  We intend to retain future cashearnings, if any, for reinvestment in the development and expansion of ourbusiness.  Whether we pay cash dividendsin the future will be at the discretion of our Board of directors and may bedependent on our financial condition, results of operations, capitalrequirements and any other factors our Board of directors decides isrelevant.  As a result, an investor mayonly recognize an economic gain on an investment in our stock from anappreciation in the price of our stock.

 

**You may have difficulty in effecting service of legal processand enforcing judgments against us and our Management.**

 

We are a public company limited by shares, registeredand operating under the Australian *Corporations Act 2001*.  All of our directors and officers named inthis Annual Report reside outside the U.S. Substantially all, or a substantial portion of, the assets of thosepersons are also located outside the U.S. As a result, it may not be possible to affect service on such persons inthe U.S. or to enforce, in foreign courts, judgments against such personsobtained in U.S. courts and predicated on the civil liability provisions of thefederal securities laws of the U.S. Furthermore, substantially all of our directly-owned assets are locatedoutside the U.S., and, as such, any judgment obtained in the U.S. against usmay not be collectible within the U.S. There is doubt as to the enforceability in the Commonwealth ofAustralia, in original actions or in actions for enforcement of judgments ofU.S. courts, of civil liabilities predicated solely upon federal or statesecurities laws of the U.S., especially in the case of enforcement of judgmentsof U.S. courts where the defendant has not been properly served in Australia.

 

**Because we are notnecessarily required to provide you with the same information as an issuer ofsecurities based in the United States, you may not be afforded the sameprotection or information you would have if you had invested in a publiccorporation based in the United States.**

** **

We are exempt from certain provisions of theSecurities Exchange Act of 1934, as amended, commonly referred to as theExchange Act, that are applicable to U.S. public companies, including (i) therules under the Exchange Act requiring the filing with the SEC ofquarterly reports on Form 10-Q or current reports on Form 8-K; (ii) thesections of the Exchange Act regulating the solicitation of proxies, consentsor authorizations in respect of a security registered under the Exchange Act;and (iii) the sections of the Exchange Act requiring insiders to filepublic reports of their stock ownership and trading activities and liabilityfor insiders who profit from trades made in a short period of time.  The exempt provisions would be available toyou if you had invested in a U.S. corporation.

 

However, in line with the Australian SecuritiesExchange regulations, we will disclose our semi-annual results, which, inaccordance with Australian auditing standards, are required to have a limitedreview semi-annually and be fully audited annually.  The information, which may have an effect onthe stock price on the Australian Securities Exchange, will also be disclosedimmediately in the public media and to the Australian Securities Exchange.  Other relevant information pertaining to ourCompany will also be disclosed in line with the Australian Securities Exchangeregulations and information dissemination requirements for listed companies.  We will provide our semi-annual results andother material information that we make public in Australia in the U.S. underthe cover of an SEC Form 6-K. Nevertheless, you may not be afforded the same protection orinformation, which would be made available to you, were you investing in a UnitedStates public corporation because the requirements of a Form 10-Q and Form 8-Kare not applicable to us.

 

**If a public market does not develop for our ADSs, yourability to resell your ADSs could be negatively affected****because there would be limited buyersfor your interests.**

 

Historically, there was virtually no trading in ourADSs through the pink sheets after the establishment of our Level I ADRProgram.  However, subsequent to theLevel II listing of our ADSs on the NASDAQ Global Market on September 2,2005, the trading volumes of our ADSs have increased.  An active trading market for the ADSs,however, may not be maintained in the future. If an active trading market is not maintained, the liquidity and tradingprices of the ADSs could be negatively affected.

 

***In certaincircumstances, holders of ADRs may have limited rights relative to holders ofOrdinary Shares******.***

 

The rights of holders of ADSs with respect to thevoting of Ordinary Shares and the right to receive certain distributions may belimited in certain respects by the deposit agreement entered into by us and TheBank of New York.  For example, althoughADS holders are entitled under the deposit agreement, subject to any applicableprovisions of Australian law and of our Constitution, to instruct thedepositary as to the exercise of the voting rights pertaining to the OrdinaryShares represented by the American Depositary Shares, and the depositary hasagreed that it will try, as far as practical, to vote the Ordinary Shares sorepresented in accordance with such instructions, ADS holders may not receivenotices sent by the depositary in time to ensure that the depositary will votethe Ordinary Shares.  This means that theholders of ADRs may not be able to exercise their right to vote.  In addition, under the deposit agreement, thedepositary has the right to restrict distributions to holders of the ADSs inthe event that it is unlawful or impractical to make such distributions.  We have no obligation to take any action topermit distributions to holders of our American Depositary Receipts, orADRs.  As a result, holders of ADRs maynot receive distributions made by us.

 

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**OurCompany has a history of losses and we expect to continue to incur costs.**

 

The business which is now known as GeneticTechnologies Limited was founded in 1989. We have incurred operating losses in every year of our existence.  We incurred net losses of $10,820,227 for theyear ended June 30, 2005, net losses of $7,918,773 for the year ended June 30,2006, net losses of $4,328,543 for year ended June 30, 2007, net losses of$5,446,089 for year ended June 30, 2008 and net losses of $7,841,073 foryear ended June 30, 2009.  Asof  June 30, 2009, we haveaccumulated losses of $59,030,262.  Theextent of future losses and the time required to achieve profitability remainsuncertain.

 

**Risks Related to ourIndustry**

 

**Our sales cycle is typically lengthy.**

 

The sales cycle for our testing products and licensegeneration is typically lengthy.  As aresult, we may expend substantial funds and management effort with no assuranceof successfully selling our products or services or granting new licenses.  Our ability to obtain customers for ourgenetic testing services depends significantly on the perception that ourservices can help accelerate efforts in genomics.  The sales cycle is typically lengthy.  Our sales effort requires the effectivedemonstration of the benefits of our services to, and significant training of,many different departments within a potential customer.  In addition, we sometimes are required tonegotiate agreements containing terms unique to each customer.  With respect to license generation, it iscommon for negotiations with licensees to take many months before a license iseventually granted.  Our business couldalso be adversely affected if we expend money without any return.

 

**If our competitors develop moreeffective products, the results from our operations and financial conditioncould be affected.**

 

Weare subject to limited competition from biotechnology and diagnostic companies,academic and research institutions and government or other publicly-fundedagencies that are pursuing products and services that are substantially similarto our genetic testing and reproductive services, or which otherwise addressthe needs of our customers and potential customers.  Our competitors in the testing market includeprivate and public sector enterprises located in Australia and elsewhere.  Many of the organizations competing with ushave greater experience in the areas of finance, research and development,manufacturing, marketing, sales, distribution, technical and regulatory mattersthan we do.  In addition, many currentand potential competitors have greater name recognition and more extensivecollaborative relationships.  However,because of our patents, we have virtually no competition in the licensing area.

 

Our competitive position in the testing andreproductive services area is based upon our ability to:

 

·                  create and maintain scientifically-advancedtechnology and offer proprietary products and services;

·                  attract and retain qualified personnel;

·                  obtain patent or other protection for ourproducts and services;

·                  obtain required government approvals andother accreditations on a timely basis; and

·                  successfully market our products andservices.

 

If we are not successful in meeting these goals, ourbusiness could be adversely affected. Similarly, our competitors may succeed in developing technologies,products or services that are more effective than any that we are developing orthat would render our technology and services obsolete, noncompetitive oruneconomical.

 

For afull discussion of competition see Item 4.B, “Competition”.

 

**We rely heavily upon our patents and proprietary technology and anyfuture claims that our patents are invalid could seriously affect our licensingbusiness and adversely affect our revenues and our financial condition.**

 

We rely upon our portfolio of patent rights, patentapplications and exclusive licenses to patents and patent applications relatingto genetic technologies.  We expect toaggressively patent and protect our proprietary technologies.  However, we cannot be certain that anyadditional patents will be issued to us as a result of our domestic or foreignpatent applications or that any of our patents will withstand challenges byothers.  Patents issued to, or licensedby, us may be infringed or third parties may independently develop either thesame or similar technologies.  Similarly,our patents may not provide us with meaningful protection from competitors,including those who may pursue patents which may prevent, limit or interferewith our products or will require licensing and the payment of significant feesor royalties by us to such third parties in order to enable us to conduct ourbusiness.  We may sue or be sued by thirdparties regarding our patents and other intellectual property rights.  These suits are often costly and would divertvaluable funds and technical resources from our operations and causedistraction to Management.

 

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**We have important relationships with external parties over whom we havelimited control.**

 

We have relationships with a number of academicconsultants who are not employed by us. Accordingly, we have limited control over their activities and canexpect only limited amounts of their time to be dedicated to ouractivities.  These persons may haveconsulting, employment or advisory arrangements with other entities that mayconflict with or compete with their obligations to us.  Our consultants typically sign agreementsthat provide for confidentiality of our proprietary information and results ofstudies.  However, in connection withevery relationship, we may not be able to maintain the confidentiality of ourtechnology, the dissemination of which could hurt our competitive position andresults of operations.  To the extentthat our scientific consultants develop inventions or processes independentlythat may be applicable to our proposed products, disputes may arise as to theownership of the proprietary rights to such information, and we may not winthose disputes.

 

**If we are unable to protect our proprietary assets, we may not be ableto commercialize products or services.**

 

Our commercial success will largely depend on ourability to obtain patent protection for many aspects of our business, includingthe products, methods and services we develop. Patents issued to us may not provide us with substantial protection orbe commercially beneficial to us.  Theissuance of a patent is not conclusive as to its validity or itsenforceability.  In addition, our patentapplications or those we have licensed, may not result in issued patents.  If our patent applications do not result inissued patents, our competitors may obtain rights to commercialize ourdiscoveries which could harm our competitive position.  We also may apply for patent protection onnovel genetic variations in known genes and their uses, as well as novel usesfor previously identified genetic variations discovered by third parties.  In the latter cases, we may need a licensefrom the holder of the patent with respect to such genetic variations in orderto make, use or sell any related products. We may not be able to acquire such licenses on terms acceptable to us, ifat all.

 

Certain parties are attempting to rapidly identify andcharacterize genes and genetic variations through the use of sequencing andother technologies.  To the extent thatany patents are issued to other parties on such partial or full-length genes orgenetic variations or uses for such genes or genetic variations, the riskincreases that the sale of products or services developed by us or ourcollaborators may give rise to claims of patent infringement against us.  Others may have filed and, in the future, arelikely to file patent applications covering many genetic variations and theiruses.  Any such patent applications mayhave priority over our patent applications and could further require us toobtain rights to previously issued patents covering genetic variations.  Any license that we may require under anysuch patent may not be made available to us on commercially acceptable terms,if at all.

 

We may be sued for infringing on the intellectualproperty rights of others.  We could alsobecome involved in interference proceedings in the United States Patent andTrademark Office to determine the relative priority of our patents or patentapplications and those of the other parties involved in the interferenceproceeding.  Intellectual property proceedingsare costly, and could affect our results of operations.  These proceedings can also divert theattention of managerial and technical personnel.  If we do not prevail in any intellectualproperty proceeding, in addition to any damages we might have to pay, we couldbe required to stop the infringing activity, or obtain a license to or designaround the intellectual property in question. In interference proceedings, our patent rights could be invalidated andthe scope of our patents could be limited. If we are unable to obtain licenses to intellectual property rights thatwe need to conduct our business, or are unable to design around any third partypatent, we may be unable to sell some of our products, which will result inreduced revenue.

 

We have in the past and may possibly in the futurebecome a party to litigation involving patents and intellectual propertyrights.  We have previously commencedlitigation against a number of parties to protect our rights pertaining to ourintellectual property.  We may in thefuture receive claims of infringement of intellectual property rights fromother parties.  If we do not prevail inany future legal proceedings, we may be required to pay significant monetarydamages.  In addition, we could also beprevented from using certain processes or prevented from selling certainconfigurations of our products or services that were found to be within thescope of the patent claims.  In the eventwe did not prevail in any future proceeding, we would either have to obtainlicenses from the other party, avoid certain product configurations or modifysome of our products, services and processes to design around the patents.  Licenses could be costly or unavailable oncommercially reasonable terms.  Designingaround patents or focusing efforts on different configurations could be timeconsuming, and we may have to remove some of our products or services from themarket while we were completing redesigns. Accordingly, if we are unable to settle future intellectual propertydisputes through licensing or similar arrangements, or if any such futuredisputes are determined adversely to us, our ability to market and sell ourproducts and services could be harmed. This would in turn reduce demands for our services and harm our financialcondition and results of operations.

 

In addition, in order to protect or enforce our patentrights or to protect our ability to operate our business, we may need toinitiate other patent litigation against third parties.  These lawsuits could be expensive, takesignificant time, and could divert Management’s attention from other businessconcerns.  These lawsuits could result inthe invalidation  or limitation in thescope of our patents or forfeiture of the rights associated with ourpatents.  We may not prevail in any suchproceedings and a court may find damages or award other remedies in favor ofour opposing party in any of these suits. During the course of any future proceedings, there may be public announcementsof the results of hearings, motions and other interim proceedings ordevelopments in the litigation. Securities analysts or investors may perceive these announcements to benegative, which could cause the market price of our stock to decline.

 

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**We may be subject to professionalliability suits and our insurance may not be sufficient to cover damages.  If this occurs, our business and financialcondition may be adversely affected.**

 

Our business exposes us to potential liability risksthat are inherent in the testing, manufacturing, marketing and sale of genetictests.  The use of our products andproduct candidates, whether for clinical trials or commercial sale, may exposeus to professional liability claims and possible adverse publicity.  We may be subject to claims resulting fromincorrect results of analysis of genetic variations or other screening testsperformed using our services.  Litigationof such claims could be costly.  We couldexpend significant funds during any litigation proceeding brought againstus.  Further, if a court were to requireus to pay damages to a plaintiff, the amount of such damages couldsignificantly harm our financial condition. Although we have public and products liability insurance coverage underbroadform liability and professional indemnity policies, for an aggregateamount of $60,000,000, the level or breadth of our coverage may not be adequateto fully cover potential liability claims. To date we have not been subject to any claims, or ultimately liability,in excess of the amount of our coverage. In addition, we may not be able to obtain additional professionalliability coverage in the future at an acceptable cost.  A successful claim or series of claimsbrought against us in excess of our insurance coverage and the effect ofprofessional liability litigation upon the reputation and marketability of ourtechnology and products, together with the diversion of the attention of keypersonnel, could negatively affect our business.

 

**We use potentially hazardous materials, chemicals and patient samplesin our business and any disputes relating to improper handling, storage ordisposal of these materials could be time consuming and costly.**

 

Our research and development, production and serviceactivities involve the controlled use of hazardous laboratory materials andchemicals, including small quantities of acid and alcohol, and patient tissueand blood samples.  We do not knowinglydeal with infectious samples.  We, ourcollaborators and service providers are subject to stringent Australianfederal, state and local laws and regulations governing occupational health andsafety standards, including those governing the use, storage, handling anddisposal of these materials and certain waste products.  However, we could be liable for accidentalcontamination or discharge or any resultant injury from hazardous materials,and conveyance, processing, and storage of and data on patient samples.  If we, our collaborators or service providersfail to comply with applicable laws or regulations, we could be required to paypenalties or be held liable for any damages that result and this liabilitycould exceed our financial resources. Further, future changes to environmental health and safety laws couldcause us to incur additional expense or restrict our operations.  We have never had a reportable serious injurythrough the date of this Annual Report.

 

In addition, our collaborators and service providersmay be working with these types of hazardous materials, including hazardouschemicals, in connection with our collaborations.  In the event of a lawsuit or investigation,we could be held responsible for any injury caused to persons or property byexposure to, or release of, these patient samples that may contain viruses andhazardous materials.  The cost of thisliability could exceed our resources. While we maintain broadform liability insurance coverage for theserisks, in the amount of up to $40,000,000, the level or breadth of our coveragemay not be adequate to fully cover potential liability claims.  To date, we have not been subject to claims,or ultimately liability, in excess of the amount of our coverage.  Our broadform insurance coverage also coversus against losses arising from an interruption of our business activities as aresult of the mishandling of such materials. We also maintain workers’ compensation insurance, which is mandatory inAustralia, covering all of our workers in the event of injury.

 

**We depend on the collaborative efforts of our academic and corporatepartners for research, development and commercialization of some of ourproducts.  A breach by our partners oftheir obligations, or the termination of the relationship, could deprive us ofvaluable resources and require additional investment of time and money.**

 

Our strategy for research, development andcommercialization of some of our products has historically involved enteringinto various arrangements with academic and corporate partners and others.  As a result, our strategy depends, in part,upon the success of these outside parties in performing theirresponsibilities.  Our collaborators mayalso be our competitors.  We cannotcontrol the amount and timing of resources that our collaborators devote toperforming their contractual obligations and we have no certainty that theseparties will perform their obligations as expected or that any revenue will bederived from these arrangements.

 

If our collaborators breach or terminate theiragreement with us or otherwise fail to conduct their collaborative activitiesin a timely manner, the development or commercialization of the productcandidate or research program under such collaborative arrangement may bedelayed.  If that is the case, we may berequired to undertake unforeseen additional responsibilities or to devoteunforeseen additional funds or other resources to such development orcommercialization, or such development or commercialization could beterminated.  The termination orcancellation of collaborative arrangements could adversely affect our financialcondition, intellectual property position and general operations.  In addition, disagreements betweencollaborators and us could lead to delays in the collaborative research,development, or commercialization of certain products or could require orresult in formal legal process or arbitration for resolution.  These consequences could be time-consumingand expensive and could have material adverse effects on us.

 

Other than our contractual rights under our licenseagreements, we may be limited in our ability to convince our licensees tofulfill their obligations.  If ourlicensees fail to act promptly and effectively, or if a dispute arises, itcould have a material adverse effect on our results of operations and the priceof our Ordinary Shares and ADSs.

 

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We rely upon scientific, technical and clinical datasupplied by academic and corporate collaborators, licensors, licensees,independent contractors and others in the evaluation and development ofpotential therapeutic methods.  There maybe errors or omissions in this data that would materially adversely affect thedevelopment of these methods.

 

We may seek additional collaborative arrangements todevelop and commercialize our products in the future.  We may not be able to negotiate acceptable collaborative arrangements in the futureand, if negotiated, we have no certainty that they will be on favorable termsor will be successful.  In addition, ourcollaborative partners may pursue alternative technologies independently or incollaboration with others as a means of developing treatments for the diseasestargeted by their collaborative programs with us.  If any of these events occurs, the progressof the Company could be adversely affected and our results of operations andfinancial condition could suffer.

 

**Problems associated with internationalbusiness operations could affect our ability to license our technology and ourresults of operations.**

 

We seek to license our intellectual property and tomarket our growing range of other products and services on a global scale,including in countries that are considered to provide significantly lessprotection to intellectual property than the United States and Australia.  In addition, a number of other risks areinherent in international transactions and commerce, including political andeconomic instability, foreign currency exchange fluctuations and changes in taxlaws.

 

**Government regulation of genetic research or testing mayadversely affect the demand for our services and impair our business andoperations.**

 

Apart from accreditation requirements, we aregenerally not subject to regulation. Federal, state and local governments, however, may adopt regulationsrelating to the conduct of genetic research and genetic testing.  These regulations could limit or restrictgenetic research activities as well as genetic testing for research or clinicalpurposes.  In addition, if state andlocal regulations are adopted, these regulations may be inconsistent with, orin conflict with, regulations adopted by other state or local governments.  Regulations relating to genetic researchactivities could adversely affect our ability to conduct our research anddevelopment activities.  Regulations restrictinggenetic testing could adversely affect our ability to market and sell ourproducts and services.  Accordingly, anyregulations of this nature could increase the costs of our operations orrestrict our ability to conduct our testing business and might adversely affectour operations and financial condition.

 

InAustralia, there is no law that prohibits the performing of a paternity test byusing just a sample obtained from a father and child.  In May 2003, the Australian Law ReformCommission (ALRC) released its report into Human Genetic Testing inAustralia.  In relation to paternitytesting, it made various recommendations, the most significant of which wasthat the testing of a child without the knowledge or consent of both parentsshould be made illegal.  In December 2005,the Australian Government formally responded to the ALRC report.  Although it accepted most of the report’srecommendations, it did not accept its recommendation that it should be illegalto test a child without the knowledge or consent of both parents.  Instead, it recommended that the body thatformally accredits laboratories, National Association of Testing Authorities(NATA) should review its accreditation requirements for DNA parentage testingto ensure that laboratories meet the highest technical and ethical standards,particularly in relation to consent to testing, protecting the integrity ofgenetic samples, and providing information about counselling. As of the date of this Annual Report, NATA has made no recommendation inrelation to the Government’s recommendation.

 

In November 2008,the Federal Government released a discussion paper on non-consensual genetictesting which it proposes to make illegal. The purpose of this paper is to obtain feedback from the public andindustry on this issue prior to formulating legislation in this area.  In the area of paternity testing, the paperdiscusses the issue of consent but makes no recommendation as to what therequired consent for taking a sample from a child would be.  For example, does this require the consent ofboth parents or just one?  If the testingof a sample eventually requires the consent of both parents, then this willhave a negative impact on our revenue as father/child testing is a substantialand growing market.

 

Responsesto the discussion paper were submitted by the end of January 2009. It isnot known how long the Government will take to consider these submissions norits timeframe to draft and then pass any proposed legislation.  If passed, this legislation will immediatelybecome law in the Australian Capital Territory and the Northern Territory.  All other States would then be required topass mirror legislation but are under no obligation to do so.  It is not clear how long it would take theStates to pass this legislation.

 

**We rely on the services of individuals who possess special skills andexperience.**

 

Much of the future success of the Company depends onthe continued service and availability of skilled personnel, including membersof its senior executive team, and those in technical, marketing and staffpositions.  While we actively recruit newemployees with such skills and experience to reduce our reliance on theseindividuals, skilled personnel, with specific experience in the biotechnologyindustry, are in high demand and competition for their talents is intense.

 

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**Ethical and other concerns surrounding the use of genetic informationmay reduce the demand for our services.**

 

Public opinion regarding ethical issues related to theconfidentiality and appropriate use of genetic testing results may influencegovernmental authorities to call for limits on, or regulation of the use of,genetic testing.  In addition, suchauthorities could prohibit testing for genetic predisposition to certainconditions, particularly for those that have no known cure.  Furthermore, adverse publicity or publicopinion relating to genetic research and testing, even in the absence of anygovernmental regulation, could reduce the potential markets for our services,which could materially and adversely affect our revenues.

 

Althoughwe are a leader in the field of genetics in Australia, we do not undertake anyactivities in the contentious areas of cloning, stem cell research or othergene-altering areas.  As such, many ofthe ethical issues that may be relevant to other participants in the geneticsindustry are not applicable to us.

 

**Licensing**

** **

Thepatenting of genes and issues surrounding access to genetic knowledge are thesubjects of extensive and ongoing public debate in many countries.  By way of example, the Australian Law ReformCommission has previously conducted two inquiries into the social uses ofgenetic information.  The patents we holdover uses of “non-coding” DNA have a broad scope and these have also been thesubject of debate and some criticism in the media.  A risk we may face is that individuals ororganizations in any of the countries in which these patents have issued couldpotentially take legal action to seek their amendment, revocation orinvalidation.

 

Furthermore,any time that we initiate legal action against parties that infringe ourpatents we face a risk that the infringer will defend itself through acounter-claim of patent invalidity.  Subsequentlegal action could potentially overturn, invalidate or limit the scope of ourpatents.

 

Underthe relevant Patent Act in most, if not all, of the countries in which ournon-coding patents have issued, the relevant judicial system has rights to imposecompulsory licensing.  The relevantgovernments typically hold “march-in” rights by which they may unilaterallychoose to exploit the technology.  To theextent that the Company’s non-coding technology is used in the conduct ofgenetic research, we also face risks, uncertainty and controversy over thelicensing of our technology to those conducting research.  Whether or not researchers should be exemptedfrom obligations to take licenses to relevant patents was the subject ofanother government inquiry conducted by the Australian Council for IntellectualProperty who recommended the creation of a research exemption.

 

Duringthe 2008 calendar year, a Senate Inquiry into “matters relating to the grantingof patents in Australia over human and microbial genes and non-coding sequences”was initiated by the Australian Federal Government.  Along with more than 50 other partiesrepresenting a wide variety of interested groups, the Company lodged a formalsubmission to the Inquiry.  As of thedate of this Report, the final date for the lodging of submissions has passedand the Senate is receiving those which have been lodged ahead of making itsrecommendations sometime prior to the end of the 2009 calendar year.  Irrespective of the outcome of the Inquiry,the Company anticipates that it will have little, if any, material impact onthe Company’s business.

 

**Genetic testing**

** **

There is a risk that a moratorium on genetic testingby the Australian Institute of Sport may impact on the commercialization of oursports performance genetic test for the elite competitor market inAustralia.  However, this moratoriumshould not impact our ability to distribute this test throughout the rest ofthe world.  There is also a view held bysome elements of the medical and academic communities that the marketing ofsome of our cancer predisposition tests is done solely with a commercialobjective in mind.  In essence, someparties have indicated that, in their view, the risk of inheriting certaintypes of cancer is too low to warrant the marketing of genetic testing servicesto the wider cancer community where such promotion may increase anxietyunnecessarily.  Guidelines laid down bythe Australian National Health Medical Research Council also prevent us frompromoting our testing in a manner which may “cause any unnecessary alarm”.

 

In recent years, health carepayors as well as federal and state governments have focused on containing orreducing health care costs.  We cannotpredict the effect that any of these initiatives may have on our business.  In particular, gene-based therapeutics, ifsuccessfully developed and commercialized, are likely to be costly compared tocurrently available drug therapies.  Healthcare cost containment initiatives focused either on gene-based therapeutics oron genetic testing could result in the growth in the clinical market forgenetic testing being curtailed or slowed. In addition, health care cost containment initiatives could also causepharmaceutical companies to reduce research and development spending.  In either case, our business and ouroperating results could be adversely affected. Further, genetic testing in clinical settings is often billed tothird-party payors, including private insurers and governmentalorganizations.  If our current and futureclinical products and services are not considered cost-effective by thesepayors, reimbursement may not be available to users of our services.  In this event, potential customers would bemuch less likely to use our services and our business and operating resultscould be harmed.

 

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**ITEM4.          INFORMATION ON THE COMPANY**

** **

**Item 4.A         History and Development of the Company**

 

We were incorporated under the laws of WesternAustralia on January 5, 1987 as Concord Mining N.L.  On August 13, 1991, we changed our nameto Consolidated Victorian Gold Mines N.L. On December 2, 1991, we changed our name to Consolidated VictorianMines N.L.  On March 15, 1995, wechanged our name to Duketon Goldfields N.L.

 

On October 15, 1999, thetype of company was changed from a No Liability Company to a company limited byshares.      On August 29, 2000, wechanged our name to Genetic Technologies Limited, which is our currentname.  We were originally incorporated asa mining company and gradually phased out our mining activities and became abiotechnology company with the acquisition of GeneType AG in August 2000.  Our Australian Company Number (ACN) is 009212 328.  Our Australian Business Number(ABN) is 17 009 212 328.  We operatepursuant to our constitution, the Australian *CorporationsAct 2001*, the Australian Securities Exchange Listing Rules, theMarketplace Rules of NASDAQ and, where applicable, local legislation.

 

Our registered office,headquarters, laboratory and business activities are all located at 60-66Hanover Street, Fitzroy, Victoria, 3065 Australia.  Our telephone number is +61 3 8412 7000.  Our website address is www.gtglabs.com.  Information on our website and websiteslinked to it does not constitute part of this Annual Report.

 

On August 29, 2000, weacquired 100% of GeneType AG, including all of its valuable patents, and wechanged our focus exclusively to the area of biotechnology.  We also changed our name to GeneticTechnologies Limited to better reflect our new business.  In September 2000, our listing was dulytransferred from the mining board of the ASX to the industrial board and ourshares were thereafter classified under the industry group “Health andBiotechnology”, completing our transformation from a mining and resourcescompany into a biotechnology company. During 2001, we also acquired 10% of the issued and outstanding sharesin Cytomation Inc., based in Fort Collins, Colorado.  At that time, Cytomation was a leader in themanufacture and sales of flow cytometers and cell sorters.  Also, in December 2001, we acquired aninitial shareholding of less than 1% in the issued capital of XY, Inc., acompany also based in Fort Collins.  InJuly 2001, we acquired the business of DNA-ID Labs in Perth, Western Australia,as part of our strategy of expanding our paternity testing business inAustralia.  In March 2002, we formedAgGenomics Pty. Ltd., based in Melbourne, in order to expand our genetictesting services into the field of plant genetics.  In May 2003, we acquired the fixed assets ofthe business Genetic Science Services in Melbourne, in order to further expandinto the field of genetic testing.  InMay 2007, we sold all of our shares in XY, Inc. The total proceeds received from the sale were $332,709 which resultedin a loss on sale of $33,307.  In July2008, we acquired all of the issued shares of Frozen Puppies Dot Com Pty. Ltd.based in Calga, New South Wales, which is Australia’s leading provider ofcanine reproductive services for a total consideration of $1,550,097,comprising a combination of shares in the Company (with a value of $1,041,667)and cash.

 

Since the acquisition of GeneType AG, the directorshave disposed of all remaining mining interests so that our activities nowfocus solely on emerging opportunities in the field of biotechnology.  Our current activities in biotechnologyprimarily concentrate on three clearly defined areas of activity which arecovered under Item 4.B “Business Overview”.

 

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In early calendar year 2002, we commenced the processof out-licensing our non-coding patents, announcing several earlysuccesses.  Since then, we have grantedcommercial licenses to a total of 38 licensees and 6 research licenses to thefollowing parties, which are listed in reverse chronological order of their effectivedates:

 
| **Commercial  licensees**                                       | ** ** | **Research  licensees**                              |
|-----------------------------------------------------------------|------------|------------------------------------------------------|
|                                                            |       |                                                 |
| 38. TIB MOLBIOL  Syntheselabor GmbH, **Germany**                |       | 6. Texas A&M University (Merlogen Inc.), **USA** |
| 37. Millennium  Pharmaceuticals Inc., **USA**                   |       | 5. Colorado State University, **USA**                |
| 36. GeneDx (Bio  Reference Laboratories Inc.), **USA**          |       | 4. University of Technology Sydney, **Australia**    |
| 35. General  Electric Company, **USA**                          |       | 3. King’s College, London, **England**          |
| 34. Prometheus  Laboratories Inc. **USA**                       |       | 2. University of Sydney, **Australia**               |
| 33. Kimball  Genetics Inc., **USA**                             |       | 1. University of Utah, **USA**                       |
| 32. BioSearch  Technologies Inc., **USA**                       |       |                                                 |
| 31. Syngenta  Crop Protection AG, **Switzerland**               |       |                                                 |
| 30. Monsanto  Company (swine genetics), **USA**                 |       |                                                 |
| 29. Thermo  Fisher Scientific Inc., **USA**                     |       |                                                 |
| 28. Monsanto  Company (plant genetics) **USA**                  |       |                                                 |
| 27. Sciona Inc., **USA**                                        |       |                                                 |
| 26. Genosense Diagnostics GmbH, **Austria**                     |       |                                                 |
| 25. Innogenetics NV, **Belgium**                                |       |                                                 |
| 24. Bovigen LLC, **USA**                                        |       |                                                 |
| 23. Optigen LLC,  **USA**                                       |       |                                                 |
| 22. Applera  Corporation, **USA**                               |       |                                                 |
| 18 - 21. Four  agriculture groups, **New Zealand**              |       |                                                 |
| 17. Australian  Genome Research Facility Limited, **Australia** |       |                                                 |
| 16. Bionomics  Limited, **Australia**                           |       |                                                 |
| 15. C.Y.  O’Connor ERADE Village Foundation, **Australia** |       |                                                 |
| 14. ViaLactia  Biosciences Limited, **New****Zealand**          |       |                                                 |
| 13. MetaMorphix  Inc., **USA**(license subsequently terminated) |       |                                                 |
| 12. Genzyme  Corporation, **USA**                               |       |                                                 |
| 11. Ovita  Limited, **New****Zealand**                          |       |                                                 |
| 10. Laboratory  Corporation of America Holdings, **USA**        |       |                                                 |
| 9. TM  Biosciences Corporation, **Canada**                      |       |                                                 |
| 8. Quest  Diagnostics Inc., **USA**                             |       |                                                 |
| 7. ARUP, **USA**                                                |       |                                                 |
| 6. Biotage AB, **Sweden**                                       |       |                                                 |
| 5. Myriad  Genetics Inc., **USA**                               |       |                                                 |
| 4. Perlegen Sciences Inc., **USA**                              |       |                                                 |
| 3. Nanogen Inc., **USA**                                        |       |                                                 |
| 2. Sequenom  Inc., **USA**                                      |       |                                                 |
| 1. Genetic  Solutions Pty. Ltd., **Australia**                  |       |                                                 |

 

It is a priority for the Company to continue toidentify additional parties who would benefit from taking a license to theCompany’s non-coding patents.  We are nowpursuing negotiations with a number of companies and organizations in USA andEurope that would benefit from taking a license to our non-coding patents orfrom collaborations with our service testing business.

 

Inorder to increase the rate at which these licenses can be secured, thelicensing team at the Company’s headquarters in Melbourne, Australia has beenexpanded in recent years by the appointment of additional staff to acceleratethe preparation of dossiers on potential licensees.  Internationally, independent licensingcontractors were engaged to represent the Company “on the ground” in our majormarkets.

 

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**Item 4.B**                          BusinessOverview

** **

We are a biotechnology company focused onexpanding our genetic testing and reproductive service businesses in theAsia-Pacific region.  In addition, we arenow pursuing commercial opportunities in other areas of activity:

 

(i)                     out-licensingour non-coding patents globally; and

 

(ii)                  supportingcertain late-stage research and development projects in which we are alreadyinvolved.

 

**Industry Background**

** **

The Human Genome Project announced (in April 2003)the completion of the first draft of the entire sequence of the humangenome.  The biotechnology industry isnow working to build upon the vast amount of knowledge generatedby thatprogram in order to develop a better understanding of the genetic basis ofhuman health and disease.  Increasingly,genetics is being shown to play a key role in the diagnosis and treatment ofmany diseases in humans, as well as diseases in animals and plants.  Our growing understanding of genetics is nowproviding new information for understanding such predisposing or causativefactors in many of these diseases.

 

Prior to the Human Genome Project, thesuccessful mapping of the Mouse Genome (published in December 2002)permitted, for the first time, a detailed comparison of human genes and mousegenes.  One of the key findings that hasarisen from this work is the significant role that non-coding DNA plays incontrolling gene function in both human genes and mouse genes.  For some scientists, but not for our company,these findings - of the great significance of non-coding DNA to gene function -were new, significant and totally unexpected.

 

A major focus in science isnow the identification and analysis of genetic variations anddisease-associated genes within the genome. These genetic variations, or polymorphisms, in the DNA sequences varybetween individuals.  The most commongenetic variations are Single Nucleotide Polymorphisms, or SNPs, which aremerely a difference in a single nucleotide. The first draft of the human genome identified over 1.4 million SNPsthat can be useful as positional signposts for disease-associated DNA sequencesin a gene or as markers to map genes along a chromosome.  A significant number of these SNPs (perhapsmore than 97%) are now known to be non-coding.

 

**Genomics**

** **

A genome is an organism’scomplete set of DNA and the study of that DNA is called genomics.  Genomes vary in size, with bacteriadisplaying the smallest known genome at 600,000 DNA base pairs, while human andmouse genomes have over 3 billion.  TheDNA of the human genome is organized into 24 distinct chromosomes that containfrom 50 million to 250 million base pairs on each chromosome.  The DNA on each chromosome contains genesthat are specific sequences that encode proteins that actually perform the workwithin a cell and also make up the cell itself. Surprisingly, only about 2% to 5% of the human genome is organized intocoding DNA, with the remainder being considered to be non-coding DNA.  Our patent portfolio is centered onproprietary methods for utilizing the valuable information contained withinthese non-coding regions.

 

**Genetic Variability**

** **

Almost 99.9% of anindividual’s genome is identical to that of every other individual’sgenome.  However, even slight variationsin sequence can drastically change how a gene functions.  Variations can lead to harmless changes, suchas blue eyes instead of brown, or to major diseases such as cancer, cysticfibrosis, or cardiovascular disease. Genetic variations can also be responsible for many of the differencesin the ways individuals respond to drug therapies.  As a result of this knowledge, routine analysisof SNPs and other genetic variations is expected to play an increasinglyimportant role in the discovery and development of new drugs, as well as in avariety of diagnostic therapeutic and other medical and life scienceapplications.  Industry sources estimatethere are millions of genetic variations in the human genome, creating demandfor products and technologies that can quickly and accurately detect andanalyze these variations.  It is thoughtthat the medicine of the future will be dispensed to a patient based on his orher own specific DNA variations.  Thistype of “personalized medicine” will require sophisticated genetic tests todetermine the genetic composition of an individual, and it is now recognizedthat such genetic make-up depends not only on the form of the coding DNA, butalso the form of the associated non-coding DNA.

 

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**GeneticTests**

 

Most genes come in manydifferent forms, called alleles.  One ormore allele may be associated with a particular disease state.  Genetic testing involves the directexamination of an individual’s DNA for a DNA marker associated with the alleleof interest.  The determination of theparticular alleles an individual has within his or her DNA is calledgenotyping.

 

The most commonly testedmarker of a particular allele is a SNP. As much as 98% of the human genome is considered to be non-coding DNA,the majority of the identified 1.4 million SNPs are also located in non-codingregions of DNA.  We believe that alicense to our proprietary methods of analyzing non-coding regions of DNA willbe absolutely necessary for many of the genetic tests of the future.  Similarly, tests for genetic abnormalities ormutations may involve not just individual SNPs, but also groups of SNPs or evenlarger sequences of DNA, and such abnormal sequences - large or small - may belocated either in the coding region alone, or in the non-coding region alone,or in both the coding and non-coding regions of the gene (or genes) underexamination.  Clearly, the variationswithin genes that may be responsible for a disease are now known to be muchmore complicated than was previously understood, and the role of non-coding DNAis now being found to be highly relevant in a growing number of diseases.  This similarly applies to genetic disordersin animals and in plants.  Accordingly,more and more genetic testing will in future look not only at codingvariations, but also at the non-coding variations within a particular gene.

 

**Building the Genetic Testing Business**

** **

**Background and History of the Paternity TestingBusiness**

** **

In the early 1990’s, GeneType AG established a smallservice testing laboratory in Melbourne, Australia, initially to show-case itsnon-coding inventions, but also to generate revenue to help support and fundits ambitious research program in those early days.  Following the acquisition of several othersmall DNA testing laboratories in Australia, GeneType AG consolidated thebusiness such that the Company is now the largest provider of paternity andrelated testing services in Australia.

 

In August 2000, we acquired 100% of GeneType AG,including control over all its patents and its service testing business.  Later, in July 2001, we acquired thepaternity testing business of DNA-ID Labs, another small testing laboratory basedin Perth, Western Australia.  Overall, weacquired several small businesses, two based in Sydney, New South Wales, onebased in Perth and one based in Melbourne, eventually making our servicetesting laboratory in Melbourne the leading non-Government genetic testingservice provider in Australia.  We nowhave extensive experience in providing DNA-based individuality testing for theresolution of disputed paternity, the determination of familial relationshipsfor immigration purposes and for forensic analysis.

 

The most common type of DNA testing is paternitytesting - where we determine the father of a given child.  In order to perform this test we take asample from the mother, alleged father and child.  The test can also be performed without themother’s sample but this makes the analysis somewhat more complex and the pricefor the test increases accordingly.

 

Other types of tests we can offer include:

 

·                  Y chromosome testing - determines if twomales come from the same paternal line, i.e. have a common father orgrandfather.

·                  Mitochondrial DNA testing - determines if twopeople come from the same maternal line.

·                  Sibship testing - determines if people arefull siblings, i.e. have the same mother and father.

·                  Maternity testing - determines the mother ofa given child.

·                  DNA typing - reveals the DNA makeup of anindividual.

·                  Grandparent analysis - determines thegrandparents of a given child.  This ismainly used when the father of a child is deceased and a will is beingcontested.

·                  Antenatal DNA testing - determines the fatherof an as-yet unborn child.

·                  Semen analysis - determines if semen ispresent on, for example, an article of clothing.  If it is, we can DNA type this sample andcompare it to a reference sample.

 

We issue reports for the Family Court inAustralia and provide similar services internationally for the Department ofImmigration and Citizenship (DIAC).  Weare one of only two DNA testing laboratories in Australia recognized by DIAC toprovide DNA tests for immigration purposes.

 

Over time, we have gained a reputation as a leadinggenetic testing laboratory, and progressively, we have started to receivespecimens for testing from other countries, most of which are located in theAsia-Pacific region.  In addition, wereceived requests to perform tests outside of human paternity, and this hascaused us to consider and now plan a significant expansion of our testingservices.

 

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**Expansion of TestingServices Beyond Paternity Testing**

 

**(1) PlantTesting**- in March 2002,we formed a joint venture with the Victorian State Government’s Department ofPrimary Industry, for the purpose of providing a high throughput genotypingservice for plant testing - in order to help plant breeders identify the genesresponsible for the detection of commercially relevant traits, such asresistance to disease, accelerated growth and the improvement of cropyields.  A new company, AgGenomics Pty.Ltd., was formed, with us as the majority shareholder and the State agency asthe minority partner.  AgGenomics islocated at the Victorian AgriBiosciences Centre at La Trobe University R&DPark in Melbourne, Victoria.

 

**(2) Medical Testing**- the strategic alliance with MyriadGenetics Inc. delivered to the Company exclusive rights in Australia and NewZealand to perform DNA testing for susceptibility to a range of cancers.  In April 2003, we established our cancersusceptibility testing facility.  In June 2003,this facility was granted provisional accreditation by the National Associationof Testing Authorities, Australia (“NATA”).  This important area of testing continues tobuild momentum, with the addition of new equipment, new employees joining theCompany and new technology becoming available exclusively to us, such that theAustralian community now has access to some of the latest technologiesavailable for genetic testing.

 

In November 2003,the Company joined the world-wide genetic testing network GENDIA as the solereference laboratory for the network in Australia and New Zealand.  GENDIA consists of more than 50 laboratoriesfrom around the world, each contributing expertise in their respectivedisciplines to create a network capable of providing more than 2,000 differentgenetic tests.  This has provided theCompany with the ability to offer comprehensive testing services to itscustomer base in the Asia-Pacific region as well as increasing our exposure toother markets.

 

In November 2004,the Company announced a strategic alliance with Australian biotechnologycompany Bionomics Limited for the commercialisation of the diagnostic genetictest for the condition Severe Myoclonic Epilepsy in Infancy.  This test was the first to expand the Company’shuman molecular diagnostics focus beyond cancer susceptibility testing.  In July 2006, we further cemented ourposition as Australia’s leading independent provider of complex genetic testingservices with NATA granting further accreditation of our Melbourne laboratoryto provide a wide range of complex genetic tests.  Genetic analysis for the predisposition anddiagnosis of a wide range of disease states is increasingly being used byclinicians in standard medical practice. We committed to providing the gold standard in testing technology, withsuperior turn-around times and a substantially more cost efficientservice.  Attainment of the furtheraccreditation by NATA in the area of complex gene sequencing testing serviceshas enabled numerous government funded genetics services to begin utilizing theCompany’s testing service to improve patient care.

 

For the financial yearended June 30, 2009, we generated revenue in the Medical division of $1.44million, representing an increase of more than 29% over the previous financialyear.  Having established an excellentlaboratory service with significant excess capacity, the Company announced in July 2008that a commercial decision had been made to enforce the rights granted to itunder an exclusive license from Myriad to perform diagnostic testing of theBRCA1 and BRCA2 genes in Australia and New Zealand.  However, following the removal of fiveDirectors from the Board at the Company’s Annual General Meeting on November 19,2008, the new Board undertook a formal review of the Company’s decision toenforce its BRCA testing rights and subsequently resolved to immediately revertto its original decision to allow other laboratories in Australia to freelyperform BRCA testing.

 

**(3) AnimalTesting**- in May 2003,we acquired the assets of Genetic Science Services to expand the range of testswe can offer to include relevant genetic testing in animals - for example,progeny testing in horses, dogs, deer, sexing in birds, and animal diseaseidentification and susceptibility testing for a range of animals, includingexotic and zoo animals.  This acquisitionwill also allow the Company to support research projects involving, forexample, the Australian fur seal, and possibly the platypus and various frogsand reptiles.

 

Inaddition to NATA accreditation for complex genetic analysis mentioned above, in2006 GTG also received NATA accreditation for the provision of canine forensicanalysis services.  We are the onlylaboratory in Australia to receive such accreditation.  This accreditation ensures that we willcontinue to be the laboratory of choice for all canine forensic analysis,especially where prosecutions are initiated for dog attacks.  In the state of Victoria alone, there are inexcess of 7,000 dog incidents reported annually.  This accreditation, together with the recentannouncement of a genetic test to determine the breed of dogs, places theCompany in a strong position to provide genetic analysis services to localcouncils around Australia.

 

During 2008, the Companylaunched our Dog Attack Pack, a forensic tool enabling local governmentofficers to collect samples from dog attacks and BITSATM, a breed identificationtest that uses DNA analysis to provide a history of a dog’s breed.

 

InJuly 2008, we acquired Frozen Puppies Dot Com Pty. Ltd., an Australiancompany specializing in canine reproductive services.  Since then, the Company has made excellent progressexpanding its facilities into territories outside of Australia, developingstrong relationships with breeders and associations in China, Japan, NewZealand and elsewhere.  Staff have beenemployed to manage the Company’s activities in these territories andpurpose-built facilities have now been established on the outskirts of Beijing,China and in several States of Australia.

 

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**(4) ForensicTesting** - recognisingthe increasing use of DNA analysis in forensics and the demand this would placeon existing government laboratories, in February 2004, the Companysuccessfully gained forensics accreditation from the National Association ofTesting Authorities, Australia (NATA). We were the first non-government laboratory in Australia to be awardedthis accreditation.  Since then, we havedeveloped a highly efficient and technologically advanced forensics laboratory. This capability was substantiallyadvanced by our recent non-coding licensing deal with Applera Corporation underwhich we secured equipment and supplies essential to conducting forensicsanalysis.  Together with these resourcesand our experience in DNA analysis, the Company is becoming a major provider ofDNA analysis services to the forensics community.

 

InApril 2006, we announced that we had been awarded a contract to supply theNew South Wales (NSW) Police Force with DNA analysis services.  Under the contract, we provided services foran initial trial period of three months. Following this successful trial, we executed a three year contract withthe NSW Police Force in January 2008 for DNA analysis services for theirvolume crime samples, such as burglary and motor vehicle theft.  This contract represented a majorbreakthrough for the Company and was the first time in Australia that anyPolice Force had awarded a long-term contract to outsource the testing of theircrime samples.

 

Webelieve that a significant opportunity exists for the Company to assist otherpolicing authorities to expeditiously process DNA samples and is in discussionswith a number of these parties.  It isestimated that there is a substantial backlog of DNA samples currently waitingto be processed by police departments throughout Australia.  This is in addition to the processing of DNAsamples collected on an ongoing basis from crime scenes.

 

**(5) AthleticPerformance Testing**- the Company acquired the commercial rights from the University of Sydney fora genetic test, known as the ACTN3 Sports Gene TestTM, which is capable ofdetermining whether or not this gene is providing athletes with a geneticadvantage for sprint-power performance. In September 2005, we announced the official launch of this test inJapan with its Japanese distribution partner, Sportsstyle, to an audience ofover 100 sports specialists, including the President of the Japan Federation ofHealth and Sports.  The launch of theACTN3 SportsGene TestTM was widely reported in the Japanese press.  All commercial ACTN3 SportsGene Tests fromJapan are analysed at our laboratory in Melbourne.  In conjunction with Sportsstyle, we have heldmeetings with influential sporting bodies looking to use the ACTN3 SportsGeneTestTM as part of their training and assessment program.

 

On January 7, 2008, the Company appointed Colorado-based talentidentification company EPIC Athletic Performance Inc. (“EPIC”) as anon-exclusive distributor of the ACTN3 SportsGene Test® product in the UnitedStates.  Samples have been receivedthrough calendar 2009, but it is not known at this point whether there is anongoing market for such a test.

 

Distributors are being set in place in various parts of the world to sellthe ACTN3 SportsGeneTestTM.  More information regarding the marketpotential of this product will be known by the end of calendar 2010.

 

**(6) ReproductiveServices** — withthe acquisition of Frozen Puppies Dot Com Pty. Ltd. in July 2008, theCompany acquired a canine fertility clinic in Calga, New South Wales, Australiaand established another clinic in Beijing, China.  Further clinics are being established withthe aim of combining both fertility services and DNA disease and trait tests(see below: Genetic testing — Animals) to customers and breeders in bothAustralia and overseas.

 

**Our Patent Portfolio**

** **

The acquisition of GeneType AG gave ourcompany ownership rights to a potentially significant portfolio of issuedpatents.  The major families of patentsin the portfolio include:

 

(a)          Intron SequenceAnalysis;

(b)         GenomicMapping;

(c)          ElectrophoresisStandards;

(d)         AncestralHaplotypes;

(e)          SportsPerformance;

(f)            Immunotherapeutics;

(g)         Antiparasitics;and

(h)         Fetal CellRecovery.

 

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**(a)   TheIntron Sequence Analysis patents** - allow for thedetection of specific motifs within the genetic material in the non-codingregions of DNA which have been shown may be linked to certain alleles orhaplotypes within the coding region of the gene.  In other words, whereas most geneticistspreviously looked at the genetic information located within the coding regionalone, our inventions have provided a means of also looking at additionaluseful information which is located within the non-coding part of the gene, andwhich is now known to also be important in influencing gene function and, inparticular, protein production.  Themethod is useful, for example, in the determination of tissue typing for transplantation in order to test for possiblelikely acceptance or rejection of bone marrow or tissue grafts.  The method is also useful in the detection ofgenetic changes or mutations in the non-coding region of certain genesassociated with a higher incidence of certain genetic diseases, such as cysticfibrosis, susceptibility to breast cancer, multiple sclerosis, Alzheimer’sDisease, etc.  It is also now known thatmore than 100 human diseases are associated with genetic changes in thenon-coding part of a particular gene and which are linked to the function ofthe coding part of that gene.  Similarapplications also exist in animals and plants. Several important markers in livestock, for example, have been shown tobe located in the non-coding part of the DNA and also linked to particularcoding function - for example, marblingor tenderness.  It has also been shownthat variations in the non-coding DNA of plants can influence their function,including the color of flowers and the timing of germination and growth.

 

**(b)**   **The Genomic Mappingpatents** - describe methods for analyzing genetic material collectedfrom various selected populations to identify and locate genes and markers ofinterest, by identifying highly polymorphic sites throughout the genome andparticular haplotypes associated with such sites, all based on a reading ofsequence information in both the coding and the non-coding portions of thegenome.

 

**(c)   The ElectrophoresisStandards patents**-****describe a method for identifying band positions in anelectrophoretic separation by also including a control, which serves as aninternal standard.

 

**(d)**   **The Ancestral Haplotypespatents** - describe a method for determining ancestral haplotypesusing haplospecific geometric elements within the major histocompatibilitycomplex multi-gene cluster and methods of genetic analysis involving theamplification of complimentary duplicons. These patents were acquired from the C.Y. O’Connor ERADE VillageFoundation in Western Australia.

 

**(e)**   **The Sports Performancepatents** - describe a method that enables aspects of athleticperformance to be predicted based on detection of various forms of the alphaactinin 3 (ACTN3) gene.  These patentswere acquired from the University of Sydney in New South Wales.

 

**(f)**    **The Immunotherapeuticspatents** - describe various methods aimed at improving the efficacyof cancer therapy and treatment of HIV-AIDS and form the basis of the ImmunAidproject.

 

**(g)   The Antiparasitic patents** - describe means to identify and to controla variety of species of parasites.  Thepatent applications describe the use of modern genetic technologies to identifycelluar targets for two novel classes of chemicals which can be used to controlthe major parasitic worms of sheep and cattle. These nematodes are responsible for extensive economic losses to thesheep and cattle industries and are rapidly developing resistance to theexisting chemicals.  The novel classes ofchemical described in these patents offer a safe and highly effectivealternative.

 

**(h)**   **The Fetal Cell Recoverypatents** - the older patents describe a novel and safe method for theisolation and collection of fetal cells from the peripheral blood of a pregnantwoman, utilizing various HLA or other markers plus flow cytometry - all withoutany invasive procedure that might endanger the mother or the child.  Together with more recent patents, these formthe basis of the intellectual property associated with the RareCellect project.

 

The many issued, allowed and pending patents claimedby GeneType AG, and which are now owned by our Company, distinguish us fromcompetitors by giving us the legal right to claim ownership of proprietarymethods and compositions for analysis of DNA using information contained withinnon-coding regions and for isolation of fetal cells.  The methods and compositions for analysis ofDNA may be used to identify a particular form of a gene or to map the locationof a disease-associated gene along a chromosome.

 

In total, we own 7 issued patents and 15 patentapplications in the United States. Reflecting our international business strategy, we have also sought andbeen granted foreign patents by many other major industrialized nations,corresponding to each of the major patents already issued in the United States.

 

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Generally, United States patents filed with the UnitedStates Patent Office prior to June 8, 1995 have a term of 17 years fromthe date of issuance, and 20 years from the application filing date or earlierclaimed priority date in the case of patents issued from applications filed onor after June 8, 1995.  Forapplications filed after May 29, 2000, the term is 20 years from the dateof filing.  A minimum term of 17 years isassured, provided the applicant causes no delays during prosecution.  Patents in most other countries have a termof 20 years from the date of filing the patent application.  Our issued United States patents began toexpire in 2009.  We intend to continue tofile patent applications as we develop new products, technologies andpatentable enhancements.  Prosecutionpractices have been implemented to avoid any applicant delays that couldcompromise the 17-year minimum term. There can be no guarantee that such procedures will prevent the loss ofa potential patent term.  This isparticularly true in the short-term as the patent rules implementing themost recent patent term changes are largely new and untested.

 

Complex legal and factual determinations and evolvinglaw make patent protection uncertain.  Asa result, we cannot be certain that patents will be issued from any of ourpending patent applications or from applications licensed to us or that anyissued patents will have sufficient breadth to offer meaningfulprotection.  In addition, our issuedpatents may be successfully challenged, invalidated, circumvented or renderedunenforceable so that our patent rights would not create an effectivecompetitive barrier.  Moreover, the lawsof some countries may not protect our proprietary rights to the same extent asdo the United States patent laws.

 

In addition to patentprotection, we rely on trade secret protection of our intellectualproperty.  We attempt to protect ourtrade secrets by entering into confidentiality agreements with third parties,employees and consultants.  Our employeesand consultants are required to sign agreements to assign to us their interestsin discoveries, inventions, patents, trademarks and copyrights arising fromtheir work for us.  They are alsorequired to maintain the confidentiality of our intellectual property, andrefrain from unfair competition with us during their employment and for acertain period of time after their employment with us, which includessolicitation of our employees and customers. We cannot be certain these agreements will not be breached orinvalidated.  In addition, third partiesmay independently discover or invent competing technologies or reverse engineerour trade secrets or other technologies.

 

In the future, we may becomeinvolved in lawsuits in which third parties file claims asserting that ourtechnologies or products infringe on their intellectual property.  We cannot predict whether third parties willassert such claims against us or against the licensors of technologies licensedto us, or our licensees, or whether those claims will hurt our business.  We may be forced to defend against suchclaims, whether they are with or without merit or whether they are resolved infavor of or against our licensors or us and may face costly litigation anddiversion of Management’s attention and resources.  As a result of such disputes, we may have todevelop costly non-infringing technologies or enter into licensingagreements.  These agreements may obligeus to accept costly terms, which could seriously limit the ability to conductour operations and affect adversely our financial condition.

 

In addition, we may become involved in lawsuitsin which third parties file claims asserting that one or more of our patentsare invalid.  We cannot predict whetherthird parties will assert such claims against us or against thelicensees of such patents, or whether those claims will have an adverse impacton our business.  We may be forced todefend against such claims, whether they  are with or without merit or whether they are resolved in favor of oragainst our licensees or us and may face costly litigation and diversion ofManagement’s attention.  During theperiod from February 2001 through March 31, 2002, we had in place apatent insurance policy, placed with GE Reinsurance Corporation through DextaCorporation Limited, their managing general agents in Australia.  Although the policy was not renewed onits expiry, since we had advised Dexta of 13 companies prior to March 31,2002 as potential infringers, a significant portion of our expenses incurred todate relating to the prosecution of our claims have been covered by the policy.

 

Of those 13 so identified, we have secured licenseswith six, relinquished our claims against four and commenced proceedingsagainst Applera, Covance and Nuvello. The suits against Covance and Nuvello were subsequently settled.  On December 12, 2005, we announced thefinal settlement of our patent dispute with Applera Corporation, further to asettlement conference held in San Francisco, California.  The parties had executed a number of bindingagreements, including a final Settlement Agreement plus license agreements anda supply agreement and, subsequently, they jointly applied to NorthernCalifornia District Court requesting that all claims and counterclaims in thelegal action be dismissed forthwith.  Thetotal value of the consideration receivable by us is approximately $15 million,payable partly in cash and partly in kind, including agreements supplying theCompany with certain Applera equipment, reagents and intellectual propertyrights.  Recognition of in-kind considerationas revenue is subject to us meeting certain revenue recognition criteriaincluding, but not limited to, the measurement of fair value at the time ofreceipt.

 

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** **

**OurPatents**

 

Our current patent portfolio is described below.  “Numbers” refers to either provisional,application, publication or patent number.

 
| ** **                                                                                             | ** ** | **Country /  region** | ** ** | **Numbers** | ** ** | **Granted** | ** ** | **Pending** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|-------------|------------|-------------|
| ** **                                                                                             | ** ** | ** **            | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  |
| **INTRON  SEQUENCE ANALYSIS**                                                                          | ** ** | ** **            | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  |
| ** **                                                                                             |       |                  |       |        |       |        |       |        |
| **Intron  sequence analysis method for detection of adjacent and remote locus alleles  as haplotypes** |       | Australia             |       | AU654111    |       | ·      |       |        |
| Earliest  priority August 25, 1989                                                                |       |                  |       | AU672519    |       | ·      |       |        |
|                                                                                                   |       | Austria               |       | AT144797    |       | ·      |       |        |
|                                                                                                   |       | Belgium               |       | EP414469    |       | ·      |       |        |
|                                                                                                   |       | Canada                |       | CA2023888   |       | ·      |       |        |
|                                                                                                   |       | Denmark               |       | DK414469    |       | ·      |       |        |
|                                                                                                   |       | Europe                |       | EP414469    |       | ·      |       |        |
|                                                                                                   |       | France                |       | EP414469    |       | ·      |       |        |
|                                                                                                   |       | Germany               |       | DE69029018  |       | ·      |       |        |
|                                                                                                   |       |                  |       | DD299319    |       | ·      |       |        |
|                                                                                                   |       | Great Britain         |       | EP414469    |       | ·      |       |        |
|                                                                                                   |       | Greece                |       | GR3022410   |       | ·      |       |        |
|                                                                                                   |       | Hong Kong             |       | HK1008053   |       | ·      |       |        |
|                                                                                                   |       | Israel                |       | IL95467     |       | ·      |       |        |
|                                                                                                   |       | Italy                 |       | EP414469    |       | ·      |       |        |
|                                                                                                   |       | Japan                 |       | JP3206812   |       | ·      |       |        |
|                                                                                                   |       | Luxemburg             |       | EP414469    |       | ·      |       |        |
|                                                                                                   |       | Netherlands           |       | EP414469    |       | ·      |       |        |
| ** **                                                                                             |       | New Zealand           |       | NZ235051    |       | ·      |       |        |
|                                                                                                   |       | Singapore             |       | SG47747     |       | ·      |       |        |
|                                                                                                   |       | South Africa          |       | ZA9006765   |       | ·      |       |        |
|                                                                                                   |       | Spain                 |       | ES2095859   |       | ·      |       |        |
|                                                                                                   |       | Sweden                |       | EP414469    |       | ·      |       |        |
|                                                                                                   |       | Switzerland           |       | EP414469    |       | ·      |       |        |
|                                                                                                   |       | United States         |       | US5192659   |       | ·      |       |        |
|                                                                                                   |       |                  |       | US5612179   |       | ·      |       |        |
|                                                                                                   |       |                  |       | US5789568   |       | ·      |       |        |
|                                                                                                   |       |                  |       |        |       |        |       |        |
| **GENOMIC  MAPPING**                                                                                   | ** ** | ** **            | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  |
| ** **                                                                                             |       |                  |       |        |       |        |       |        |
| **Genomic  mapping method by direct haplotyping using intron sequence analysis**                       |       | Australia             |       | AU647806    |       | ·      |       |        |
| Earliest  priority July 11, 1990                                                                  |       | Austria               |       | AT185377    |       | ·      |       |        |
|                                                                                                   |       | Belgium               |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | Canada                |       | CA2087042   |       | ·      |       |        |
|                                                                                                   |       | Denmark               |       | DK570371    |       | ·      |       |        |
|                                                                                                   |       | Europe                |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | France                |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | Germany               |       | DE69131691  |       | ·      |       |        |
|                                                                                                   |       | Great Britain         |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | Ireland               |       | IE912426    |       | ·      |       |        |
|                                                                                                   |       | Israel                |       | IL98793     |       | ·      |       |        |
|                                                                                                   |       | Italy                 |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | Japan                 |       | JP3409796   |       | ·      |       |        |
|                                                                                                   |       | Luxemburg             |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | Netherlands           |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | New Zealand           |       | NZ238926    |       | ·      |       |        |
|                                                                                                   |       | South Africa          |       | ZA9105422   |       | ·      |       |        |
|                                                                                                   |       | Sweden                |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | Switzerland           |       | EP570371    |       | ·      |       |        |
|                                                                                                   |       | United States         |       | US5851762   |       | ·      |       |        |

 

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| ** **                                                                                                                                             | ** ** | **Country /  region** | ** ** | **Numbers**  | ** ** | **Granted** | ** ** | **Pending** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------|------------|-------------|------------|-------------|
| ** **                                                                                                                                             |       |                  |       |         |       |        |       |        |
| **ELECTROPHORESIS  STANDARDS**                                                                                                                         |       |                  |       |         |       |        |       |        |
| ** **                                                                                                                                             |       |                  |       |         |       |        |       |        |
| **Internal  standard for electrophoretic separations**                                                                                                 |       | Austria               |       | AT159589     |       | ·      |       |        |
| Earliest  priority July 11, 1990                                                                                                                  |       | Europe                |       | EP466479     |       | ·      |       |        |
|                                                                                                                                                   |       | France                |       | EP466479     |       | ·      |       |        |
|                                                                                                                                                   |       | Germany               |       | DE69127999   |       | ·      |       |        |
|                                                                                                                                                   |       | Great Britain         |       | EP466479     |       | ·      |       |        |
|                                                                                                                                                   |       | Japan                 |       | JP4232850    |       | ·      |       |        |
|                                                                                                                                                   |       | Sweden                |       | EP466479     |       | ·      |       |        |
|                                                                                                                                                   |       | United States         |       | US5096557    |       | ·      |       |        |
|                                                                                                                                                   |       |                  |       |         |       |        |       |        |
| **ANCESTRAL  HAPLOTYPES**                                                                                                                              | ** ** | ** **            | ** ** | ** **   | ** ** | ** **  | ** ** | ** **  |
| ** **                                                                                                                                             |       |                  |       |         |       |        |       |        |
| **Genetic  analysis**                                                                                                                                  |       | Europe                |       | EP660877     |       | ·      |       |        |
| Earliest  priority November 1, 1991                                                                                                               |       | France                |       | EP660877     |       | ·      |       |        |
|                                                                                                                                                   |       | Germany               |       | DE69232726   |       | ·      |       |        |
|                                                                                                                                                   |       | Great Britain         |       | EP660877     |       | ·      |       |        |
|                                                                                                                                                   |       |                  |       |         |       |        |       |        |
| **Method  for determining ancestral haplotypes using haplospecific geometric elements  within the major histocompatability complex multigene cluster** |       | United States         |       | US6383747    |       | ·      |       |        |
| Earliest  priority November 1, 1991                                                                                                               |       |                  |       |         |       |        |       |        |
|                                                                                                                                                   |       |                  |       |         |       |        |       |        |
| **Methods  of genetic analysis involving the amplification of complementary duplicons**                                                                |       | Australia             |       | AU2006214800 |       |        |       | ·      |
| Earliest  priority February 16, 2005                                                                                                              |       | Canada                |       | CA2597947    |       |        |       | ·      |
|                                                                                                                                                   |       | Europe                |       | EP06704883   |       |        |       | ·      |
|                                                                                                                                                   |       | United States         |       | US11/816522  |       |        |       | ·      |
|                                                                                                                                                   |       |                  |       |         |       |        |       |        |
| **SPORTS  PERFORMANCE**                                                                                                                                | ** ** | ** **            | ** ** | ** **   | ** ** | ** **  | ** ** | ** **  |
| ** **                                                                                                                                             |       |                  |       |         |       |        |       |        |
| **ACTN3  genotype screen for athletic performance**                                                                                                    |       | Australia             |       | AU2003258390 |       | ·      |       |        |
| Earliest  priority September 16, 2002                                                                                                             |       | India                 |       | IND216886    |       | ·      |       |        |
|                                                                                                                                                   |       | New Zealand           |       | NZ538890     |       | ·      |       |        |
|                                                                                                                                                   |       | Canada                |       | CA2499084    |       |        |       | ·      |
|                                                                                                                                                   |       | China                 |       | CN1732270    |       |        |       | ·      |
|                                                                                                                                                   |       | Europe                |       | EP1546403    |       |        |       | ·      |
|                                                                                                                                                   |       | Japan                 |       | JP2005538710 |       |        |       | ·      |
|                                                                                                                                                   |       | Russia                |       | RU2005111236 |       |        |       | ·      |
|                                                                                                                                                   |       | United States         |       | US2006121478 |       |        |       | ·      |
|                                                                                                                                                   |       |                  |       | US12/565513  |       |        |       | ·      |

 

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** **
| ** **                                                                  | ** ** | **Country / region** | ** ** | **Numbers**      | ** ** | **Granted** | ** ** | **Pending** |
|-----------------------------------------------------------------------------|------------|----------------------|------------|------------------|------------|-------------|------------|-------------|
| ** **                                                                  |       |                 |       |             |       |        |       |        |
| **IMMUNOTHERAPEUTICS**                                                      |       |                 |       |             |       |        |       |        |
| ** **                                                                  |       |                 |       |             |       |        |       |        |
| **A  retroviral immunotherapy**                                             |       | Australia            |       | AU2003200583     |       | ·      |       |        |
| Earliest  priority August 18, 2000                                     |       | New Zealand          |       | NZ524280         |       | ·      |       |        |
|                                                                        |       | China                |       | CN1469746        |       | ·      |       |        |
|                                                                        |       | Europe               |       | EP1311267        |       |        |       | ·      |
|                                                                        |       | United States        |       | US20030228320    |       |        |       | ·      |
| ** **                                                                  |       |                 |       |             |       |        |       |        |
| **Cancer  therapy**                                                         |       | Singapore            |       | SG105902         |       | ·      |       |        |
| Earliest  priority February 14, 2002                                   |       | South Africa         |       | ZA200407142      |       | ·      |       |        |
|                                                                        |       | Australia            |       | AU2003203051     |       | ·      |       |        |
|                                                                        |       | Brazil               |       | BR0307661        |       |        |       | ·      |
|                                                                        |       | Canada               |       | CA2476366        |       |        |       | ·      |
|                                                                        |       | China                |       | CN1646155        |       |        |       | ·      |
|                                                                        |       | Europe               |       | EP09007539       |       |        |       | ·      |
|                                                                        |       | Japan                |       | JP2005523277     |       |        |       | ·      |
|                                                                        |       | New Zealand          |       | NZ573713         |       |        |       | ·      |
|                                                                        |       | United States        |       | US2005180971     |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **Strategy  for retroviral immunotherapy**                                  |       | Singapore            |       | SG105903         |       | ·      |       |        |
| Earliest  priority February 20, 2002                                   |       | South Africa         |       | ZA200407143      |       | ·      |       |        |
|                                                                        |       | Brazil               |       | BR0307868        |       |        |       | ·      |
|                                                                        |       | Canada               |       | CA2476956        |       |        |       | ·      |
|                                                                        |       | China                |       | CN1646156        |       |        |       | ·      |
|                                                                        |       | China                |       | CN200710199719   |       |        |       | ·      |
|                                                                        |       | Europe               |       | EP1482971        |       |        |       | ·      |
|                                                                        |       | Japan                |       | JP2005526729     |       |        |       | ·      |
|                                                                        |       | New Zealand          |       | NZ554839         |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **Method  of therapy**                                                      |       | Singapore            |       | SG121609         |       | ·      |       |        |
| Earliest  priority October 24, 2003                                    |       | Australia            |       | AU2004283322     |       |        |       | ·      |
|                                                                        |       | Canada               |       | CA2543490        |       |        |       | ·      |
|                                                                        |       | Europe               |       | EP1692516        |       |        |       | ·      |
|                                                                        |       | Israel               |       | IL175141         |       |        |       | ·      |
|                                                                        |       | Japan                |       | JP2007509078     |       |        |       | ·      |
|                                                                        |       | Mexico               |       | PA/a/2006/004522 |       |        |       | ·      |
|                                                                        |       | New Zealand          |       | NZ546873         |       |        |       | ·      |
|                                                                        |       | United States        |       | US2007202119     |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **Therapeutic  strategy for treating autoimmune and degenerative diseases** |       | Australia            |       | AU2005282218     |       |        |       | ·      |
| Earliest  priority September 8, 2004                                   |       | Canada               |       | CA2579353        |       |        |       | ·      |
|                                                                        |       | Europe               |       | EP1805510        |       |        |       | ·      |
|                                                                        |       | Japan                |       | JP2007530544     |       |        |       | ·      |
|                                                                        |       | New Zealand          |       | NZ553720         |       |        |       | ·      |
|                                                                        |       | Singapore            |       | SG130540         |       |        |       | ·      |
|                                                                        |       | United States        |       | US11/574911      |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **Methods  of treating diseases**                                           |       | United States        |       | TBA              |       |        |       | ·      |
| Earliest  priority May 27, 2009                                        |       |                 |       |             |       |        |       |        |
|                                                                        |       |                 |       |             |       |        |       |        |

 

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| ** **                                                                                             | ** ** | **Country / region** | ** ** | **Numbers**       | ** ** | **Granted** | ** ** | **Pending** |
|--------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|-------------|------------|-------------|
| ** **                                                                                             | ** ** | ** **           | ** ** | ** **        | ** ** | ** **  | ** ** | ** **  |
| **ANTIPARASITICS**                                                                                     | ** ** | ** **           | ** ** | ** **        | ** ** | ** **  | ** ** | ** **  |
| ** **                                                                                             |       |                 |       |              |       |        |       |        |
| **Compounds,  composition and methods for controlling invertebrate pests**                             |       | Australia            |       | AU2007321720      |       |        |       | ·      |
| Earliest  priority November 15, 2006                                                              |       | Canada               |       | CA2670259         |       |        |       | ·      |
|                                                                                                   |       | Europe               |       | EP78155652        |       |        |       | ·      |
|                                                                                                   |       | New Zealand          |       | TBA               |       |        |       | ·      |
|                                                                                                   |       | South Africa         |       | TBA               |       |        |       | ·      |
|                                                                                                   |       | United States        |       | US12/514877       |       |        |       | ·      |
|                                                                                                   |       | World                |       | PCT/AU2007/001762 |       |        |       | ·      |
|                                                                                                   |       |                 |       |              |       |        |       |        |
| **Invertebrate  control agents, compositions and methods of use**                                      |       | Australia            |       | AU2008906163      |       |        |       | ·      |
| Earliest  priority November 23, 2006                                                              |       |                 |       |              |       |        |       |        |
|                                                                                                   |       |                 |       |              |       |        |       |        |
| **High  resolution analysis of genetic variation within *Cryptosporidium  parvum***                    |       | Australia            |       | AU2003250619      |       |        |       | ·      |
| Earliest  priority August 21, 2002                                                                |       |                 |       |              |       |        |       |        |
|                                                                                                   |       |                 |       |              |       |        |       |        |
| **FETAL  CELL RECOVERY**                                                                               |       |                 |       |              |       |        |       |        |
| ** **                                                                                             |       |                 |       |              |       |        |       |        |
| **Fetal  cell recovery method**                                                                        |       | Australia            |       | AU649027          |       | ·      |       |        |
| Earliest  priority March 27, 1990                                                                 |       | Austria              |       | AT194166          |       | ·      |       |        |
|                                                                                                   |       | Belgium              |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | Canada               |       | CA2059554         |       | ·      |       |        |
| ** **                                                                                             |       | Denmark              |       | DK521909          |       | ·      |       |        |
|                                                                                                   |       | Europe               |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | France               |       | EP521909          |       | ·      |       |        |
| ** **                                                                                             |       | Germany              |       | DE69132269        |       | ·      | ** ** | ** **  |
| ** **                                                                                             |       | Great Britain        |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | Greece               |       | GR3034487         |       | ·      |       |        |
|                                                                                                   |       | Ireland              |       | IE910996          |       | ·      |       |        |
|                                                                                                   |       | Israel               |       | IL97677           |       | ·      |       |        |
|                                                                                                   |       | Italy                |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | Japan                |       | JP2965699         |       | ·      |       |        |
|                                                                                                   |       | Luxemburg            |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | Netherlands          |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | New Zealand          |       | NZ237589          |       | ·      |       |        |
|                                                                                                   |       | Singapore            |       | SG79188           |       | ·      |       |        |
|                                                                                                   |       | South Africa         |       | ZA9102317         |       | ·      |       |        |
|                                                                                                   |       | Spain                |       | ES2149760         |       | ·      |       |        |
|                                                                                                   |       | Sweden               |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | Switzerland          |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | United States        |       | US5447842         |       | ·      |       |        |
|                                                                                                   |       |                 |       |              |       |        |       |        |
| **Maternal  antibodies as fetal cell markers to identify and enrich fetal cells from  maternal blood** |       | New Zealand          |       | NZ537328          |       | ·      |       |        |
| Earliest  priority May 31, 2002                                                                   |       | Singapore            |       | SG108133          |       | ·      |       |        |
|                                                                                                   |       | Australia            |       | AU2003229397      |       |        |       | ·      |
|                                                                                                   |       | Canada               |       | CA2492631         |       |        |       | ·      |
|                                                                                                   |       | Europe               |       | EP1532453         |       |        |       | ·      |
|                                                                                                   |       | Hong Kong            |       | HK1075699         |       |        |       |        |
|                                                                                                   |       | Japan                |       | JP2005528616      |       |        |       | ·      |
|                                                                                                   |       | United States        |       | US2005287604      |       |        |       | ·      |

 

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| ** **                                                                          | ** ** | **Country /  region** | ** ** | **Numbers**       | ** ** | **Granted** | ** ** | **Pending** |
|-------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|-------------|------------|-------------|
| ** **                                                                          | ** ** | ** **            | ** ** | ** **        | ** ** | ** **  | ** ** | ** **  |
| **FETAL  CELL RECOVERY (cont.)**                                                    | ** ** | ** **            | ** ** | ** **        | ** ** | ** **  | ** ** | ** **  |
| ** **                                                                          |       |                  |       |              |       |        |       |        |
| **Identification  of fetal DNA and fetal cell markers in maternal plasma or serum** |       | Australia             |       | AU2004217872      |       |        |       | ·      |
| Earliest  priority March 5, 2003                                               |       | United States         |       | US20070134658     |       |        |       | ·      |
|                                                                                |       |                  |       |              |       |        |       |        |
| **Methods  of enriching fetal cells**                                               |       | Europe                |       | EP06721493        |       |        |       | ·      |
| Earliest priority  May 11, 2005                                                |       | Japan                 |       | JP2008510361      |       |        |       | ·      |
|                                                                                |       | United States         |       | US11/914107       |       |        |       | ·      |
|                                                                                |       |                  |       |              |       |        |       |        |
| **Device  for obtaining fetal cells**                                               |       | United Sates          |       | US61/147718       |       |        |       | ·      |
| Earliest  priority January 27, 2009                                            |       |                  |       |              |       |        |       |        |
|                                                                                |       |                  |       |              |       |        |       |        |
| **Epigenetic  DNA enrichment**                                                      |       | Australia             |       | AU2009905023      |       |        |       | ·      |
| Earliest  priority October 14, 2009                                            |       | United States         |       | US61/251523       |       |        |       | ·      |
|                                                                                |       |                  |       |              |       |        |       |        |
| **Cell  processing and/or enrichment methods**                                      |       | World                 |       | PCT/AU2009/000180 |       |        |       | ·      |
| Earliest  priority February 18, 2008                                           |       |                  |       |              |       |        |       |        |
|                                                                                |       |                  |       |              |       |        |       |        |
| **Methods  of obtaining fetal nuclei**                                              |       | United States         |       | US61/171334       |       |        |       | ·      |
| Earliest  priority April 21, 2009                                              |       |                  |       |              |       |        |       |        |

 

**Out-licensing our Non-coding Patents Globally**

 

The Company is currently licensing its non-codingpatents in the United States and elsewhere.

 

This strategy was initiated in late 2000, soon afterGeneType AG and its patents were acquired by the Company.  The first step in the process was to securepatent insurance, which we achieved in early 2001.  This meant that if we were forced to takelegal action against infringers, under that policy the cost would be largelycovered by our underwriter.  This policyhas since expired.

 

Thereafter, we progressively made contact with manycompanies in the United States and elsewhere, bringing the patents to theirattention and indicating how they might benefit from a license to the Company’snon-coding patents.  In late 2002, wehired a manager to manage the Australian end of the licensing effort and toestablish a central database of all prospective licensees, globally.

 

The plan initially was to grant a limited number oflicenses focusing primarily on the up-front fee component, and then toprogressively build recurring annuity or royalty component of subsequentlicenses.  When we identified companiesthat seemed to be clearly infringing our patents, while also indicating theywould not take a license, we put them on formal notice under our patentinsurance policy.  Overall, the strategyhas unfolded as planned.

 

**OurLicenses and Commercial Collaborations**

 

The following section describes our existingcommercial and research licenses, our collaborations and ourcollaborators.  We announced our firstlicense to the non-coding patents to the Australian livestock testing firmGenetic Solutions Pty. Ltd., in February 2002.  Since then, we have formed severalcollaborations and granted a number of additional licenses.

 

**CommercialLicenses and Collaborations:**

 

Agriculture Victoria Services Pty. Ltd.:  In February 2002, our subsidiaryGeneType Pty. Ltd. entered into  a jointventure agreement with Agriculture Victoria Services Pty. Ltd. (“AVS”) for theformation of the joint venture company AgGenomics Pty. Ltd., to operate a jointventure business in commercial plant genotyping and genomics services.  Under the terms of the joint ventureagreement, we hold 50.1% of the shares of the joint venture company.  We have certain obligations under the jointventure agreement to loan money to the joint venture company, which is notexpected to exceed $500,000 at any given time. AVS is not required to provide further funding to the joint venturecompany.  The agreement is terminable bya party in the event of a breach by the other party that is not timely cured orupon the occurrence of an “adverse event” to the company or to eithershareholder.  Adverse events are insolvencytype events or discontinuation of business. In the event of termination the non-defaulting party can requireliquidation of the company or purchase the other party’s interest, as itchooses.

 

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Genetic Solutions License: In November 2001,we granted a license to Genetic Solutions Pty. Ltd. who paid us anon-refundable license fee in cash in return for a license to our non-codinganalysis and mapping patents.  Thelicense can be terminated by either party upon any material breach of any termor condition by the other party which has not been timely cured after notice.  We may also terminate the agreement in theevent of the bankruptcy of the licensee or discontinuation of their business.

 

Sequenom License: In April 2002, wegranted a license to bioinstrument maker Sequenom, Inc., who paid us anon-refundable license fee in cash and shares in return for a license to ournon-coding analysis and mapping patents. The license can be terminated by either party upon any material breachof any term or condition by the other party which has not been timely curedafter notice.  We may also terminate theagreement in the event of the bankruptcy of the licensee or discontinuation oftheir business.

 

Nanogen License:  In April 2002 we granted a license toNanogen, Inc, of San Diego, USA, who specializes in the development of biochipapplications in genetics diagnostics.  Nanogen paid us a non-refundable license feeand unlisted warrants in return for a license limited to genetic research andhuman diagnostics.  Specifically, Nanogenreceives no rights to the mapping patent nor any applications in animals orplants.  Since the date of the initiallicense, the warrants became “in the money” and we exercised them, acquiringNanogen shares which we disposed of in market transactions generating furtherincome.  The license can be terminated byeither party upon any material breach of any term or condition of the agreementnot timely cured.  We also can terminatethe agreement in the event the licensee becomes involved in insolvencyproceedings or if it discontinues its business for any reason.

 

Perlegen License:  In August 2002, we granted a license toUS genome researcher, Perlegen Sciences, Inc., which paid a non-refundablecombination of cash and securities for an exclusive license limited to aspecialized field known as “high resolution whole genome analysis”.  Either party can terminate the licenseagreement upon any material breach of any term or condition by the other partythat is not timely cured after notice. We also have the right to terminate the agreement in the event of insolvencyof the licensee or if it discontinues its business for any reason.

 

Myriad Licenses:  In October 2002, we announced alicensing agreement with Myriad Genetics, Inc, under which we granted Myriadbroad rights to utilize our non-coding patents, in return for which Myriadagreed to pay us a non-refundable license fee plus future fees on an annualbasis in lieu of royalties, plus the rights to bring Myriad’s predictive teststo Australia and New Zealand.  Thesetests, which include genetic susceptibility tests for breast cancer, ovariancancer, bowel cancer, melanoma and cardiac risk are now being offered by theCompany in Australia and have resulted in the expansion of our existing genetictesting facilities in Melbourne.  Thelicense can be terminated by either party upon material breach by the otherparty that is not cured within 30 days of notice.  We also may terminate if the licensee failsto make any payment required by the agreement. Under the second of two agreements, we are granted a license to useMyriad’s diagnostic services in Australia and New Zealand in exchange for anannual fee.  We are obligated to usereasonable efforts to commercialize the licensed diagnostic services inAustralia and New Zealand.  Under theterms of this agreement, we have been granted an option in exchange for upfrontpayments and a continuing royalty, to expand the license in respect of fullsequence testing, which has not been exercised. The term of this agreement extends until 2012.  Either party can terminate the agreement upona material breach not timely cured after notice.  In addition, Myriad can terminate if we failto make any payment required under the agreement.

 

Pyrosequencing Licenses:  In March 2003, we announced across-licensing agreement with Pyrosequencing AB, of Sweden (now known asBiotage AB).  Pyrosequencing received abroad non-exclusive license to our non-coding DNA analysis and mapping patentsbut only when used in combination with Pyrosequencing’s “sequencing bysynthesis” reagents.  In return, wereceived a non-refundable cash up front payment, plus royalties for the life ofthe non-coding patents, plus three state-of-the-art analytical instruments(Pyrosequencing systems), plus other IP rights and assays fromPyrosequencing.  Either party can terminatethe agreement upon material breach that is not timely cured by the other partyafter notice.  In addition, either partycan terminate the agreement if the other party becomes involved in insolvencyproceedings, or if the other party discontinues its business for any reason.

 

ARUP License:  In April 2003, we announced a license toAssociated Regional & University Pathologists (ARUP) of Salt LakeCity, Utah.  ARUP is a laboratory systemowned by the University of Utah, and the first service provider actuallyperforming human genetic testing to take a license from the Company.  The license was granted in return for aone-time non-refundable license issue fee. The license is terminable by a party upon material breach by the otherparty that is not timely cured after notice. In addition, we have the right to terminate if the licensee becomesinvolved in an insolvency or discontinues its business for any reason.  In May, 2003, we had also granted theUniversity of Utah a separate research license to show our support for theirleading genetic research program into the non-coding regions of manygenomes.  This license is terminable uponmaterial breach by the licensee not timely cured after notice.

 

Quest License:  In August 2003, we granted a license toour non-coding analysis patents to Quest Diagnostics Inc., based in New Jersey,USA.  The terms included a non-refundablesigning fee plus ongoing annual payments in lieu of royalties from Quest forservices provided by it in genetic laboratory testing in the United States,Canada and Mexico.  In addition, thelicense is terminable by one party in the event of a material breach by theother party not cured after notice. Either party may also terminate the license in the event of aninsolvency event affecting the other party or the discontinuation of businessby the other party.

 

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TM Bioscience License:  In December 2003, we granted a licenseto our non-coding analysis and mapping patents to TM Bioscience Corporation ofToronto, Canada.  The terms provide for asigning fee plus ongoing annual payments as a non-refundable license fee and anannual royalty on licensed products. This was our first commercial license granted to a Canadiancompany.  TM Bioscience is a leadingprovider of diagnostic kits for human genetic testing, exported globally.  The agreement is terminable by a party uponmaterial breach by the other party that is not timely cured, and may beterminated by us in the event of dissolution or sale of the business of thelicensee.

 

LabCorp License:  In February 2004, we granted a licenseto our non-coding patents to Laboratory Corporation of America Holdings (knownas “LabCorp”), a leading provider of human diagnostic services in the U.S. andCanada.  It also performs testing inEurope for other companies, including pharmaceutical companies, for regulatorycompliance purposes.  The considerationreceived for the license, which covers both the non-coding analysis and mappingpatents, included a non-refundable signing fee plus annual license annuitypayments for the life of the patents, through 2015.  LabCorp also withdrew a declaratory action inrespect of our patents which had been initiated in New Jersey.  The license is terminable by either partyupon material breach by the other party that is not timely cured.  In addition, we are entitled to terminate theagreement in the event that the licensee intentionally and knowingly promotesthe licensee’s reference testing to third party clinical laboratories for thepurpose of circumventing the need for such laboratories to license ourpatents.  The licensee is entitled toterminate the agreement at any time upon 30 days prior written notice (withoutprejudice to its accrued obligations thereunder) and we can terminate in theevent of an insolvency event involving the licensee or discontinuation of itsbusiness.

 

Ovita License:  In June 2004, we entered into a licenseagreement with Ovita Limited of New Zealand, granting them a license to ournon-coding patents to the extent required in order to commercialize geneticmarker tests and pedigree tests and to conduct research and developmentactivities for new applications of our technology in connection with testing ofsheep and cattle.  The agreement includedthe payment of an initial non-refundable research license fee, a non-refundablecommercial license fee and a royalty on licensed products made using ourpatents, payable calculated on gross sales. The license is terminable by a party for material breach that is notcured by the other party, by licensee upon 30 days’ written notice to us and byeither party in the event of discontinuation of its business, an insolvencyevent or failure to pay amounts due and owing to the other.

 

Genzyme License:  Effective as of September 17, 2004, wegranted a license to our non-coding patents to Genzyme Corporation, based inCambridge, Massachusetts, in order for the licensee to perform preclinical andhuman research and human genetic testing. The grant of the license was in exchange for a non-refundable licenseissue fee consisting of a cash component and an in-kind component.  The in-kind component consisted of a licenseagreement in respect of patents owned by Johns Hopkins University and licensedby the licensee.  In addition, Genzyme isobligated to pay to us license annuity fees in lieu of a royalty for each yearof the term.  Either party can terminatethe agreement upon material breach not timely cured, in the event of insolvencyof the licensee, or by the licensee at any time upon 30 days written notice tous.

 

MetaMorphix Agreements:  In September 2004, we executed twoagreements with MetaMorphix, Inc., based in Maryland and specializing inthe genetics and genomics of certain animal species, particularly cattle anddogs.  Under the first such agreement, wegranted a license to use our non-coding patents in order to commercializeapplications of diagnostic assays for use in the livestock, aquaculture andcompanion animal industries.  Thelicensee is obligated to pay us annually increasing license annuity fees inlieu of a royalty, as well as a non-refundable license issue fee.  Either party can terminate the agreement upona material breach not timely cured, or by us upon the licensee’sdiscontinuation of its business for any reason. Under the second license, to which MMI Genomics, Inc. (a subsidiaryof MetaMorphix) is also a party, we were granted a license to the licensor’spatents and associated know-how in order to perform internal DNA-baseddiagnostic assays for use in our cattle and canine identity and parentageverification services.  We havesubsequently paid the licensor a non-refundable license fee.  The licensor’s obligations include ongoingsupport for the license and know-how. The agreement is terminable by either party upon material default by theother party that is not timely cured, or by the licensor in the event wediscontinue our cattle and canine identity and parentage verificationgenotyping services business for any reason. The license to our non-coding patents that was previously granted toMetaMorphix was terminated in October 2009 as a result of a materialunremedied breach by that company.

 

ViaLactia License:  In September 2003, we reached agreementwith ViaLactia Biosciences (NZ) Limited of Auckland, New Zealand regarding theterms of a research and commercial license to the Company’s non-codingpatents.  ViaLactia is a wholly-ownedsubsidiary of Fonterra, New Zealand’s largest dairy cooperative.  The license was formally concluded in December 2003.  The purpose of the license is to permitViaLactia to conduct internal research activities and development ofapplications of our technology in the dairy industry, including newapplications concerning dairy cattle, pasture grasses, mice as models for dairycattle and yeast and bacteria as applied to the dairy industry.  The license is terminable by either partyupon material default of the other party that is not timely cured, withoutother penalty.

 

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C.Y. O’Connor ERADE Village Foundation:  In October 2003, we announced that wehad signed heads of agreement to establish a broad strategic alliance with theC.Y. O’Connor ERADE Village Foundation, a leader in biotechnology innovationbased in Perth, Western Australia. Definitive documentation was concluded in June 2004.  Under the terms of the agreement, we acquiredall of the Foundation’s patents and other intellectual property in the fieldsof genetics and genomics, including the Foundation’s issued U.S. patent 6383747and foreign equivalents.  This extensivepackage of intellectual property has created additional opportunities for us insupport of licensing and service testing. As part of the arrangement, the Foundation acquired a license to ournon-coding patents for a fee, such that the net purchase price for us wassettled by the issuance of a total of 16,666,667 of our Ordinary Shares to theFoundation based on a market value of $0.39 per share.  The transaction closed in June 2004.  Under the arrangement, we support the ongoinggenetics and genomics programs of the Foundation.  Initially, five projects were selected forpriority attention and we will provide $4.5 million to the Foundation, spreadover five years, to help fund such research and development of new intellectualproperty.  On July 7, 2004,the Company supplied a letter of credit for $450,000 for the term of theagreement.  Under the agreements, we arethe primary commercialization vehicle for all new inventions, patents,intellectual property and business opportunities arising at the Foundation inthe field of genetics or genomics.  Weare also obligated to pay royalties to the Foundation on gross revenue derivedfrom the Foundation IP.  We may terminatethe license following any breach of the license by the licensee, either partycan terminate following a material breach that is not timely cured or followingan insolvency event of the other party. On June 15, 2009, being the fifth anniversary of theEffective Dates of the various underlying agreements between the Company and theFoundation, the agreements terminated. As a result, the letter of credit for $450,000 which had beensupplied by the Company was withdrawn.

 

Bionomics License: Effective November 5,2004, we entered into two agreements with Bionomics Limited, a public companybased in Adelaide, South Australia. Under the first such agreement, we granted a non-exclusive, royalty-freelicense to Bionomics to use our non-coding patents in order to (i) performresearch and development activities relating to and arising from theidentification of genetic factors that may influence epilepsy and (ii) commercializethe results of those research and development activities including, withoutlimitation, epilepsy diagnostic assays. Bionomics paid us a non-refundable license fee on signing.  Either party can terminate the agreement upona material breach not timely cured. Under the second agreement with Bionomics, we were granted a license touse certain intellectual property rights, including patent rights andassociated know-how, relating to epilepsy gene discoveries and epilepsydiagnostic assays subject to minimum annual royalties.  We paid Bionomics a non-refundable licensefee.  The agreement is terminable byeither party upon material default by the other party that is not timely cured.

 

Australian Genome Research Facility License:  Effective December 31, 2004, we granteda license to the non-coding patents to Australian Genome Research Facility Ltd.(“AGRF”) pursuant to which AGRF can use the patents on a non-exclusive basisfor the purpose of performing genotyping services.  The license requires an advancenon-refundable license fee and an annual non-refundable annuity for the term ofthe license in lieu of a royalty, which continues until sooner terminated orthe licensee no longer utilizes the patent. The agreement is terminable by mutual agreement, or by us in the eventof a breach of a term or condition by the licensee or if it is subject to aninsolvency event.

 

NewZealand Licenses:  Effective June 30, 2005, we entered intoa license agreement with four commercial parties in New Zealand: AgResearchLimited, The Horticulture and Food Research Institute of New Zealand Limited,New Zealand Forest Research Limited and Livestock Improvement CorporationLimited.  Under the terms of theagreement, the parties were granted licenses to our non-coding patents inconsideration for which they paid us a non-refundable license issue fee.

 

AppleraCorporation Licenses:  Effective December 8, 2005, we enteredinto various agreements with Applera Corporation of Norwalk, Connecticut aspart of a settlement of a patent dispute. The binding agreements include a final Settlement Agreement plus licenseagreements and a supply agreement.  Thetotal consideration receivable by us was paid partly in cash and partly in kind- including agreements supplying the Company with certain Applera equipment,reagents and intellectual property rights. Recognition of in-kind consideration as revenue is subject to us meetingcertain revenue recognition criteria including, but not limited to, themeasurement of fair value at the time of receipt.

 

Optigen License: Effective May 23, 2006, we executed an agreement with Optigen, LLCof Ithaca, New York.  Under theagreement, Genetic Technologies granted Optigen a non-exclusive license to ournon-coding patents for applications in dogs, and Optigen granted the Companythe exclusive right to offer and perform the complete range of Optigen genetictests for diseases in dogs in the Asia-Pacific region.  The addition of the Optigen tests substantiallyexpanded the range of genetic tests offered by us to the canine industry in ourregion.  The license granted by us toOptigen provides Optigen with access to our non-coding technology, covering allrelevant genetic tests and research activities conducted by Optigen, in dogs.

 

Bovigen License: Effective June 1, 2006, we granted a license to the non-codingpatents to Bovigen, LLC of Harahan, Louisiana. Under the agreement, Bovigen will use the Company’s non-codingtechnology to build its business of offering genetic tests to the Americanlivestock industry to determine the presence or absence of certain desirabletraits in individual cattle.  The rightsthat we licensed to Bovigen were granted non-exclusively, and are limited toapplications in cattle in the USA, Canada and South America.  In consideration for granting the license,Bovigen paid us an up-front signing fee and will pay ongoing royalties on thefuture sales by Bovigen for the life of the non-coding patents.

 

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Innogenetics License: Effective June 30, 2006, we granted a license to the Company’snon-coding patents to Innogenetics NV of Ghent, Belgium.  Innogenetics is a significant supplier ofgenetic testing kits in Europe and is listed on the Belgium and German stockexchanges.  In consideration for grantingthe license, Innogenetics paid us an up-front signing fee and will pay ongoingannuities for the life of the non-coding patents.  The agreement is terminable by mutualagreement, or by us in the event of a breach of a term or condition by thelicensee or if it is subject to an insolvency event.

 

Genosense License: Effective December 1, 2006, we granted a license to the Company’snon-coding patents to Genosense Diagnostics GmbH, a leading anti-aging andpreventive genetic diagnostics company based in Vienna, Austria.  In consideration for granting the license,Genosense paid us an up-front signing fee and will pay ongoing annuities forthe life of the non-coding patents.  Theagreement is terminable by mutual agreement, or by us in the event of a breachof a term or condition by the licensee or if it is subject to an insolvencyevent.

 

Sciona License: Effective February 16, 2007, we granted a license to the Company’snon-coding patents to Sciona, Inc. based in Boulder, Colorado.  This license runs for nineyears and is the first step in a progressive co-operation between us and Scionain relation to the emerging lifestyle and life-extension markets.  We received a signing fee plus annualpayments from Sciona, increasing with time. We were also granted the right to market the Sciona range of products inthe Asia-Pacific region, and to perform the relevant genetic tests at ourlaboratory in Melbourne.  Sciona is a leading provider ofpersonalised genetic tests which focus primarily on lifestyle and nutritionaladjustments to enhance health and longevity. The agreement is terminable by mutual agreement, or by us in the eventof a breach of a term or condition by the licensee or if it is subject to aninsolvency event.  During 2009, Scionawas placed into receivership.

 

Monsanto Licenses: Effective June 20, 2007, we granted a license to the Company’snon-coding patents to Monsanto Company, based in St. Louis, Missouri.  As part of the license, which covers Monsanto’swork in plants, Monsanto made an up-front cash payment which, under the termsof the license, cannot be disclosed. Effective August 22, 2007, we granted a second license to theCompany’s non-coding patents to Monsanto which, this time, covers its work inswine.  In respect of this secondlicense, Monsanto paid us a further up-front payment.

 

Thermo Fisher ScientificLicense:  Effective June 29, 2007, we granted alicense to the Company’s non-coding patents to Thermo Fisher Scientific Inc.,based in Waltham, Massachusetts.  ThermoFisher is the parent company of Athena Diagnostics, Inc, a genetic testinglaboratory based in Worcester, Massachusetts, with whom we had been in discussionsfor some time.  As part of the license,Thermo Fisher made an up-front cash payment which, under the terms of thelicense, cannot be disclosed.

 

Syngenta License: Effective September 28, 2007, we granted a license to the Company’snon-coding patents to Syngenta Crop Protection AG, based in Basel,Switzerland.  Syngenta is a large plantand seed company, active in more than 90 countries, with more than 19,000employees.  As part of the license,Syngenta made an up-front cash payment which, under the terms of the license,cannot be disclosed.

 

BioSearchLicense:  Effective September 30, 2007, we granteda license to the Company’s non-coding patents to BioSearch Technologies Inc.,based in Novato, California.  As part ofthe license, pursuant to which BioSearch is permitted to distribute certain DNAstructures, known as oligos or probes, to end users worldwide for researchpurposes only, BioSearch made an up-front cash payment which, under the termsof the license, cannot be disclosed.

 

KimballLicense:  Effective November 16, 2007, we granteda license to the Company’s non-coding patents to Kimball Genetics Inc., basedin Denver, Colorado.  As part of thelicense, Kimball made an up-front cash payment which, under the terms of thelicense, cannot be disclosed.

 

Prometheus License: Effective December 23, 2007, we granted a license to the Company’snon-coding patents to Prometheus Laboratories Inc., based in San Diego,California.  As part of the license,Prometheus made an up-front cash payment which, under the terms of the license,cannot be disclosed.

 

GE Settlement and License: Effective January 14, 2008, we executed a Settlement and LicenseAgreement with General Electric Company (and indirectly its subsidiary GEHealthcare Bio-Sciences Corp.), based in Piscataway, New Jersey.  GE Healthcare is a unit of General ElectricCompany that employs more than 46,000 people and which, in 2006, generatedrevenues of USD 17 billion from serving healthcare professionals and theirpatients in more than 100 countries around the world.  The agreement between the Company and GEHealthcare involves a settlement of all disputes between the parties and thegranting of a license to GTG’s non-coding patents.  As part of the agreement, GE Healthcare madean up-front cash payment which, under the terms of the agreement, cannot bedisclosed.

 

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GeneDx License: Effective October 1, 2008, we granted a license to the Company’snon-coding patents to GeneDx, a subsidiary of Bio Reference Laboratories Inc.,based in Gaithersburg, Maryland.  Thelicense granted permits GeneDx to perform PTEN testing until the patent expiresin March 2010.  As part of thelicense, GeneDx made an up-front cash payment which, under the terms of theagreement, cannot be disclosed.

 

Millennium License: Effective October 22, 2008, we granted a license to the Company’snon-coding patents to Millennium Pharmaceuticals Inc., based in Cambridge,Massachusetts.  As part of the license,Millennium made an up-front cash payment which, under the terms of theagreement, cannot be disclosed.

 

TIB MOLBIOL License: Effective December 8, 2008, we granted a license to the Company’snon-coding patents to TIB MOLBIOL Syntheselabor GmbH, based in Berlin,Germany.  As part of the license, TIBMOLBIOL made an up-front cash payment which, under the terms of the agreement,cannot be disclosed.

 

**Research Licenses and Collaborations**

 

University of Melbourne collaboration:  On January 22, 2003, we entered into acollaborative research agreement with the University of Melbourne, Australia,concerning the so-called “ARC Linkage Project”: toward novel approaches for thecontrol of parasitic nematodes via genomics/phenomics.  This agreement sets forth the terms of thecollaboration between GeneType Pty. Ltd. and the university for research underan Australian government Research Council Linkage Project.  Under the terms of this agreement, GeneTypePty. Ltd. is obligated to use its best efforts to provide additional funds forthe project to make up the projected shortfall as contemplated by the originalproposal, over a term of three years.

 

University of Utah License:  On April 30, 2003, we granted a researchlicense to the University of Utah, in Salt Lake City, Utah.  This is a royalty-free license to permit theUniversity to conduct research in exchange for a nominal fee.

 

Horticulture Australia Limited collaboration:  On June 18, 2003, AgGenomics Pty. Ltd.,a subsidiary of the Company, entered into a three-year Collaborative ResearchAgreement with Horticulture Australia Limited (HAL) to try and identify agenetic trait for day/night neutrality in strawberries which, if found, couldlead to an extension of the cultivation season and consequently higherproduction.  The research program,costing approximately $2.1 million, is funded by HAL as to 45% and AgGenomicsas to 55%.  Any and all intellectualproperty generated from the project will be owned in the same proportions.  This initial agreement wasconcluded in June 2006, following which it was agreed that it be extendedfor a period of a further three years at a total cost of $2.1 million, to befunded 42.03% by HAL and 57.97% by AgGenomics. Once again, any and all intellectual property generated from theproject will be owned in the same proportions. In 2010, work will commence to investigate the possible commercialapplication of the research.

 

University of Sydney License:  In July 2003, we granted a researchlicense to the University of Sydney, in Australia.  We subsequently entered into a furtheragreement (dated September 4, 2003) with the University of Sydney pursuantto which we received the exclusive right to commercialize a new and potentiallysignificant genetic invention made by a professor in the Neurogenetics ResearchUnit and the University’s Faculty of Medicine. This Australian invention is intended to permit an improvedunderstanding of the genetic factors underlying superior athletic and sportsperformance, based on the presence or absence of the ACTN3 gene.  Under the terms of this agreement, we made anupfront payment, agreed to pay a royalty on net sales of the invention by usand a fee on first grant of a patent for the invention or any patent rights inany country and a further payment of part of any consideration of whatever kindreceived by us under a license of the assigned intellectual property.

 

King’s College License:  In December 2003, we granted a licenseto our non-coding patents to King’s College, London, in the UnitedKingdom.  Under the terms of the license,King’s College will be able to apply the non-coding patents to its internalresearch programs.  The license isterminable by either party upon any material breach not timely cured, withoutpenalty.  King’s College is considered aleader in the field of researching the genetic basis of various psychiatric andpsychological disorders, including schizophrenia, anxiety / depression andcertain attention deficit disorders. Future commercial applications arising from research at King’s Collegewould require an additional commercial license from us.  In March 2004, we initiated a jointresearch project in the United Kingdom to explore the functionality of certainnon-coding DNA elements, initially with special focus on the genetics of breastcancer susceptibility and the genetics of certain neuro-psychiatric conditions,such as schizophrenia.  The project wasfunded by us for a further period of six months, in an amount of GBP53,000 thatwas paid in two instalments.  In May 2005,we extended the project for the period from June 1, 2005 to December 31,2005 and agreed to fund the costs incurred by King’s College during that periodup to a maximum amount of GBP51,360.  InFebruary, 2006, the Company agreed to further extend its research agreementwith King’s College for the period from February 1, 2006 to August 31,2006 and agreed to fund the costs incurred by King’s Collegeduring that period up to a maximum amount of GBP63,700.  This project has now been terminated.

 

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University of Technology License:  Effective December 23, 2003, we granteda research license to the University of Technology, Sydney, to permit theUniversity to conduct internal research activities to research, identify, mapand develop tests for genetic markers and genes of interest.  Either party has the right to terminate theagreement upon the occurrence of a material breach that is not timely cured,without other penalty.

 

Colorado State University License:  Effective May 14, 2004, we granted aresearch license to the Colorado State University.  This is a royalty-free license to permit theUniversity to conduct research in exchange for a nominal fee.

 

Texas A&M University License:  Effective February 7, 2007, we granted aresearch license to Merlogen LLC, a company associated with Texas A&MUniversity.  As part of the license, wereceived a nominal fee and received rights to use certain technologies in thefield of animal genetics.

 

In addition to the above agreements, we continue tonegotiate licensing terms to grant licenses to our non-coding patents to manycompanies, large and small, and also to government and private institutes, inmany countries.  To facilitate thesenegotiations, we have established a database of all prospective licensees, whowe believe would benefit from a license to our non-coding patents.

 

Giventhe large number of potential licensees, the Company decided to expand itslicensing program during 2006 by applying additional resources in thisarea.  As a result, the licensing team atthe Company’s headquarters in Melbourne, Australia was expanded by theappointment of additional staff to accelerate the preparation of dossiers onpotential licensees whilst, internationally, independent licensing contractorswere engaged to represent the Company “on the ground”, in our major markets.

 

In aneffort to stimulate the Company’s licensing program, preliminary discussionshave been held with a number of parties who specialize in the assertion ofintellectual property in return for a share of the proceeds generated from anylicenses that may subsequently be granted. As at the date of this Annual Report, no agreements have been enteredinto with any such parties.

 

**Our Support for Three Significant Research Projects**

 

We strongly support research and development.  Indeed, Genetic Technologies had its foundationas a research company when it was established some 19 years ago.  Since then, the Company has consistentlypursued research and, following its Australian listing in 2000 when additionalworking capital became available, its research activities were significantlyexpanded.

 

We currently support three major research programs, details of which havebeen provided below.  Some projects havearisen from new inventions made by the Company while some have been made byothers who have approached the Company seeking collaboration and support fortheir activities.

 

By its very nature, research is unpredictable and involves a considerableelement of risk.  Such risks may relateto scientific concepts, the implementation of the science, the protection ofany inventions made and the success or otherwise in persuading others torespect the intellectual property acquired or created by the Company.

 

Specifically, patents filed may not issue or may later be challenged byothers.  Even if patents issue, themethods described may, with time, be superseded by alternative methods whichmay prove to be commercially more attractive. Even if patents issue and the methods developed are successfully reducedto practice and can be shown to be commercially relevant, there is still noassurance that other parties will respect the patents or will take licenses touse the intellectual property.  In suchcircumstances, it is possible that legal action will be necessary to enforcethe Company’s rights.  Such action, inturn, raises a new series of risks including potentially significant legalcosts and uncertain outcomes.

 

To the extent that delays are encountered in concluding the researchprojects, additional costs may be incurred. Further, the projected revenues from the projects may also be deferred,potentially impacting on the Company’s liquidity.  In such cases, the Company may seek topartner with outside parties, who will contribute to the costs of research inreturn for an interest in the project, or the Company may seek to raiseadditional working capital from the Market. In a worst case scenario, if the Company’s research projects do notachieve their scientific objectives, the projects may well be closed down withno valuable intellectual property having been created.

 

**(1) RareCellect****TM**** Project**

 

In March 2001,the Company began to develop and commercialize patents held by GeneType AG, asubsidiary of Genetic Technologies, relating to the recovery of fetal cellscirculating in the peripheral blood of a pregnant woman.  These patents, with an earliest priority dateof March 27, 1990, have been granted or allowed in most countries wherefiled, including the United States, United Kingdom, France, Germany, Australiaand Japan.

 

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It has long been generallyrecognized that a simple, universally applicable, non-invasive means ofobtaining fetal cells for prenatal diagnosis would represent a major advanceover existing practice and would be widely adopted throughout the developedworld.  As part of theRareCellectTM project, the Company has designed and tested aproprietary sampling device that can safely and reliably collect fetal materialfrom the cervix, and has combined this with a proprietary processing technologythat selectively delivers eithercellular material or DNA from the fetus which is suitable for analysis toidentify genetic disorders using currently available diagnostic technologies.

 

From itsinception, the RareCellectTM project was focused on the recovery andisolation of fetal cells from peripheral blood samples of pregnant women.  However, the project subsequently abandonedthis approach in favour of focusing solely on the recovery and isolation offetal DNA from cervical mucus samples.

 

**Background and unmet need**

 

Geneticdisorders account for a significant health burden across the world, with over330,000 children born with congenital malformations annually in the US, Europeand Japan.  In addition, between 20% and30% of post-natal deaths are due to such congenital malformations.  In the developed world, it is increasinglycommon for women to have babies later in life (25% of these births are born towomen over 35 years of age), and this can significantly increase the risk ofgenetic disorders in their offspring.

 

Currentpre-natal testing involves non-invasive screening and invasive diagnostictesting.  Screening uses ultrasound ofthe fetus and maternal serum testing and can be performed from 11 to 13 weeksof pregnancy.  Although safe, these testsare not reliable, with a detection rate of 80% (20% of abnormalities are notdetected), and a false positive rate of 5% (women with healthy babies beingsubjected to unnecessary invasive testing).

 

Diagnostic testing requires the removal of fetal material usingchorionic villus sampling (from 11 to 14 weeks) or amniocentesis (from 15 to 20weeks).  Each of these surgicalprocedures involves the insertion of a needle into the uterus to obtaincellular material from the fetus which can then be tested for abnormalitiesusing a variety of tests.  Althoughaccurate, these tests are invasive and carry a significant risk to both thefetus and the mother.  Miscarriage rates,which can be as high as 5%, are dependent on the skill of the operator and thegestation age.  Furthermore, testing islimited to high-risk patients including women over the age of 35 and resultsmay take as long as two weeks to obtain.

 

The Company now believes that there is a clear unmet need in pre-nataltesting for risk-free (for both mother and fetus) chromosomal/genetic testingfor the fetus at as early as eight weeks gestation.

 

**The RareCellectTM solution**

 

GeneticTechnologies has developed a proprietary sampling device using materials anddesign features which will ensure safe, non-traumatic sampling of the optimalregion of the cervix to yield fetal cellular material.  The current design, which has been used by anumber of healthcare professionals to sample fetal material from more than 400women, is protected by a US provisional patent.

 

The Company has also identified issues relating to the processing offetal material that limit its utility for subsequent testing, includingcontamination from maternal cells, sperm cells and other DNA.  Genetic Technologies has developed processingmethods, which are also covered by provisional patents, that can deliver fetalcells or DNA in a form suitable for testing using any of the currently approveddiagnostic methodologies.

 

**Commercial opportunity**

 

TheCompany believes that RareCellectTM offers a unique opportunity to successfullypenetrate the $2 billion global pre-natal testing market, with the potentialfor market launch within three to five years. By offering a safe sampling and processing methodology that providessufficient fetal material for subsequent analysis, it has the potential todisplace currently available maternal screening tests and to avoid the need formost of the current invasive diagnostic procedures.

 

Acomprehensive memorandum detailing technical aspects of the technology and thecommercial potential of the project is nearing completion.  This document will be strengthened by theaddition of reports from recognized experts in relation to regulatory andreimbursement strategies necessary as part of the commercializationprocess.  Further, a number ofinternational parties who operate in the RareCellectTM space have now beenidentified, some of which have already expressed interest in pursuing negotiationsfor access to the technology.

 

Markets andcompetition:  There are some four millionpregnancies per year in the United States alone.  It is already the case that some form ofantenatal screening is provided for most pregnancies in developedcountries.  The trend towards increasing numbersof women becoming pregnant later in life is resulting in an increasing risk ofchromosomal aberrations in these pregnancies. Given the expense, inconvenience and inaccuracy of current screeningstrategies, and the risks associated with subsequent invasive diagnosticprocedures, it seems probable that a reliable, accurate, non-invasive, andrelatively inexpensive diagnostic test would be rapidly adopted and applied inall pregnancies early in the pregnancy which would substantially increase thecurrent markets.

 

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Thisconclusion has, of course, been reached by a number of other parties.  There are currently several competing groupsactively pursuing different methods for the isolation of fetal DNA frommaternal blood.

 

Governmentregulation:  The provision of clinical testing servicesand in vitro diagnostic medical devices is subject to extensive regulatory requirementsin most developed countries.  In theUnited States, the Centers for Medicare & Medicaid Services (CMS)regulates all laboratory testing (except research) performed on humans in theUnited States through the Clinical Laboratory Improvement Amendments (CLIA).  TheFood and Drug Administration (FDA) regulates clinical trials and medicaldevices.  In Australia, the regulation ofclinical trials and medical devices is performed by the Therapeutic GoodsAdministration (TGA).  Accreditation oflaboratories offering pathology services is granted by the Health InsuranceCommission, based on a report of assessment by the National Association ofTesting Authorities, Australia (NATA). In addition, in the State of Victoria, where the Company has itsheadquarters, accreditation may also be obtained from the Pathology ServicesAccreditation Board, again subject to favorable assessment by NATA.

 

**(2) ImmunAid Project**

 

ImmunAidPty. Ltd. was established in March 2001 to develop and exploit theImmunAid technology.  GeneticTechnologies currently owns 70.5% of ImmunAid with the balance of shares ownedby private investors including the inventors of the ImmunAid technology.

 

TheImmunAid technology describes a method of leveraging a patient’s immune systemto potentially improve the efficacy of treatments for cancer, autoimmune andinfectious diseases.  The method buildson a discovery that the human immune system oscillates under chronic diseaseload.  This oscillation has been observedacross a range of cancer types and other chronic disease conditions (HIV, MS)and can be elucidated by serial measurements of acute phase inflammatorymarkers such as C-reactive protein (CRP) and other cytokines and antigenmarkers.  The central hypothesisunderlying ImmunAid is that timing the administration of treatment to aprescribed point on patient’s immune oscillation will increase the efficacy ofthe treatment.

 

**Targetingthe immune system**

 

Theresearch undertaken as part of the ImmunAid project has discovered a phenomenonof the immune cycle which shows that the immune system switches itself “on andoff” in a continuous and repetitive cycle in patients with chronic diseasessuch as cancer and HIV.

 

Acritical insight made by the inventor behind the ImmunAid research is that the timingof the administration of chemotherapy may determine a patient’s response.

 

Incancer, the “off” switch is controlled by a group of cells called T-Regulatorycells which can be manipulated by the accurate and skilful timing ofchemotherapy.  Once unleashed, the immunesystem is then free to attack the cancer. In the relatively-rare 7% of cases where chemotherapy is completelyeffective and cancer is eliminated, the ImmunAid researchers believe thatchemotherapy may actually be having a greater effect on the immune system thanon the cancer.  This is a major paradigmshift in the fields of cancer treatment and immunology.

 

At therecent American Society of Clinical Oncology conference held in Orlando,Florida, investigators at the Mayo Clinic in Rochester, Minnesota reported theresults of a pilot trial they conducted entitled “Possible therapeutic reversalof immune suppression in patients with metastatic melanoma by timed delivery oftemozolomide chemotherapy”.  This pilotstudy, co-designed by the ImmunAid team, used ImmunAid’s concept for timedintervention with chemotherapy.  It hassince provided sufficient preliminary supportive human data to warrant a largerdefinitive study.

 

**Commercialopportunity**

 

Withencouraging technical results having now been obtained from various clinicalstudies, including that undertaken at the Mayo Clinic, Genetic Technologies hasdecided to invite expressions of interest from third parties capable ofparticipating to expedite the development and potential commercialization ofthe ImmunAid technology.  A number ofpotential commercialization partners have since been identified andcontacted.  Recently, the Company hasengaged a recognized international Contract Research Organization to assist itin scoping definitive trials and paths to market for ImmunAid.  With the assistance of both international andlocal consultants, a commercialization memorandum for the project is alsonearing completion.  The Companyanticipates that further negotiations with interested parties will beundertaken towards the early part of the 2010 calendar year.

 

**(3) Nematode Project**(formerly reported as the Pathogens Program)

 

In March 2001,we entered into a Collaborative Research Agreement (“CRA”) with the Universityof Melbourne (Department of Veterinary Science) to conduct applied research onmethods for the diagnosis and control of parasitic diseases in animals andhumans.  Two scientists were employed viathe University and work commenced in mid-2001 under the direction of AssociateProfessor Robin Gasser.  Prof. Gasser isthe author of more than 120 papers in international peer-reviewed journals,mainly in classical and molecular parasitology.

 

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Asubstantial portion of the costs associated with this project are paid for byinterested third parties, including relevant industry bodies such as Meat andLivestock Australia (“MLA”) and the Australian Research Council (“ARC”).  A summary of the project’s development costs,outcomes and further plans is summarized below:

 

**Project 1******(undertaken between April 2001 and March 2003)-*Cryptosporidium parvum*

 

Total estimated costs paid by the Company: $400,000

 

Gasser *et al* developeda new, DNA-based test to identify and sub-type *Cryptosporidium*species and sub-species. Independent validation of sensitivity and specificity was conducted byRobin Gasser and Rachel Chalmers (PHLS *Cryptosporidium*Reference Unit, Swansea, UK) post our funding. Collectively, the Company and Gasser have transferred the test from gelsto capillary instruments.  Following areview of potential markets, GTG decided to terminate the project.

 

**Project 2******- Novelmethods for the control of the major worm parasites of sheep and cattleincluding *Haemonchus contortus,**Trichostrongylus vitrinus* and *Ostertagiaostertagi.*

 

Theproject’s objective is to discover and develop novel compounds for the controlof nematodes (principally *Haemonchus contortus*- the barber’s pole worm) in sheep.  Parasitesthat affect livestock are a major cause of disease globally and the financiallosses they cause are substantial. Infestation of sheep and cattle with parasites is estimated to costAustralian producers approximately $1 billion annually.  To make matters worse, these parasites havegrown resistant to the drugs that are commonly used to treat them.  Left unattended, parasitic worms infest thegut of livestock, reducing their growth and leading to lower productivity andquality of wool.  Farmers typicallycontrol parasitic worms by drenching, but the efficacy of current treatments isbecoming progressively less due to the development of resistance.  This trend is likely to get worse, so thereis a major global drive to develop novel means to control parasites.

 

This project is a collection of collaborative researchprojects involving Genetic Technologies Limited and:

 

·                  Professor Robin Gasser’s group in the Department of Veterinary Science,University of Melbourne;

 

·                  Associate Professor Adam McClusky’s group in the Department ofChemistry, University of Newcastle;

 

·                  Meat and Livestock Australia (“MLA”).

 

ProfessorGasser’s group is working on target identification by investigating the genomeof parasites, target validation, assay development and compound screening.  Professor McClusky’s group is working onsynthesis of compounds directed against the targets identified by ProfessorGasser’s group.

 

Fundingis provided by two ARC Linkage grants supplemented by direct and in-kindcontributions from the Company and MLA. The Company’s total cash commitment under ARC Linkage Project LP0667795is $250,000 per year for three years ended June 30, 2009.  The Company has a further commitment underARC Linkage Project LP0882285 of $90,000 per year for the three years ending December 2010.  Project IP ownership is split between theCompany (as to 75%) and MLA (as to 25%).

 

During2008, it became apparent that the methods previously used to screen compoundssynthesized by the University of Newcastle were flawed.  Consequently, an industry standard larvaedevelopment assay (LDA) was designed and implemented by the University ofMelbourne.  All compounds previouslysynthesized either have been or are planned to be re-screened with theLDA.  Initial results from there-screening have identified two lead compounds exhibiting highly promisingnematocidal performance.

 

During2009, the Company’s collaboration with the researchers at the Universities ofMelbourne and Newcastle to discover new classes of chemicals for the treatmentof nematodes (worms) in livestock continued. The project is still supported by a grant from Meat & LivestockAustralia who is actively participating in the project.

 

In thefirst phase of the project, genetic techniques were used to identify proteinsessential for the survival of the nematodes. Several such targets were prioritised and their DNA sequences have beencompared with that of humans and sheep. The logic behind this approach is thatthe protein targets in the parasites that have the least similarity with man orthe host will be safer and less environmentally dangerous.

 

Severalcompounds have now been successfully synthesised as part of the project and anumber of major livestock pharmaceutical companies active in the field ofanimal health have been approached to determine their interest in thisproject.  The discussions are continuing.

 

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**(4) Sponsored ResearchAgreement with C.Y. O’Connor**

 

In June 2004,we entered into a series of agreements with the C.Y. O’Connor ERADE VillageFoundation, incorporating the Immunogenetics Research Foundation and theInstitute of Molecular Genetics and Immunology (“CYO” and the “Foundation”)under which (i) we acquired CYO’s entire patent estate in the field ofgenetics and genomics, known collectively as the “Genomic Matching Technique” (“GMT”)(ii) we granted a license to CYO to utilize our non-coding patents, and (iii) weagreed to provide research funding to the Foundation for a period of five yearsending June 2009 to develop novel, high-value genetic tests forcommercialization by GTG.

 

The programwas formed upon the acquisition by the Company of all the genetics and genomicsintellectual property generated by the Foundation, which showed promise in anumber of important areas, including improved tissue typing and transplantationtechniques in human bone marrow transplantation, plus an extensive range of newopportunities in the field of human genetics and animal genetics, includingcattle, horses, dogs and fish.  TheCompany has certain rights to any and all intellectual property generated bythe Foundation as part of the agreement between the parties.

 

It is becoming increasingly apparent that thetraditional genetic tests which have been developed to diagnose individualssusceptible to diseases, or identify plants or animals that have desirablecharacteristics, provide limited information. As such, the Company is working closely with the Foundation to develop anovel approach designed to overcome these shortcomings.  The GMT developed by CYO, is an effective,yet relatively simple, method for identifying genetic differences betweenindividuals.  A large number of GMTclusters have now been identified which are being associated with genes thatmay be implicated with diseases.

 

One such potential disease association has beendiscovered with Age-related Macular Degeneration (“AMD”), an inflammatorydisease of the eye which often results in blindness in the aged.  A proportion of patients diagnosed with themilder form of the disease develop to the more-advanced form which results inblindness.  GMT may be used toeffectively identify those susceptible to disease progression, enabling earlyintervention with therapy.  This approachcan potentially delay the onset of the disease, or reduce its severity.  A study was undertaken during 2006/07 by theCompany into the utility of the application of GMT to AMD.  Upon completion of this study, the Companydecided to terminate its support of this project.

 

In the area of tissue and marrowtransplantation, CYO and independent laboratories have shown that transplantrecipients who were matched to donors using the traditional immune markers andby GMT had a substantially increased chance of long term survival compared withpatients matched for the immune markers alone. This data demonstrates that the GMT is revealing information about thehaplotype of the individuals as it applies to transplantation that is over andabove that provided by traditional immunological typing.  This principle can be extended to a range ofsimilar disorders.

 

CYO is currently in the process ofinvestigating various applications of the GMT technology as they relate toimmune-related diseases, including autoimmune diseases.  These include the early identification ofpeople who are susceptible to disorders such as Type I diabetes, multiplesclerosis, lupus and rheumatoid arthritis, thereby increasing their lifespanand quality of life by delaying the onset of disease, reducing the severity ofdisease or potentially eliminating the disease altogether.  Research is also being undertaken by CYOinvestigating whether this principle can be extended to diseases outside theimmune system, including diseases and desirable traits of plants andanimals.  The tests are rapid,inexpensive, can be performed on standard equipment and provide moreinformation than regular genetic tests.

 

*Impairment of patents*

 

Duringthe 2007 financial year, in conjunction with work performed by an independentvaluation expert, an impairment charge of $1,150,000 was calculated byManagement and recorded against the carrying value of the patents that wereoriginally acquired from the Foundation. The recoverable amount of the patents was based on value-in-usecalculations.  The estimated riskadjusted cashflows were discounted by the risk free rate of 6.5%.  The 2007 financial year was the first year inwhich an indicator of impairment had arisen, requiring an assessment of therecoverable amount of the patents.

 

Duringthe 2008 financial year, following a detailed scientific reviewof the work that had been undertaken in respect of one of the applications ofthe underlying technology, a second impairment charge was made. This charge resulted from a lack of progress with theresearch related to the commercialisation of certain applications of thetechnology covered by the patents and it was subsequently decided to terminatethat aspect of the program.  Whilst workcontinues in respect of the use of the technology in relation to other relatedareas, the lack of progress made as at balance date in relation to GMT and AMDgave rise to an impairment charge of $2,378,000 during the year ended June 30,2008.

 

Giventhat the Company’s previous attempts to commercialize the technology associatedwith the patents had not delivered the anticipated revenues, the Companybelieved that it was appropriate to base its assessment of the carrying valueof the underlying patents as at June 30, 2008 around a further productbased on the technology which had already been successfully completed and fromthe sale of which revenues had already been generated.  Accordingly, the carrying value of theunderlying patents as at June 30, 2008 had been based on the anticipatednet cash flows that the Company believed would be generated from the futuresales of this product.

 

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The cashflow forecasts associated with theimpairment assessment of the patents have been projected to 2012, being thefirst year in which the respective patents will expire, using the Company’sestimated weighted average cost of capital and conservative projections ofanticipated sales volumes over the next three years.  Further, given the competitive advantageafforded to the Company in respect of this product, a termination value hasalso been included to reflect that sales of the product are expected tocontinue beyond the date of the patent expiry. The forecasts and associated recoverable amount has been determined byManagement taking into account the sales that have been generated to date andthe considerable interest arising from pre-launch market analysis.  Based on the sales of the products achievedduring the year ended June 30, 2009 and the continued amortization of thepatents, no further impairment charges were raised during that year in respectof the underlying patents.

 

On June 15,2009, contract research undertaken at CYO in Perth, Western Australia ceased,following the expiry of the Sponsored Research Agreement between the Company and CYO.  Investigations into opportunities for thepossible commercialization of the technology developed as part of that researchcontinue.

 

****Competition****

 

**Licensing**

** **

Ourlicensing business principally covers two families of “non-coding”patents.  As we are the sole owners ofthese patents there is, by definition, no direct competition in thisactivity.  However, to some degree, thereare alternate technologies in the market place which can be used to performgenetic analysis and genomic mapping and so in this regard we do face indirectcompetition and a potential risk of technological obsolescence.  A risk of patent invalidation always existswith the possibility of the discovery of previously unknown prior art as wellas patent re-examination.

 

Duringthe year ended June 30, 2009, we successfully prevailed in legalproceedings with respect to a Nullity Action in the German Patent Courtregarding the equivalent to US Patent No. 5,612,179 and we have respondedto questions raised by the US Patents and Trademarks Office in relation to aRequest for Re-examination of seven of the thirty six claims contained in USPatent No. 5,612,179.  Apart fromthese risks, the inevitable expiry of our non-coding family of patents in 2010and 2015 remains, at which time our ability to generate future license revenuesfrom these particular patents may be restricted.  It is anticipated that, over time, however,licensing of additional patents filed by the Company in other areas of geneticsand our other research projects may replace revenues currently generated fromthe licensing of these non-coding patents.

 

**Genetic testing - paternity**

** **

Thesize of the Australian DNA paternity testing market can only be estimated, asthe tests fall outside of the Australian public health (Medicare) regime and henceno central records are kept.  Our bestestimate is that the total size of the market is about 5,000 to 6,000 tests peryear which, if correct, would give the Company approximately a 50 percent totalmarket share.  There are presently anumber of other laboratories that offer these tests in Australia, all of whichare NATA accredited.

 

Sonicand Healthscope are the two largest pathology companies in Australia.  Throughout Australia, Healthscope refersexclusively to DNALabs.  In Victoria, NewSouth Wales and Western Australia, Sonic refer exclusively to their ownlaboratories.  The Australian market forpaternity testing is now saturated and, since the entry of two of the threemajor pathology companies in the later part of 2003, our ability to generate growingrevenues from this market has reduced. At present, our market share appears to have stabilized.  A brief outline of each competitor in thisarea is listed below.

 

DNAlabs:  Thisis our largest competitor and is a wholly-owned subsidiary of Sydney IVF.  It obtains paternity testing referralsexclusively from Symbion Health (formerly Mayne Health) which has the largestshare of the Australian pathology market.

 

SonicHealth Care:  A division of Sonic, the second largestpathology provider in Australia.  Thelaboratory is Sydney-based and was established by the ex-head of DNAlabs.  Once accreditation was granted in July 2003,the referrals which the Company had previously received from Sonic ceased.

 

Healthscope(formerly Gribbles):  The third largest pathology provider inAustralia, which entered the paternity testing market in late 2003. Since entryinto the market, they aggressively discounted prices in order to obtain marketshare.  This strategy proved unsuccessfuland, in November 2007, they exited the paternity market.  All of their work is now referred to anewly-established laboratory called DNA Queensland.

 

VictorianInstitute of Forensic Medicine:  This is the Coroner’slaboratory in Victoria.  We know fromtheir annual report that for the last five years their workload has beenrelatively static at 150 cases per annum.

 

JohnTonge Centre:  This is the Coroner’s laboratory inQueensland.  It is NATA accredited butdoes not offer the test commercially.

 

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MedvetScience:  This laboratory is based in South Australiaand its major shareholder is the State Government.  Prior to the entry of Gribbles, it had amonopoly in South Australia and also controls the market in the NorthernTerritory and Tasmania.

 

DNASolutions:  This company was established in the late 1990’sand sells its services over the internet. The majority of their business is generated via the web and they havesites in various countries.

 

DNA-Bioscience:  Aninternet based company which commenced trading in May 2005.

 

**Genetic testing - diagnostics**

** **

Asthe sole licensee in Australia and New Zealand for the genetic test for thepredisposition for familial breast cancer, we do not have any commercialcompetitors in this area.  However, thetest is provided by the pathology departments of certain public hospitals.  They are not true competitors in that thenumbers of such tests that can be performed is restricted due to limitedGovernment funding.  Further, thehospitals use strict patient selection criteria such that only the top 10% ofhighest risk patients are tested.

 

**Genetic testing - forensics**

** **

ForensicDNA testing is defined to include DNA tests, the results of which can be reliedupon as evidence in a court of law.  Tomeet the strict standards of court evidence, forensic testing can only beconducted through NATA accredited laboratories that have been approved for suchwork.  We are the first non-governmentowned, NATA accredited forensics laboratory in Australia.  At the moment, virtually all forensic testingis conducted through state government owned laboratories.  These laboratories have substantial backlogsand do not generally undertake private DNA forensic tests.  As such, we are one of a few accreditedlaboratory currently providing forensic testing services to the public.  To resolve the backlog problem, various stategovernments have already suggested that they plan to investigate thepossibility of outsourcing the testing of forensic samples to the privatesector.  In January 2008, theCompany announced that it had been awarded a three year contract to supply NewSouth Wales Police with DNA analysis services.

 

**Genetic testing - animals**

** **

GTGoffers a DNA testing service across a number of animal species, particularlywith respect to establishing an animal’s pedigree and parentage.  This test is common across animal species andis not proprietary.  Accordingly, anylaboratory that can provide a DNA parentage / pedigree test is able to enterthis market.

 

GTGhas also developed a large portfolio of genetic tests for the canine area.  Currently, GTG is the only provider ofcanine DNA services for the growing pedigree dog market in China.

 

AgResearchis a research laboratory in New Zealand used by Ovita, a company specializingin providing sheep herd management systems that includes a genetic breedingscoring system.  Ovita has indicated thatit would like to expand its services into the cattle industry.

 

Somemajor pathology companies in Australia already have vet pathology businessesand almost all have expertise in human DNA profiling.  We anticipate that they may enter the animaltesting market in the medium term. Currently, the major canine pathology company in Australia has arelationship with GTG whereby it sends all of its canine genetic testing toGTG.

 

**Genetic testing - plants**

** **

Thereare no material levels of commercial DNA service tests conducted in Australiafor plants, other than commissioned research conducted by public authorities(such as universities and CSIRO) or by commercial organizations that internallyconduct DNA tests as part of the ordinary course of their operations.  In recognition of this, we establishedAgGenomics Pty. Ltd., a joint venture between Genetic Technologies and theVictorian State Government.  The jointventure is controlled by Genetic Technologies (owning 50.1%).  The commercial goal of AgGenomics is to offerthe following services to plant breeders and researchers:

 

·                  High throughput extraction of plasmid DNA andgenomic DNA;

 

·                  High throughput DNA sequencing;

 

·                  High throughput genotyping; and

 

·                  SNP discovery and analysis.

 

AgGenomics has focused on the commercialspecies of greatest value to the Australian economy and also species where themost substantial funding has been invested, including wheat, barley, canola,cotton, vegetable brassicas (e.g. cabbage, cauliflower, brussel sprouts andbroccoli) and wine grapes.  To date,AgGenomics has completed a number of commercial projects on behalf of some ofthese industries.

 

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In Australia, we have two majorcompetitors.  The first is Southern CrossUniversity, which specializes in tropical fruits and rice but, as they arehighly specialized and do not match AgGenomics’ testing capacity, they are notseen as a major threat.  The second,South Australian Research & Development Institute (SARDI), is seen asour major threat as in the next few years there is a reasonable expectationthat they will have the capacity to match AgGenomics.  In addition to this, their expertise inplants is similar to ours.

 

Whilstwe have few domestic competitors, our major commercial threat comes fromoffshore laboratories based in the United States, England and Korea which havea higher throughput than AgGenomics and enjoy greater economies of scale,thereby reducing their costs.  To date, afew large Australian plant sequencing contracts have been lost offshore incases where the client simply requires the return of the genetic data and doesnot require our expertise in its interpretation.

 

**Genetic testing - sports performance**

** **

TheCompany has been granted patents in India, Japan, Australia and New Zealandover genotyping of the ACTN3 gene for athletic performance.  Patents are pending in the United States,Europe, China, Canada, Russia and South Korea. Recently, ACTN3 has been offered by the United States based lifestylegenetics company 23andMe Inc., as part of its overall product involving theanalysis of more than 500,000 genetic variations.  While the ACTN3 SportsGene TestTM provides anindication of an individual’s predisposition to sports/power sport performanceas opposed to endurance sport performance, there are a range of other tests,genetic and non genetic that may also indicate a predisposition to particularsporting performance.  None of these,however, specifically relate to a genetic test on the ACTN3 gene which,scientifically, has shown a very high correlation to sports performance.

 

**Research**

** **

RareCellect Project

 

Whilsta number of companies around the world are active in the area of prenataltesting, there are currently no commercially available products that competedirectly with the RareCellectTM technologies.

 

ImmunAid Project

 

Althougha number of major research groups around the world are working on immune-basedtherapeutics for cancer, apart from the joint ImmunAid / Mayo Clinic abstractpresented at the American Society of Clinical Oncology (ASCO) 2009, there havebeen no significant publications to date referring to the immune cycle andtimed therapeutic intervention for the treatment of cancer.  However, there is momentum building in thisfield, and public funding programs are readily accessible by independentacademic groups which would facilitate large clinical trials and uptake intopractice if improvement in clinical outcomes by the use of the immune cycle totime therapy is adequately validated. Similarly, there is no public disclosure to date by any commercialorganizations referring to the use of the immune cycle for therapeuticinterventions.

 

Nematode Project

 

Severalgroups are known to be developing novel anthelmintic compounds for applicationto commercial ruminants such as sheep. These groups include Novartis, Schering-Plough, Eli Lilly, Bayer, Merckand Pfizer.  The status of thesedevelopment programs is currently unknown to the Company.

 

**Environmental Regulations**

** **

The Company’s operations are subject to environmentalregulations under Australian State legislation. In particular, the Company is subject to the requirements of theEnvironment Protection Act 1993.  Alicense has been obtained under this Act to produce listed waste.

 

As of June 30, 2008,the Company held a 14.66% direct equity interest in the North Laverton JointVenture with Regis Resources Limited (“Regis”) that had been equity accountedto a nil balance.  The Joint Venture hadcontinuing expenditure requirements as prescribed by the Western AustralianMines Department in respect of its prospecting and exploration licenses andmining leases owned by the joint venture. As of June 30, 2008, the Company had recorded a provision for$94,987 in respect of its share of the estimated rehabilitation costsassociated with the North Laverton project. The amount of the provision was based on calculations provided to theCompany by Regis as project manager.

 

On August 27, 2008,the Company sold its entire interest in the Joint Venture and, as part of thesale, it was fully indemnified by Regis against any future rehabilitationliabilities which may arise from the exploration activities of the JointVenture undertaken up until the date of sale. This indemnification subsequently enabled the Company, during the yearended June 30, 2009, to fully reverse the provision of $94,987 in respectof such liabilities which had been recorded in the Company’s balance sheet asof June 30, 2008.

 

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**Item 4.C**                          Corporate Structure

** **

The table below shows the corporate structure ofGenetic Technologies and its subsidiaries as of the date of this Annual Report:

 

 

Notes:             Frozen Puppies Dot Com Pty.Ltd. was acquired on July 22, 2008.

 

Genetic Technologies(Beijing) Limited was incorporated by the Company on December 25, 2008.

 

Genetic Technologies is the holding company of thegroup and is listed on the Australian Securities Exchange, under the code GTGand, via its ADRs, on the NASDAQ Global Market, under the ticker symbol GENE.

 

**Item 4.D**                          Property, Plant and Equipment

** **

As of the date of this Report, the Company hasexecuted five leases in respect of premises occupied by the Group.

 

Fitzroy, Victoria

 

GeneType Pty. Ltd., a wholly-owned subsidiary of theCompany, rents the offices and laboratory premises which are located at 60-66Hanover Street, Fitzroy, Victoria, Australia from Bankberg Pty. Ltd., a companyassociated with former Director and majority shareholder, Dr. MervynJacobson.  The lease expires on June 30,2011, with an option for renewal for another 10 years, at a current annual costof approximately $460,000.  Effective November 1,2009, the lease was assigned from GeneType Pty. Ltd. to Genetic TechnologiesLimited.  All other terms and conditionsof the lease remain unchanged.

 

Beijing, China

 

Genetic Technologies (Beijing) Limited, anotherwholly-owned subsidiary, rents office and veterinary premises which are locatedin Beijing, China that were occupied by the Group since September 2008.  The lease, which expires on August 31,2011, covers premises that are owned by Beijing Jiangrun Pet Resorts.  The annual rental cost is CNY120,000(approximately $20,000).  Any extensionof the lease at the end of the lease period will require the agreement of bothparties.  Genetic Technologies (Beijing)Limited does not have an option to purchase the leased premises at the expiryof the lease period.

 

Devon Meadows, Victoria

 

Genetic Technologies Limited rents veterinarypremises which are located in Devon Meadows, Victoria, Australia (a southeastern suburb of Melbourne) that were occupied by the Group since July 2009.  The lease, which expires on June 30,2011, covers premises that are owned by Robert Watts and Ming Chen.  The annual rental cost is $15,600 in thefirst year, rising to $29,640 in the second year.  Any extension of the lease at the end of thelease period will require the agreement of both parties.  Genetic Technologies Limited does not have anoption to purchase the leased premises at the expiry of the lease period.

 

Baulkham Hills, New South Wales

 

Genetic Technologies Limited rents veterinarypremises which are located in Baulkham Hills, New South Wales, Australia (anorthern suburb of Sydney) that were occupied by the Group since September 2009.  The lease, which expires on September 28,2011, covers premises that are owned by The Animal Referral Hospital Pty.Ltd.  The annual rental cost is $25,000in the first year, rising to $37,500 in the second year.  Any extension of the lease at the end of thelease period will require the agreement of both parties.  Genetic Technologies Limited does not have anoption to purchase the leased premises at the expiry of the lease period.

 

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Chuwar, Queensland

 

Genetic Technologies Limited rents veterinarypremises which are located in Chuwar, Queensland, Australia (a western suburbof Brisbane) that were occupied by the Group since October 2009.  The lease, which expires on October 31,2011, covers premises that are owned by the Karalee Karana VeterinarySurgery.  The annual rental cost is$15,600 in the first year, with inflation adjustments to occur in respect ofthe second year.  Any extension of thelease at the end of the lease period will require the agreement of bothparties.  Genetic Technologies Limiteddoes not have an option to purchase the leased premises at the expiry of thelease period.

 

**Item5.**                                   Operating andFinancial Review and Prospects

** **

You should read the followingdiscussion and analysis in conjunction with Item 3 “Selected Financial Data”and our financial statements, the notes to the financial statements andother financial information appearing elsewhere in this Annual Report.  In addition to historical information, thefollowing discussion and other parts of this Annual Report containforward-looking statements that reflect our plans, estimates, intentions,expectations and beliefs.  Our actualresults could differ materially from those discussed in the forward-lookingstatements.  See the “Risk Factors”section of Item 3 and other forward-looking statements in this Annual Reportfor a discussion of some, but not all, factors that could cause or contributeto such differences.

 

**Item 5.A**                          Operating Results

** **

**Overview**

** **

**OurFormation**

 

GeneType AG was incorporated in Zug, Switzerland on February 13,1989 to exploit the commercialization of the hypothesis that the non-codingregion of the human HLA gene complex of chromosome 6 is a valuable and highlyordered reservoir of useful genetic information, largely overlooked by the restof the world.

 

Genetic Technologies Limited was incorporated on January 5,1987 as Concord Mining NL in Western Australia. On August 13, 1991, we changed our name to Consolidated VictorianGold Mines NL to better reflect the operations of the Company at the time.  On December 2, 1991, we again changedour name to Consolidated Victorian Mines NL. On March 5, 1995, we again changed our name to Duketon GoldfieldsNL.  On October 15, 1995, we changedour status from a “No Liability” company to a company limited by shares and thename became Duketon Goldfields Limited. On August 29, 2000, we changed our name to Genetic TechnologiesLimited, which is the current name of the Company.

 

On August 29, 2000, Duketon Goldfields Limitedreceived shareholder approval to change its activities from a mining company toa biotechnology and genetics company on the acquisition of all the issuedcapital of GeneType AG of Switzerland.  Following the acquisition of GeneType AG, thenew combination has been engaged in the researching, developing andcommercialization of genetic concepts primarily related to our intron sequencepatents and genomic mapping patents.  Weare also the largest accredited paternity testing laboratory in Australia whichGeneType has been operating since 1990. Over the past seven years, the Company has granted licenses to itspatents and expects to derive revenue from further licensing of itspatents.  Prior to the merger withGeneType AG, the mining exploration activities had ceased and were beingprogressively disposed of by August 2000. The company was basically an investment shell and following thecompletion of the merger the old shareholders of GeneType AG were in control ofthe company which formed the basis for treating the acquisition of GeneType AGas a reverse acquisition.

 

**DevelopmentStage Enterprise**

 

Until 2002, we were a development stageenterprise.  We had been developing ourtechnology that resulted in the granting of seven families of patents in theUSA which we have now actively started to commercialize and enforce.  Since inception up to June 30, 2009, wehave incurred $59,030,262 in accumulated operating losses.  Our losses have resulted principally fromcosts incurred in research and development and from general and administrativecosts associated with our operations. Refer to the Consolidated Statements of Operations in our attachedfinancial statements.

 

The research and development costs incurred prior to August 2000were funded by shareholders of GeneType AG. On completion of the merger of Duketon Goldfields Limited and GeneTypeAG in August 2000, to form Genetic Technologies Limited, existing funds ofapproximately $6 million within Genetic Technologies Limited were appliedtowards research and development and general and administrative expensesassociated with our operations.  TheCompany also sold its investment in Cytomation Inc. of Fort Collins, Coloradoin November 2001 for approximately $6 million.  The funds realized from this sale wereapplied towards research and development and general and administrativeexpenses associated with our operations. The Company has completed several placements of shares, including one inAugust 2003, and there have been other amounts raised from the exercise ofunlisted options.  We have primarilydepended on these sources of funds to meet our financing needs.  However, we now license our non-codingtechnology and provide a series of genetic tests, both of which generaterevenue to fund our expenses.

 

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The extent to which we continue to incur losses will,amongst other things, depend on the quantum of license fees received from thelicensing of our patents, the amount of annuities and royalties we receive frompast licenses, the success we have with respect to the commercialization of ourresearch projects, the rate at which our new tests are taken up by ourcustomers and generally the number of genetic tests we conduct.  We may not be able to license our technologysuccessfully or ever achieve or sustain profitability.

 

**Where We Derive our Revenues**

 

Our major source of revenues up to June 30, 2002were grants received from the Australian Government under the START Programlicensing, fees from licensing the non-coding patents, DNA paternity testingservices income in Australia and interest income from our cash on deposit andother cash equivalents.

 

Since commencing our licensing program during the yearended June 30, 2002, the Company has been successful in securing licensesfor its technology from a total of 38 commercial licensees and 6 researchlicensees (see Item 4A. for a complete list). We have also received proceeds from the disposal of some of ourremaining non-core mining assets which were held for resale in Australia andCanada during the year ended June 30, 2003 and from the sales of variousshares in other companies which we formerly held.  None of this income is recurring.

 

**Fiscal Year**

 

As an Australian company, our fiscal, or financial,year ends on June 30 each year.  Weproduce audited consolidated accounts at the end of June each year andprovide reviewed six-monthly accounts at the end of December each year,both of which are prepared under Australian Accounting Standards as issued bythe Australian Accounting Standards Board and International Financial ReportingStandards (“IFRS”) as issued by the International Accounting Standards Board.

 

**Recent AccountingPronouncements**

** **

Inrespect of the year ended June 30, 2009, the Group has assessed all newaccounting standards mandatory for adoption during the current year, noting nonew standards which would have a material affect on the disclosure in thesefinancial statements.  There has been noaffect on the profit and loss or the financial position of the Group.

 

CertainInternational Financial Reporting Standards and interpretations have beenissued or amended that are not mandatory for the June 30, 2009 reportingperiod.  The assessment of the impact ofthese standards and interpretations which are considered to be of relevance tothe Group in future reporting periods is set out below.

 

·                  *IAS 1(Revised): Presentation of Financial Statements and consequential amendments toother Australian Accounting Standards*

 

IAS 1 (Revised) is applicable to annualreporting periods beginning on or after January 1, 2009.  IAS 1 (Revised) introduces a statement ofcomprehensive income.  Other revisionsinclude impacts on the presentation of items in the statement of changes inequity, new presentation requirements for restatements or reclassifications ofitems in the financial statements, changes in the presentation requirements fordividends and changes to the titles of the financial statements.  Theseamendments are only expected to affect the presentation of the Group’sFinancial Report and will not have a direct impact on the measurement andrecognition of amounts disclosed in the Financial Report.  The Group has not determined at this stagewhether to present a single statement of comprehensive income or two separatestatements.

 

·                 *IFRS 2 (Revised): Amendments toAustralian Accounting Standard — Share-based Payments: Vesting Conditions andCancellations*

 

IFRS 2(Revised) is applicable to annual reporting periods beginning on or after January 1,2009.  The amendments clarify the definitionof “vesting conditions”, introducing the term “non-vesting conditions” forconditions other than vesting conditions as specifically defined and prescribethe accounting treatment of an award that is effectively cancelled because anon-vesting condition is not satisfied. The Group has share-based payment arrangements that may be affected bythese amendments.  However, the Group hasnot yet determined the extent of the impact, if any.

 

·                 *Amendment to IAS 39 FinancialInstruments: Recognition and measurement*

 

IAS 39*Financial Instruments: Recognition and Measurement*has been amended and must be applied retrospectively in accordance with IAS 8 *Accounting Policies, Changes in Accounting Estimates and Error*.  The amendment makes two significantchanges.  It prohibits inflation as ahedgeable component of a fixed rate debt and prohibits the inclusion of timevalue in the one-side hedged risk when designating options as hedges.  The Group will apply the amended standardfrom July 1, 2009, if hedging activity is undertaken.

 

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·                 *Improvements to IFRSs*

 

Certain improvements toIFRSs are applicable to annual reporting periods beginning on or after January1, 2009 except for amendments to IFRS 5, which are effective from July 1,2009.  The improvements project is an annualproject that provides a mechanism for making non-urgent, but necessary,amendments to IFRSs.  The IASB hasseparated the amendments into two parts: Part 1 deals with changes the IASB hasidentified which result in accounting changes; whilst Part II deals with eitherterminology or editorial amendments that the IASB believes will have minimalimpact.  The Group has not yet determinedthe extent of the impact of the amendments, if any.

 

·                 *IAS 23 (Revised): Borrowing Costs and consequential amendments to otherAustralian Accounting Standards*

 

IAS 23 (Revised) isapplicable to annual reporting periods beginning on or after January 1,2009.  These amendments to IAS 23(Revised) require that all borrowing costs associated with a qualifying assetbe capitalized.  There will be no impacton the Financial Report of the Group, as the Group does not have any borrowingcosts.

 

·                 *IFRS 3 (Revised): BusinessCombinations*

 

IFRS 3 (Revised) isapplicable to annual reporting periods beginning on or after July 1, 2009.  The revised standard introduces a number ofchanges to the accounting for business combinations, the most significant ofwhich allows entities a choice for each business combination entered into - tomeasure a non-controlling interest (formerly a minority interest) in theacquiree either at its fair value or at its proportionate interest in theacquiree’s net assets.  This choice willeffectively result in recognizing goodwill relating to 100% of the business(applying the fair value option) or recognizing goodwill relating to thepercentage interest acquired.  Thechanges apply prospectively.  The Groupwill apply the revised standards prospectively to all business combinations andtransactions with non-controlling interests from July 1, 2009.

 

·                 *IAS 27 (Revised): Consolidatedand Separate Financial Statements*

 

IAS 27 (Revised) isapplicable to annual reporting periods beginning on or after July 1, 2009.  Under the revised standard, a change in theownership interest of a subsidiary (that does not result in loss of control)will be accounted for as an equity transaction. If the Group changes its ownership interest in existing subsidiaries inthe future, the change will be accounted for as an equity transaction.  This will have no impact on goodwill, norwill it give rise to a gain or a loss in the Group’s income statement.

 

·                 *IFRS 7(Revised): Financial Instruments: Disclosures*

 

Theamendments to IFRS 7 require enhanced disclosures about fair value measurementsand liquidity risk.  In particular, theamendments:

 

(a)          clarify that the existing fair valuedisclosure requirements in IFRS 7 must be made separately for each class offinancial instrument;

 

(b)         require disclosure of any change in amethod for determining fair value and the reasons for the change;

 

(c)          introduce a three-level hierarchy formaking fair value measurements, as follows:

 

·                  level 1 — quoted prices (unadjusted) in active markets for identicalassets or liabilities;

 

·                  level 2 — inputs, other than quoted prices included within level 1,that are observable for the asset or liability; and

 

·                  level 3 — inputs for the asset or liability that are not based onobservable market data (unobservable inputs);

 

(d)         require disclosure about the relativereliability of each fair value measurement in the statement of financialposition;

 

(e)          clarify that the current maturityanalysis for non-derivative financial instruments should include issuedfinancial guarantee contracts; and

 

(f)            requires maturity analysis of derivativeliabilities based on either how the entity manages the liquidity risk, or itscontractual maturity if it is essential for an understanding of the timing ofthe cash flows (e.g. interest rate swap in a cash flow hedge or loancommitments).

 

IFRS 7 (Revised) isapplicable to annual reporting periods beginning on or after January 1,2009.  These amendments are only expectedto affect the presentation of the Group’s Financial Report and will not have adirect impact on the measurement or recognition of the amounts disclosed in theFinancial Report.

 

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·**                 ***IFRS 9 Financial Instruments*

 

On November 12,2009, the International Accounting Standards Board published the first phase ofIFRS 9*Financial Instruments*, the accountingstandard that will eventually replace IAS 39*Financial Instruments:Recognition and Measurement*and is applicable to annual reportingperiods beginning on or after January 1, 2013.  The Standard introduces a number ofsignificant changes in the classification and measurement of financialassets.  It requires that at initialrecognition, all financial assets are measured at fair value (plus transactioncosts for those items measured at amortised cost).  For subsequent measurement of debtinstruments, the financial assets are classified as amortised cost or fairvalue on the basis of both the entity’s business model for managing thefinancial assets and the contractual cash flow characteristics of the financialassets.  Debt instruments may besubsequently measured at amortised cost if the asset is held within a businessmodel whose objective is to hold the assets to collect the contractual cashflows and the contractual terms of the financial asset give rise, on specifieddates, to cash flows that are solely payments of principal and interest on theprincipal amount.

 

TheStandard also requires that all financial assets that are equity investments bemeasured at fair value either through Other Comprehensive Income (“OCI”) orprofit and loss.  This is an irrevocablechoice the entity makes by instrument unless the equity investments are heldfor trading, in which case they must be measured at fair value through profitand loss.  The Group has not yetdetermined the extent of the impact of this Standard, if any.

 

·                  *IAS 27 (Revised): Cost of anInvestment in a Subsidiary, Jointly Controlled Entity or Associate*

 

IAS 27 (Revised) has beenamended by deleting the “cost method” and requiring all dividends from asubsidiary, jointly controlled entity or associate to be recognized in profitor loss in an entity’s separate financial statements (i.e., parent companyaccounts).  The distinction between pre-and post-acquisition profits is no longer required.  However, the payment of such dividendsrequires the entity to consider whether there is an indicator ofimpairment.  IAS 27 (Revised) has alsobeen amended to effectively allow the cost of an investment in a subsidiary, inlimited reorganizations, to be based on the previous carrying amount of thesubsidiary (that is, share of equity) rather than its fair value.  The application of these amendments will nothave any material impact on the Financial Report of the Group and the parententity.  However, if the Group entersinto any group reorganization establishing new parent entities, an assessmentwill need to be made to determine if the reorganization meets the conditionsimposed to be effectively accounted for on a “carry-over basis” rather than atfair value.  IAS 27 (Revised) is applicableto annual reporting periods beginning on or after July 1, 2009.

 

·                 *Furtheramendments to IFRSs*

 

Theamendments to some Standards result in accounting changes for presentation,recognition or measurement purposes, while some amendments that relate toterminology and editorial changes are expected to have no or minimal effect onaccounting except for the following:

 

(a)          The amendment to IAS 17 removes thespecific guidance on classifying land as a lease so that only the generalguidance remains.  Assessing land leasesbased on the general criteria may result in more land leases being classifiedas finance leases and if so, the type of asset which is to be recorded(intangible vs. property, plant and equipment) needs to be determined.

 

(b)         The amendment to IAS 1 stipulates thatthe terms of a liability that could result, at anytime, in its settlement bythe issuance of equity instruments at the option of the counterparty do notaffect its classification.

 

(c)          The amendment to IAS 7 explicitly statesthat only expenditure that results in a recognised asset can be classified as acash flow from investing activities.

 

(d)         The amendment to IAS 18 providesadditional guidance to determine whether an entity is acting as a principal oras an agent.  The features indicating anentity is acting as a principal are whether the entity:

 

·          hasprimary responsibility for providing the goods or service;

 

·          hasinventory risk;

 

·          hasdiscretion in establishing prices; and

 

·          bearsthe credit risk.

 

The above amendments are applicable to annualreporting periods beginning on or after January 1, 2010.  The Group has not yet determined the extentof the impact of these amendments, if any.

 

These are the onlychanges which are expected to be of relevance to the Group.

 

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**Critical Accounting Policies**

** **

**(a)****             ****Basis of preparation**

 

This general purpose FinancialReport has been prepared in accordance with Australian Accounting Standards,other authoritative pronouncements of the Australian Accounting Standards Boardand the *Corporations Act 2001.*

 

*Compliance with IFRS*

* *

The Financial Report complieswith Australian Accounting Standards as issued by the Australian AccountingStandards Board and International Financial Reporting Standards (IFRS) asissued by the International Accounting Standards Board.

* *

*Historical costconvention*

* *

These financial statements havebeen prepared under the historical cost convention, as modified by the measurementof the available-for-sale investments at fair value.

 

*Significant accountingestimates*

* *

The preparation of financialstatements requires the use of certain critical accounting estimates.  It also requires Management to exercise itsjudgement in the process of applying the Group’s accounting policies.  The areas involving a higher degree ofjudgement or complexity, or areas where assumptions and estimates aresignificant to the financial statements, are disclosed in Note 3 of theattached financial statements.

 

**(b)****             ****Basis of consolidation**

 

The consolidated financialstatements comprise the financial statements of Genetic Technologies Limitedand its subsidiaries (collectively the “Group”).  The financial statements of subsidiaries areprepared for the same reporting period as the parent, using consistentaccounting policies.  Adjustments aremade to bring into line any dissimilar accounting policies that may exist.  All intercompany balances and transactions, including unrealisedprofits arising from intra-group transactions, have been eliminated infull.  Unrealised losses are eliminatedunless costs cannot be recovered.

 

Subsidiariesare consolidated from the date on which control is transferred to the Group andcease to be consolidated from the date on which control is transferred out ofthe Group.  Where there is loss ofcontrol of a subsidiary, the consolidated financial statements include theresults for the part of the reporting period during which Genetic TechnologiesLimited has control.  Minority interestsrepresent the interests not held by the Group in Gtech International ResourcesLimited, ImmunAid Pty. Ltd. and AgGenomics Pty. Ltd.

 

**(c)****             ****Foreign currency translation**

 

Boththe functional and presentation currency of Genetic Technologies Limited andits Australian subsidiaries is the Australian dollar (AUD).  Transactions in foreign currencies areinitially recorded in the functional currency at the exchange rates ruling atthe date of the transaction.  Monetaryassets and liabilities which are denominated in foreign currencies areretranslated at the rate of exchange ruling at the balance sheet date.  All differences are taken to the incomestatement.

 

Non-monetaryitems that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rate ruling at the date of the initialtransaction.  Non-monetary items measuredat fair value in a foreign currency are translated using the exchange ratesruling at the date when the fair value was determined.

 

Thefunctional currencies of the Company’s four overseas subsidiaries are asfollows:

 

GtechInternational Resources Limited — Canadian dollars (CAD)

GeneticTechnologies (Beijing) Limited — Chinese yuan (CNY)

GeneType AG — Swiss francs (CHF)

GeneTypeCorporation — United States dollars (USD)

 

As ofthe reporting date, the assets and liabilities of these overseas subsidiariesare translated into the presentation currency of Genetic Technologies Limitedat the rate of exchange ruling at the balance sheet date and the incomestatements are translated at the weighted average exchange rates for theperiod.  The exchange differences arisingon the retranslation are taken directly to a separate component of equity.  On disposal of a foreign entity, the deferredcumulative amount recognized in equity relating to that particular foreignoperation is recognized in the income statement.

 

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**(d)****             ****Fair value estimation**

 

The fair value of financialinstruments that are not traded in an active market (for example, non-listedequity securities classified as available-for-sale investments) is determinedusing valuation techniques, including the last price at which shares wereissued to third parties, where amounts are reliably measured.  The Group uses various methods and makesassumptions that are based on market conditions existing at each balancedate.  Information including quoted marketprices and details of recent capital raisings is used to determine fair valuefor these remaining financial instruments. Available-for-sale investments are measured at approximate market value,in cases where fair value cannot be reliably determined.

 

The carrying values lessimpairment provisions of trade receivables are assumed to approximate theirfair values due to their short-term nature.

 

**(e)****             ****Segment reporting**

 

An *operatingsegment* is a component of the Group:

 

·                  that engages in businessactivities from which it may earn revenues and incur expenses (includingrevenues and expenses relating to transactions with other components of theGroup);

 

·                  whose operating resultsare regularly reviewed by the Group’s chief operating decision maker to makedecisions about resources to be allocated to the segment and assess itsperformance; and

 

·                  for which discretefinancial information is available.

 

**(f)****               ****Earnings per share**

 

BasicEPS is calculated as the net loss attributable to members divided by theweighted average number of ordinary shares.

 

**(g)****            ****Revenue recognition**

 

Revenues are recognized to the extent that it isprobable that the economic benefits will flow to the entity and the revenuescan be reliably measured.  Revenues arerecognized at the fair value of the consideration received or receivable net ofthe amounts of Goods and Services Tax (GST). The following specific recognition criteria must also be met beforerevenue is recognized:

 

*Rendering of testing services*

 

Revenues from the rendering of services are recognized when the services are provided and the fee for the services provided is recoverable.  Service arrangements are of short duration (in most cases less than three months).

 

*License feesreceived*

 

Licensefee income is recorded on the execution of a binding agreement where the Grouphas no future obligations, income is fixed and determinable, and collection isreasonably assured.  The Group does notgrant refunds to its customers.  Referalso to Note 2(z).

 

*Royalties and annuities received*

 

TheGroup licenses the use of its patented genetic technologies.  Royalties and annuities arising from theselicenses are recognized when earned in accordance with the substance of theagreement, in cases where no future performance is required by the Group andcollection is reasonably assured.

 

*Interest received*

 

Revenue is recognized as the interest accrues using the effective interest method.  Interest charged on loans to related parties is charged on commercial and arm’s-length terms and conditions.

 

*Research and development grants received*

 

The Group receivesnon-refundable non-Government grants that assist it to fund specific researchand development projects.  These grantsgenerally provide for the reimbursement of approved costs incurred as definedin the various agreements.

 

**(h)****            ****Interest in joint venture operation**

 

The Group’s interest in its joint venture operation isaccounted for by recognising the Group’s assets and liabilities from the jointventure, as well as expenses incurred by the Group and the Group’s share ofincome earned from the joint venture, in the consolidated financial statements.

 

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**(i)****               ****Change in IncomeStatement presentation**

 

As aresult of the Group’s increased focus on genetic testing services, theclassification of revenues within the consolidated statement of income changedin fiscal 2009.  “License fees received”and “Royalties and annuities received” have been reclassified from “Operatingrevenue” to “Other revenue” for all years presented to reflect this change inManagement’s operational focus.  Inaddition, a standard costing system was implemented effective July 1, 2008which has allowed the Group to estimate “Costs of sales” and measure “Grossprofit from operations” by calculating the direct labour and materials used ineach of the genetic tests sold.  Althoughsuch a change in expense classification requires reclassification of prior yearinformation, cost of sales information was not collected in prior periods in away that allows the reclassification of prior year expenses.  Furthermore, changes in the Group’s overallcost structure in fiscal 2009 do not allow the use of 2009 cost of salesinformation as a basis for estimating fiscal 2008 and 2007 cost of salesinformation.  Therefore the Group hasdetermined it is not practicable to recreate the information for use inpresenting cost of sales and gross profit from operations for fiscal 2008 and2007.  In the event that costs of saleswere reclassified in prior years, “Gross profit from operations”, “Employeebenefits expense” and “Genetic testing expenses” would be lower than currentlyreported.  Cost of sales information hasalso not been captured in respect of Frozen Puppies Dot Com Pty. Ltd., as thebusiness was acquired during fiscal 2009, however, such information will beprovided as from July 1, 2009.

 

**(j)****               ****Share-based paymenttransactions**

 

TheGroup provides benefits to Group employees in the form of share-based paymenttransactions, whereby employees render services and receive rights over shares(“equity-settled transactions”).  Thereis currently an Employee Option Plan in place to provide these benefits toexecutives and employees and the cost of these transactions is measured byreference to the fair value at the date they are granted.  The fair value is determined by an externalvaluer using a Black-Scholes option pricing model.

 

Invaluing equity-settled transactions, no account is taken of any non-marketperformance conditions.  The cost ofequity-settled transactions is recognized, together with a correspondingincrease in equity, over the period in which the relevant vesting conditionsare fulfilled, ending on the date that the relevant employees become fullyentitled to the award (“vesting date”).

 

Thecumulative expense recognized for equity-settled transactions at each reportingdate until vesting date reflects (i) the extent to which the vestingperiod has expired; and (ii) the number of awards that, in the opinion ofthe Directors of the Group, will ultimately vest.  This opinion is formed based on the bestinformation available at balance date.

 

Noexpense is recognized for any awards that do not ultimately vest.  Where the terms of an equity-settled awardare modified, as a minimum an expense is recognized as if the terms had notbeen modified.  In addition, an expenseis recognized for any increase in the value of the transaction as a result ofthe modification, as measured at the date of modification.  Where an equity-settled award is cancelled,it is treated as if it had vested on the date of cancellation, and any expensenot yet recognized for the award is recognized immediately.  However, if a new award is substituted forthe cancelled award, and designated as a replacement award on the date that itis granted, the cancelled and new award are treated as if they were amodification of the original award, as described in the previousparagraph.  Where appropriate, thedilutive effect of outstanding options is reflected as additional sharedilution in the computation of diluted earnings per share.  The Group’s policy is to treat the shareoptions of terminated employees as forfeitures.

 

**(k)****           ****Income tax**

 

The income tax expense orrevenue for the period is the tax payable on the current period’s taxableincome based on the national income tax rate for each jurisdiction adjusted bychanges in deferred tax assets and liabilities attributable to temporarydifferences and unused tax losses.

 

Deferred income tax is providedin full, using the liability method, on temporary differences arising betweenthe tax bases of assets and liabilities and their carrying amounts in theconsolidated financial statements. However, the deferred income tax is not accounted for if it arises frominitial recognition of an asset or liability in a transaction other than abusiness combination that, at the time of the transaction, affects neitheraccounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that havebeen enacted or substantially enacted by the balance sheet date and areexpected to apply when the related deferred income tax asset is realised or thedeferred income tax liability is settled. Deferred tax assets are recognized for deductible temporary differencesand unused tax losses only if it is probable that future taxable amounts willbe available to utilise those temporary differences and losses.

 

Deferred tax liabilities andassets are not recognized for temporary differences between the carrying amountand tax bases of investments in controlled entities where the parent entity isable to control the timing of the reversal of the temporary differences and itis probable that the differences will not reverse in the foreseeablefuture.  Deferred tax assets andliabilities are offset when there is a legally enforceable right to offsetcurrent tax assets and liabilities and when the deferred tax balances relate tothe same taxation authority.  Current taxassets and tax liabilities are offset where the entity has a legallyenforceable right to offset and intends either to settle on a net basis, or torealise the asset and settle the liability simultaneously.  Current and deferred tax balancesattributable to amounts recognized directly in equity are also recognizeddirectly in equity.

 

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*Tax consolidation legislation*

* *

Genetic Technologies Limitedand its wholly-owned Australian-resident subsidiaries have implemented the taxconsolidation legislation.  The headentity, Genetic Technologies Limited, and the subsidiaries in the taxconsolidated group account for their own current and deferred tax amounts.  These tax amounts are measured as if eachentity in the tax consolidated group continues to be a stand alone taxpayer inits own right.

 

In addition to its own currentand deferred tax amounts, Genetic Technologies Limited also recognizes thecurrent tax liabilities (or assets) and the deferred tax assets arising fromunused tax losses and unused tax credits assumed from subsidiaries in the taxconsolidated group.

 

Assets or liabilities arisingunder tax funding agreements with the tax consolidated entities are recognizedas amounts receivable from or payable to other entities in the Group.  Details about the tax funding agreement aredisclosed in Note 7 of the attached financial statements.  Any difference between the amounts assumedand amounts receivable or payable under the tax funding agreements arerecognized as a contribution to (or distribution from) wholly-owned taxsubsidiaries.

 

**(l)****               ****Withholding tax**

 

TheGroup generates revenues from the granting of licenses to parties resident inoverseas countries.  Such revenues may besubject to the deduction of local withholding tax.  In certain cases, these revenues are paid tothe Group without appropriate withholding tax having been deducted.  Accordingly, the Group recognizes a provisionin respect of the Directors’ best estimate of the amounts which may be payable.

 

**(m)****         ****Other taxes**

 

Revenues,expenses and assets are recognized net of the amount of Goods and Services Tax(GST) except where the GST incurred on a purchase of goods and services is notrecoverable from the taxation authority, in which case the GST is recognized aspart of the cost of acquisition of the asset or as part of the expense item asapplicable; and receivables and payables are stated with the amount of GSTincluded.  The net amount of GSTrecoverable from, or payable to, the taxation authority is included as part ofreceivables or payables in the balance sheet.

 

Cashflows are included in the cash flow statement on a gross basis and the GSTcomponent of cash flows arising from investing and financing activities, whichis recoverable from, or payable to, the taxation authority are classified asoperating cash flows.  Commitments andcontingencies are disclosed net of the amount of GST recoverable from, orpayable to, the taxation authority.

 

**(n)****            ****Finance costs**

 

Finance costs are recognizedas an expense when incurred.

 

**(o)****             ****Cash and cash equivalents**

 

Cashand short-term deposits in the balance sheet comprise cash at bank and in handand short-term deposits with an original maturity of three months or less.  For the purposes of the cash flow statement,cash and cash equivalents consist of cash and cash equivalents as definedabove.  Cash at bank earns interest atfloating rates based on daily bank deposit rates.  Short-term deposits are made for varyingperiods of between one day and three months, depending on the immediate cashrequirements of the Group, and earn interest at the respective short-termdeposit rates.

 

**(p)****             ****Trade and other receivables**

 

Trade receivables, whichare non-interest bearing and generally have terms of between 30 to 90 days, arerecognized and carried at original invoice amount less an allowance for anyuncollectible amounts.  An allowance fordoubtful debts is made when there is objective evidence that a receivable isimpaired.  Such evidence includes anassessment of the debtor’s ability and willingness to pay the amount due.  The amount of the allowance/impairment lossis measured as the difference between the carrying amount of the tradereceivables and the estimated future cash flows expected to be received fromthe relevant debtors.  Details regardinginterest rate and credit risk of current receivables are disclosed in Note 36of the attached financial statements.

 

**(q)****             ****Consumables**

 

Consumables principallycomprise laboratory and other supplies and are valued at the lower of cost andnet realizable value.  Consumable costsare recognized as the purchase price of items from suppliers plus freightinwards and any applicable landing charges. Costs are assigned on the basis of weighted average costs.

 

**(r)****             ****Restricted security deposits**

 

Restrictedsecurity deposits include cash deposits held as security for the performance ofcertain contractual obligations.

 

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**(s)****             ****Investments and other financialassets**

 

Allinvestments are initially recognized at cost, being the fair value of theconsideration given plus directly attributable transaction costs.  Other investments, which are classified asavailable-for-sale, are measured at fair value if this can reliably bedetermined or at cost where fair value cannot be reliably determined.  Gains or losses on available-for-saleinvestments are recognized as a separate component of equity until theinvestment is sold, or otherwise disposed of, or until the investment isdetermined to be impaired, at which time the cumulative gain or loss previouslyreported in equity is included in the income statement.

 

*Available-for-saleinvestments*

 

Available-for-saleinvestments consist of investments in ordinary shares which have no fixedmaturity date or coupon rate.  Afterinitial recognition, available-for-sale securities are measured at fair valuewith gains or losses being recognized as a separate component of equity untilsuch time as the investment is either derecognized or is determined to beimpaired, at which time the cumulative gain or loss previously recognized inequity is recognized in profit or loss. The fair values of investments that are actively traded in organisedfinancial markets are determined by reference to the quoted market bid pricesapplicable as at the close of business on the balance sheet date.

 

Thefair value of unlisted available-for-sale investments has been estimated usingvaluation techniques based on assumptions that are not supported by observablemarket prices or rates.  Managementbelieves the estimated fair values (where reliably measured) resulting from thevaluation techniques and recorded in the balance sheet are reasonable and themost appropriate at the balance sheet date. Any related changes in fair values are directly recorded in equity.  Available-for-sale investments are measuredat approximate market value, where fair value cannot be reliably determined.

 

**(t)****               ****Property, plant andequipment**

 

Plantand equipment is stated at cost less accumulated depreciation and anyimpairment in value.  Depreciation iscalculated on either a straight-line or diminishing value basis over theestimated useful life of the respective asset as follows:

 

Laboratory/ veterinary equipment — 3 to 5 years

Computerequipment — 2 to 5 years

Officeequipment — 2 to 5 years

Equipmentunder hire purchase — 3 years

Leaseholdimprovements — lease term, being between 4 and 10 years

 

Costsrelating to day-to-day servicing of any item of property, plant and equipment,which may include the cost of small parts, are recognized in profit or loss asincurred.  The cost of replacing largerparts of some items of property, plant and equipment are capitalized whenincurred and depreciated over the period until their next scheduledreplacement.

 

**(u)****            ****Intangible assets**

 

*Patents*

 

Patentsheld by the Group are used in the licensing, testing and research areas and arecarried at cost and amortized on a straight-line basis over their useful lives,being from 5 to 10 years.  External costsincurred in filing and protecting patent applications, for which no futurebenefit is reasonably assured, are expensed as incurred.

 

*Research and development costs*

 

Costsrelating to research and development activities are expensed as incurred.  An intangible asset arising from developmentexpenditure on an internal project is recognized only when the Group candemonstrate the technical feasibility of completing the intangible asset sothat it will be available for use or sale, its intention to complete and itsability to use or sell the asset, how the asset will generate future economicbenefits, the availability of resources to complete the development and theability to measure reliably the expenditure attributable to the intangible assetduring its development.  To date, alldevelopment costs have been expensed as incurred as their recoverability cannotbe regarded as assured.

 

**(v)****              ****Goodwill**

 

Goodwillon acquisition is initially measured at cost, being the excess of the cost ofthe business combination over the acquirer’s interest in the net fair value ofthe identifiable assets, liabilities and contingent liabilities.  Following its initial recognition, goodwillis measured at cost less any accumulated impairment losses.  Goodwill is not amortized.

 

Goodwillis reviewed for impairment at each reporting date, or more frequently if eventsor changes in circumstances indicate that the carrying value may beimpaired.  Impairment is determined byassessing the recoverable amount of the cash-generating unit to which thegoodwill relates.  Where the recoverableamount of the cash-generating unit is less than the carrying amount, animpairment loss is recognized.

 

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Wheregoodwill forms part of a cash-generating unit and part of the operation withinthat unit is disposed of, the goodwill associated with the operation disposedof is included in the carrying amount of the operation when determining thegain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis ofthe relative values of the operation disposed of and the portion of thecash-generating unit retained.

 

Forthe purpose of impairment testing, goodwill acquired in a business combinationis, from the acquisition date, allocated to each of the Group’s cash-generatingunits, or groups of cash-generating units, that are expected to benefit fromthe synergies of the combination, irrespective of whether other assets orliabilities of the Group are assigned to those units or groups of units.  Each unit or group of units to which thegoodwill is so allocated represents the lowest level within the Group at whichthe goodwill is monitored for internal management purposes and is not largerthan an operating segment in accordance with *IFRS 8Operating Segments*.

 

**(w)****           ****Impairment of assets (other thangoodwill)**

 

TheGroup assesses at each reporting date whether there is an indication that anasset may be impaired.  If any suchindication exists, the Group makes an estimate of the asset’s recoverableamount.  An asset’s recoverable amount isthe higher of its fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets or groups ofassets and the asset’s value-in-use cannot be estimated to be close to its fairvalue.  In such cases, the asset istested for impairment as part of the cash-generating unit to which itbelongs.  When the carrying amount of anasset or cash-generating unit exceeds its recoverable amount, the asset orcash-generating unit is considered impaired and is written down to itsrecoverable amount.

 

Inassessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset.  Impairment losses relating to operations arerecognized in those expense categories consistent with the function of theimpaired asset unless the asset is carried at its revalued amount (in whichcase the impairment loss is treated as a revaluation decrease).

 

Anassessment is made at each reporting date as to whether there is any indicationthat previously recognized impairment losses may no longer exist or may havedecreased.  If such indication exists,the recoverable amount is estimated.  Apreviously recognized impairment loss is reversed only if there has been achange in the estimates used to determine the asset’s recoverable amount sincethe last impairment loss was recognized. If so, the carrying amount of the asset is increased to its recoverableamount.  The increased amount cannotexceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognized for the asset in prioryears.  Such reversal is recognized inprofit or loss unless it reverses a decrement previously charged to equity, inwhich case the reversal is treated as a revaluation increase.  After such a reversal, the depreciationcharge is adjusted in future periods to allocate the asset’s revised carryingamount, less any residual value, on a systematic basis over its remaininguseful life.

 

**(x)****             ****Trade and other payables**

 

Tradepayables and other payables are carried at amortized cost and represent futureliabilities for goods and services provided to the Group prior to the end ofthe financial year that are unpaid and arise when the Group becomes obliged tomake future payments in respect of the purchase of these goods andservices.  Trade payables and otherpayables generally have terms of between 30 and 60 days.

 

**(y)****             ****Leases and hire purchase agreements**

 

Financeleases and hire purchase agreements, which transfer to the Group substantiallyall the risks and benefits incidental to ownership of the financed item, arecapitalized at the inception of the lease at the fair value of the leasedproperty or, if lower, at the present value of the minimum lease payments.

 

Leaseand hire purchase payments are apportioned between finance charges and areduction of the associated liability so as to achieve a constant rate ofinterest on the remaining balance of the liability.  Finance charges are recognized as an expensein profit or loss.  Capitalised leasedassets and assets under hire purchase are depreciated over the shorter of theestimated useful life of the asset or the term of the agreement.  Leases where the lessor retains substantiallyall the risks and benefits of ownership of the asset are classified asoperating leases.  Operating leasepayments are recognized as an expense in the income statement on astraight-line basis over the lease term.

 

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**(z)****             ****Deferred revenue**

 

*Genetic testing and reproductive services revenues*

 

The Group operates facilities which provide genetic testing andreproductive services.  The Group recognizes revenue from the provision of theseservices when the services have been completed. Fees received in advance of the testing process or reproductive serviceare deferred until such time as the Groupcompletes its performance obligations.

 

*License revenues and annuities*

 

License revenues received in respect of future accountingperiods are deferred until the Group has fulfilled itsobligations under the terms of the agreement. Where deferred revenue relates to a license agreement with a specificterm but the Group has no futureperformance obligations, the revenue is recognized on a straight-line accrualsbasis over the term in accordance with the substance of the agreements.  Where revenue has been deferred because the Group has future performance obligations, revenue isrecognized as the Group’s performanceobligations are satisfied.  Any costsincurred relating to this future revenue are also deferred.

 

Where a licence agreement provides for the payment of regularannuities to the Group and the licensee has the right to terminate theagreement prior to the payment of those annuities with no penalty, the Group does not recognize revenue until such time as theassociated cash payments are received, as it is not considered probable thatthe benefits of the transaction will flow to the Group until cash collection is made.  Where such annuities are paid in advance, therevenue is allocated on a pro-rata basis with the balance being reflected inthe balance sheet as a deferred revenue liability.

 

*Grant revenues*

 

Grants are recognized when there is reasonableassurance that the grant will be received and all attaching conditions will becomplied with.  When the grant relates toan expense item, it is recognized as income over the periods necessary to matchthe grant on a systematic basis to the costs that it is intended tocompensate.  When the grant relates to anasset, the fair value is credited to a deferred income account and is releasedto the income statement over the expected useful life of the relevant asset byequal annual instalments.

 

**(aa)****       ****Provisions**

 

Provisionsare recognized when the Group has a present obligation (legal or constructive)as a result of a past event, it is probable that an outflow of resourcesembodying economic benefits will be required to settle the obligation and areliable estimate can be made of the amount of the obligation.  Where the Group expects some or all of a provisionto be reimbursed, the reimbursement is recognized as a separate asset but onlywhen the reimbursement is virtually certain. The expense relating to any provision is presented in the incomestatement net of any reimbursement.

 

If theeffect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflectscurrent market assessments of the time value of money and, where appropriate,the risks specific to the liability.  Wherediscounting is used, the increase in the provision due to the passage of timeis recognized as a finance cost.

 

**(ab)****       ****Employee benefits**

 

Provision is made foremployee benefits accumulated as a result of employees rendering services up tothe reporting date.  These benefitsinclude wages and salaries, annual leave and long service leave.  Liabilities arising in respect of wages andsalaries, annual leave and any other employee benefits expected to be settledwithin twelve months of the reporting date are measured at their nominalamounts based on remuneration rates which are expected to be paid when theliability is settled.  All other employeebenefit liabilities are measured at the present value of the estimated futurecash outflow to be made in respect of services provided by employees up to thereporting date using the projected unit credit method.  Any unused sick leave is forfeited and notaccumulated at year end.  Expenses fornon-accumulating sick leave are recognized when the leave is taken during theyear and are measured at rates paid or payable.

 

In determining thepresent value of future cash outflows, the market yield as at the reportingdate on national government bonds, which have terms to maturity approximatingthe terms of the related liability, are used. Employee benefits expenses and revenues arising in respect of wages andsalaries, non-monetary benefits, annual leave, long service leave and otherleave benefits and other types of employee benefits are recognized againstprofits on a net basis in their respective categories.

 

**(ac)****       ****Contributed equity**

 

Issued and paid upcapital is recognized at the fair value of the consideration received by theGroup.  Any transaction costs arising onthe issue of ordinary shares are recognized directly in equity as a deduction, netof tax, of the share proceeds received. The Group has a share-based payment option plan under which options tosubscribe for the Group’s shares have been granted to certain executives andother employees (refer Note 31 of the attached financial statements).

 

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**Comparison of the year ended June 30, 2009 to the year ended June 30,2008**

 

**Revenues from operations**

 

Our revenues from operations (which includes fees fromthe sale of genetic testing and reproductive services) increased by 37%, or$1,463,397, on the 2008 financial year. The new business of reproductive services, which forms the basis of thebusiness owned by Frozen Puppies Dot Com Pty. Ltd., contributed $782,803 tothis increase.  Breast cancer testing (up$265,670), and canine disease testing and profiling (up $104,672) alsocontributed significantly to the increase. However, we see promising increases in the volume of tests conducted infuture periods as the number of facilities from which the Company will sell itstests grows in the 2010 financial year from two to six.  We expect this progress to continue asadditional marketing initiatives continue to be introduced.  The income we earned from paternity andforensic testing remained stable during the 2009 financial year.  Revenues from operations principally formpart of the Australian geographic segment.

 

**License revenues**

** **

Our total license revenue generated for the 2009financial year was $5,391,714, a decrease of 50% on the result from theprevious year of $10,730,743.  The threenew licenses granted were to GeneDX (Bio Reference Laboratories Inc.),Millennium Pharmaceuticals Inc., and TIB MOLBIOL Syntheselabor GmbH.   As with the 2008 financial year, wecontinued to receive income from the Applera settlement totaling $2,047,207, inthe form of equipment and reagent credits, representing an increase of $990,072on the previous year.  Included in thetotal license revenues is royalty and annuity income of $1,697,848, whichincreased by $784,815, or 86%, during 2009 as we did not receive a majorpayment during the previous year. License revenues form part of the Australian geographic segment.

 

**Grant income**

 

Grant income increased by $159,726, or 89% in thefinancial year.  It included anadditional milestone payment from Horticulture Australia Ltd. that becamepayable on the successful conclusion of the research and development projectwhich the grant income was being used to fund. Grant income forms part of the Australian geographic segment.

 

**Interest income**

 

Interest income decreased by $330,705, or 36%, overthe 2008 financial year.  This is mainlydue to the decrease in cash and cash equivalent balances by 39% over the sameperiod and a significant fall in deposit interest rates as a result of theGlobal Financial Crisis.  As an example,the prime interest rate, as set by the Reserve Bank of Australia (Australia’sCentral Bank) fell from 7.25% to 3.00% during this period.

 

**Employee benefits expenses**

 

Total employee benefits expenses for 2009 financialyear decreased by $129,417 or 2%.  Apartfrom increases due to general inflation, this decrease was attributable to achange in accounting policy whereby $1,042,397 of employee-related expensesattributable to the testing department were transferred, for the first time,into the labor component of cost of sales. This decrease was partially offset by increases in salaries and wages amountingto $446,038 as a result of additional staff being employed to operate the newveterinary facilities acquired as part of the integration of Frozen Puppies DotCom Pty. Ltd.  The decrease was alsopartly attributable to a significant fall in the Group’s share based paymentsexpense which resulted from the forfeiture of a large number of optionsfollowing the departure of several senior Management personnel during the 2009financial year.

 

**Impairment losses andother write-downs**

** **

Overall, impairment losses decreased by$2,059,975, or 87%, from the preceding 2008 financial year.  During the 2009 financial year, the Companyrecognized an impairment loss of $245,959 in respect of the carrying value ofthe Company’s investment in certain unlisted shares.  The balance of the reduction related to baddebts either written off or provided for. Importantly, unlike during the two preceding financial years, there wereno impairment charges raised in respect of the Group’s extensive patentportfolio.

 

**Genetic testing expenses**

** **

Genetic testing expenses decreased by$851,390, or 53%, during the 2009 financial year.  This fall was due mostly to the change inaccounting policy in relation to the disclosure of cost of sales, as describedabove.  Reagents previously expenseddirectly at the time of purchase are now capitalized and then expensed as partof cost of sales after the test has been completed.

 

**Contract research andtrial expenses**

** **

Contract research and trial expensesincurred during the 2009 financial year of $1,209,260remained in line with the previous year ($1,267,748) as the Company’s variousresearch and development projects continued. During the 2009 financial year, the final payment was made to the C.Y.O’Connor ERADE Village Foundation following the termination of the agreementson June 15, 2009.

 

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**Royalties, license feesand commissions paid**

** **

Royalties, license fees andcommissions paid decreased by $534,836, or 60%, during the 2009financial year.  The expense primarilyrelates to the payment of commissions to licensing contractors in respect ofnew licenses granted by the Company during the year.  As the amount of revenue generated from thegranting of new licenses decreased over the year, so too, has the relatedexpense.

 

**Legal and patent fees**

** **

Legal and patent fees increased by$512,539, or 59%, during the 2009 financial year.  This increase was due to fees associated withthe acquisition of Frozen Puppies Dot Com Pty. Ltd., the enforcement of theCompany’s rights to conduct testing of the BRCA1 and BRCA2 genes, the lodgingof new patent applications around the world and a general expansion of theCompany’s businesses.

 

**Administration expenses**

** **

Administration expenses increased by$465,456 or 55%, during the 2009 financial year due principally to higher auditand accounting fees.  This increase was,in turn, due to the fact that two year’s worth of audit fees in respect of theCompany’s US reporting obligations fell into the 2009 financial year.

 

**Marketing and promotionexpenses**

** **

Marketing and promotion expensesincreased by $51,082, or 23%, during the 2009 financial year.  This increase was due to the advertisingincurred by the new reproductive services area of the business and the launchof a new range of DNA tests under the BITSA brand.

 

**Comparison of the year ended June 30, 2008to the year ended June 30, 2007**

** **

**Revenues from operations**

 

Our service testing income rose 26% on the 2007financial year, an increase of $799,561. Breast cancer testing (up $227,574), forensics testing (up $549,479) andcanine disease testing and profiling (up $196,104) contributed significantly tothe increase, though falls in livestock testing (down $163,574) reduced theoverall increase.  However we can seepromising increases in the number of tests conducted in future periods.  We expect this progress to continue asadditional marketing initiatives continue to be introduced.  The income we earned from paternity testingremained stable, which we had anticipated as more competitors enter the market,however we are satisfied that we are able to maintain our market position,despite fierce price cutting in some areas. We have since secured further considerable work in the area of forensicsand are working with political lobbyists to tender for work that certainAustralian State Governments are now seeking to outsource.  Service testing revenues form part of theAustralian geographic segment.

 

**License revenues**

** **

Our total license revenue generated for the 2008financial year was $10,730,743, a decrease of 5% on the previous year.  The majority of this revenue was generatedfrom new licenses granted to a number of companies including Syngenta CropProtection AG, Monsanto Company, GE Healthcare Bio-Sciences Corp., BiosearchTechnologies Inc. and Prometheus Laboratories Inc.  As with the 2007 financial year, we continuedto receive income from the Applera settlement ($1,057,135), in the form ofequipment and reagent credits, representing a decrease of $84,951 on theprevious year.  Included in the totallicense revenues is royalty and annuity income of $913,033, which fell by$1,745,962, or 65%, during 2008 as we had received a major payment.  License revenues form part of the Australiangeographic segment.

 

**Grantincome**

 

Grant income effectively fell by $136,488 in a year onyear comparison which was due largely to a delay in receipt of the income dueunder the Export Market Development Grant which the Company hopes to receiveduring 2010.  Grant income forms part ofthe Australian geographic segment.

 

**Interest income**

 

Interest income increased by $431,319, or 88%, overthe 2007 financial year due to sharp increases in the deposit interest ratesapplicable to the Company’s cash balances during the 2008 year and the factthat a significant proportion of the Company’s cash assets were transferredfrom accounts in the United States, where interest rates were typically lower,to the accounts in Australia, where interest rates were typically higher.

 

**Employee benefitsexpenses**

 

Total employee benefits expenses for 2008 increased by$1,012,322, or 18%.  Apart from increasesdue to general inflation, this increase was attributable to increases insalaries and wages ($682,243) as a result of additional staff being employed toexpand the Company’s business and Directors’ fees ($127,586) as a result ofadditional Directors being added to the Board.

 

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**Impairment losses and other write-downs**

** **

Overall, impairment losses increased by$1,071,040, or 82%, from the preceding 2007 financial year.  During 2008, the Company recognized animpairment loss of $2,378,000 in respect of certain patents obtained from theC.Y. O’Connor ERADE Village Foundation in 2004 due to delays and uncertaintysurrounding the commercialization of the underlying technology.

 

**Genetic testing expenses**

** **

Genetic testing expenses decreased by$389,454, or 20%, during the 2008 financial year.  This fall was due partly to the first-timerecognition of consumables and improvements in laboratory practices which haveresulted in overall efficiencies delivering reduced consumption of reagents.

 

**Contract research and trial expenses**

** **

Contract research and trial expensesincurred during the 2008 financial year of $1,267,748remained in line with the previous year ($1,247,775) as the Company’s variousresearch and development projects continued.

 

**Royalties, license fees and commissions paid**

** **

Royalties, license fees andcommissions paid increased by $309,398, or 53%, during the 2008financial year.  This increase was due tothe payment of commissions to licensing contractors in respect of new licensesgranted by the Company during the year.

 

**Legal and patent fees**

** **

Legal and patent fees increased by$125,249, or 17%, during the 2008 financial year.  This increase was due to fees associated withthe acquisition of Frozen Puppies Dot Com Pty. Ltd., the lodging of new patentapplications around the world and general growth of the business.

 

**Administration expenses**

** **

Administration expenses decreased by$62,154, or 7%, during the 2008 financial year due principally to lower auditfees offset by general inflationary increases in other administrative expenses.

 

**Net foreign exchange losses**

** **

Net foreign exchange losses decreasedby $62,363, or 20%, during the 2008 financial year due principally tomore favourable movements in the Australian / US dollar exchange rates than inthe preceding 2007 year.

 

**Marketing and promotion expenses**

** **

Marketing and promotion expensesdecreased by $215,443, or 49%, during the 2008 financial year.  This fall was due to a focus on the use ofin-house personnel to promote the Company’s interests and the fact that asignificant amount had been incurred by the Company during the previousfinancial year as part of its sponsorship of the International Congress onHuman Genetics.

 

**Item 5.B         Liquidity and Capital Resources**

** **

**Summary**

** **

Our overallcash position depends on numerous factors, including the success of licensingour non-coding patents, the numbers of genetic tests processed by ourlaboratory, completion of our product research and development activities,ability to commercialize our products, market acceptance of our products andservices and how we choose to commercially exploit our technology.  We expect to devote additional capital resources to theexpansion of our licensing program on a worldwide basis, continue our researchand development programs with a view to commercializing our technology in ourtarget markets, hire and train additional staff, and acquire or makeinvestments in businesses that are complementary to our existing business.  Each of these activities will inevitablyinvolve the outflow of cash reserves.

 

During theyears ended June 30, 2009, 2008 and 2007, we have incurred net losses of$7,841,073, $5,446,089 and $4,328,543, respectively.  We anticipate incurring additional one-offestablishment costs during the next two years as we expand the number offacilities in which our services are offered, broaden the range of products weoffer and increase the number of the markets in which they are sold andcommercialize our three principle research and development projects.  The extent to which we will incur losses infuture years depends largely on the success of the licensing of our non-codingtechnologies and the expansion of our genetic testing and reproductive servicesbusinesses.

 

Sinceinception, our operations have been financed primarily from capitalcontributions by our stockholders, proceeds from our licensing activities andrevenues from operations, grants, and interest earned on the Company’s cash andcash equivalents.

 

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During theyear ended June 30, 2009, the Company incurred net cash out flows fromoperations of $4,923,491 whilst during the year ended June 30, 2008, theCompany generated positive cash flows from operations of $422,770.  We believe that our cash and cash equivalentsof approximately $7.83 million as of June 30, 2009, will provide us withsufficient capital to fund a base level of operations for the next eighteenmonths as from that date.  During thisperiod, we expect to be able to continue to adequately fund our research anddevelopment activities, licensing program, product development andcommercialization efforts and other operations. Further, as the Company’s operations continue to expand, we anticipatethat the revenues generated should assist the Company to once again achieve acash positive result from operations.

 

Our netcash provided by / (used in) operating activities was $(4,923,491), $422,770and $2,597,246 for the years ended June 30, 2009, 2008 and 2007,respectively.  Importantly, the Companygenerated positive net cash flows from operations for the first time in 2007and again in 2008.  Cash used in operatingactivities for each period consisted primarily of losses incurred in operationsreduced by depreciation and amortization expenses, exchange movements andunrealized profits and losses relating to investments.  In approximate order of magnitude, cash outflowstypically consist of staff-related costs, service testing expenses, general andadministrative expenses, research and development costs and legal/patent fees.

 

Our netcash provided by / (used in) investing activities was $(353,191), $(47,399) and$94,010 for the years ended June 30, 2009, 2008 and 2007,respectively.  Typically, cash used ininvesting activities related to the acquisition of laboratory equipment and,during the 2009 financial year, costs associated with the acquisition of FrozenPuppies Dot Com Pty. Ltd. in July 2008. During the 2005 financial year, the establishment of the equipmentfinance facility described below reduced cash outflows for that year.  In addition, the agreement reached withApplera Corporation in December 2005 has provided us with significantcredits for laboratory equipment and reagents produced by that company.

 

Our netcash (used in) financing activities was $(192,591), $(528,899) and $(502,505)for the years ended June 30, 2009, 2008 and 2007, respectively.  These outflows related to the repayment ofhire purchase principal in respect of various items of laboratory equipment.

 

Apart from the purchase oflaboratory equipment of $213,300 in 2009, $118,010 in 2008 and $158,699 in 2007and the costs associated with the acquisition of Frozen Puppies Dot Com Pty.Ltd., we had no material capital expenditures for the years ended June 30,2009, 2008 and 2007.

 

On January 14, 2005, the Company executed aMaster Asset Finance Agreement with National Australia Bank Limited in respectof a $2.5 million asset hire purchase facility (the “Facility”).  As of June 30, 2009, the Company hadfinanced the acquisition of laboratory equipment and associated maintenancecontracts under the Facility with a total value of $2,235,732.  The use of this Facility enables the Companyto better match the cost of the equipment with the future revenues to begenerated from it in a cost-effective manner and minimizes the outflow ofvaluable cash.  Also as of June 30,2009, the Group had breached one of the covenants of the Facility which governsthe hire purchase agreements.  Subsequentto balance date, National Australia Bank Limited provided the Group with aletter waiving its right to take any further action in respect of the breach.  As a result of the breach, however, allliabilities in respect of the hire purchase agreements as of June 30, 2009have been classified as current liabilities in the balance sheet.  There were no breaches of the Facility duringthe year ended June 30, 2008.

 

**Future Cash Needs**

 

We expectthat operating expenses and, to a lesser extent, capital expenditures will be amaterial use of our cash resources in future. As of June 30, 2009, we had cash and cash equivalents totalingapproximately $7.83 million.  We believethat this working capital is sufficient for our anticipated needs for the nexteighteen months as from that date.  We donot have any lines of credit apart from the equipment finance facility withNational Australia Bank Limited and a nominal credit card facility with St.George Bank Limited which, as of June 30, 2009, had available credit of$147,000.  We anticipate generatingadditional cash in future years from our licensing activities and the continuedexpansion of our operational businesses.

 

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**Operating Leases**

 

We areobligated under various operating leases for periods expiring through2011.  Payments under non-cancelableoperating lease arrangements for office premises, laboratory and veterinaryfacilities expire on various dates through to October 31, 2011, resultingin the lease commitments over that period which are stated in the followingtable.

 

The following is a schedule of future minimum lease paymentsfor operating leases that had initial or remaining non-cancellable lease termsin excess of one year as of June 30, 2009:

 
| Year ending June 30,     |   |    |    |
|-------------------------------|--------|---------|---------|
| 2010                          |   | $       | 467,238 |   |
| 2011                          |   | 478,120 |    |
|                          |   |    |    |
| Total minimum lease  payments |   | $       | 945,358 |   |

 

Rent expense totaling $395,592, $501,239 and$445,384 for the years ended June 30, 2009, 2008 and 2007, respectively,was paid to Bankberg Pty. Ltd., a company associated with former Director, Dr. MervynJacobson.  In addition, during the yearended June 30, 2009, rent totaling $18,236 was paid to Beijing JiangrunPet Resorts.

 

Thefollowing is a schedule of future minimum hire purchase payments for equipmentfinance that had initial or remaining non-cancelable lease terms in excess ofone year as of June 30, 2009:

 
| Minimum hire purchase  payments                                          |   |    |    |
|--------------------------------------------------------------------------|--------|---------|---------|
| Year ending 2010                                                         |   | $       | 192,442 |   |
| Year ending 2011                                                         |   | 183,388 |    |
| Year ending 2012                                                         |   | 37,669  |    |
|                                                                     |   |    |    |
| Total minimum hire  purchase payments                                    |   | $       | 413,499 |   |
| Less: future finance  charges                                            |   | (40,055 | )       |
|                                                                     |   |    |    |
| Aggregate hire purchase  expenditure contracted for as at reporting date |   | $       | 373,444 |   |
|                                                                     |   |    |    |
| Aggregate expenditure  commitments comprise:                             |   |    |    |
| Current liability                                                        |   | $       | 373,444 |   |
| Non-current liability                                                    |   | —  |    |
|                                                                     |   |    |    |
| Total expenditure  commitments                                           |   | $       | 373,444 |   |

 

**Item 5.C****                         ****Research and Development, Patents and Licenses, etc.**

 

Our principal business is biotechnology, with theemphasis on genomics and genetics, the licensing of the non-coding patents,reduction to practice of our fetal cell patents and expansion of the relatedservice testing business.

 

The following table details historic R&Dexpenditure by project.  All projects aredescribed at Item 4.B above.

 
| ** **                                      | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                      | ** ** | **$**      | ** ** | **$**      | ** ** | **$**      | ** ** |
|                                            |       |       |       |       |       |       |       |
| RareCellect                                     |       | $          | 709,725    |       | $          | 775,662    |       | $ | 1,081,101 |   |
| ImmunAid                                        |       | 331,155    |       | 278,175    |       | 421,032    |       |
| Nematode project                                |       | 365,705    |       | 359,184    |       | 406,855    |       |
| Research at C.Y. O’Connor (notes 1 and  2) |       | 933,641    |       | 4,038,061  |       | 2,476,800  |       |
| Addictive States (note 3)                       |       | —     |       | —     |       | 52,113     |       |
| Other  general R&D                          |       | 674,549    |       | 218,007    |       | 419,147    |       |
|                                            |       |       |       |       |       |       |       |
| Total  R&D expense                          |       | $          | 3,014,775  |       | $          | 5,669,089  |       | $ | 4,857,048 |   |
| Other expenditure                               |       | 17,025,178 |       | 15,666,967 |       | 14,543,568 |       |
|                                            |       |       |       |       |       |       |       |
| Total expenditure                               |       | $          | 20,039,953 |       | $          | 21,336,056 |       | $ | 19,400,616 |   |
|                                            |       |       |       |       |       |       |       |
| R&D as a % of total expenditure             |       | 15         | %          | 27         | %          | 25         | %          |

 

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----

| Notes: |   | 1.     | The figure for  2008 of $4,038,061 includes an impairment loss of $2,378,000. The figure for  2007 of $2,476,800 includes an impairment loss of $1,150,000. |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                        |
|   |   | 2.     | Research at the  C.Y. O’Connor ERADE Village Foundation was terminated during the 2009  financial year.                                                |
|   |   |   |                                                                                                                                                        |
|   |   | 3.     | The addictive states project was terminated during the 2007 financial  year.                                                                                |

 

Dueto the nature of the Company’s business, it is important that any intellectualproperty in the form of new discoveries be protected.  The table described in Item 4.B hereinaboveprovides the status of all patent applications the Company has filed.

 

**Item 5.D         Trend Information**

 

**TheDirection of Genetic Research**

 

Following upon the original non-coding inventions madeby GeneType AG and the publication and dissemination of this work in the early1990’s, research groups world-wide increasingly have sought to investigate and,if possible, establish non-coding associations in a great number of diseaseswhich were hitherto unexplained.

 

In 2002, Nature Publishing Group produced a summary ofsome 284 separate research projects which sought to establish non-codingassociations in relation to either the cause or the outcome of many humandiseases.  Within that group, more than100 human conditions have since been shown to be linked to non-coding geneticvariations.  In 1999, an internationalcollaboration, known as the “SNP Consortium” was established to identify allsingle nucleotide polymorphisms (SNPs) of relevance to a complete understandingof human genetics.  More recently, theinternational “HapMap” project was launched to identify relevant humanhaplotypes.

 

All of these projects depend significantly on thebasic inventions owned by our Company. It remains our corporate objective to encourage all such research whichwe expect will, in time, lead to a great number of new commercial licensingopportunities for Genetic Technologies. Such opportunities are also not limited to human applications, given therecent expansion of interest in the genetics of animals, plants and lower formsof life, including parasites and many organisms that contribute to eitherdisease or to recuperative environmental systems of our planet.  Such research is likely to expandsignificantly in the coming years.  Ourability to secure licensing agreements from these areas of research as theydevelop into commercial operations will determine the level of revenue in thefuture.

 

**The Direction of Genetic Testing**

 

Further to the completed first phase of the HumanGenome Project in mid-2001, and then the Mouse Genome Project in December 2002,there is now a greatly improved general understanding of gene structure, genefunction and gene expression.  This islikely to lead to new genetic tests and new genetic treatments - perhaps eventailored to an individual’s unique genetic code.  DNA testing for forensic purposes has alreadybeen shown to be extremely reliable in matters of criminal justice, disputedpaternity and family relationships. Genetic testing will also be increasingly relied upon to assist withdisease diagnosis, and also in the improved assessment disease risk factors.  In addition, genetic testing will be appliedmore and more to help identify specific animal and plant traits that are eitherdesirable or undesirable, in order to help breeders better select their futureseed stock.  We believe the demand for anexpansion of genetic testing will continue to grow in the coming years.

 

**Item 5E**.                            Off-balancesheet arrangements

 

Apartfrom our settlement arrangements with Applera Corporation, pursuant to which weare entitled to draw down certain items of equipment and reagents (refer Note29 of the attached financial statements for details), we have no off-balancesheet arrangements that have or are reasonably likely to have current or futureeffect on our financial condition, changes in financial condition, revenues orexpenses, results of operations, liquidity, capital expenditures or capitalresources that are material to investors.

 

**Item 5F**.                            Informationabout Contractual Obligations

** **

Thetable below shows the contractual obligations and commercial commitments as of June30, 2009:

 
| ** **                                | ** ** | **0-1 year** | ** ** | **>1-<3 years** | ** ** | **>3-<5 years** | ** ** | **>5 years** | ** ** |
|-------------------------------------------|------------|--------------|------------|-----------------------|------------|-----------------------|------------|-----------------|------------|
|                                      |       |         |       |                  |       |                  |       |            |       |   |   |   |   |
| Minimum research and development payments |       | $            | 237,500    |                  | $          | 140,750               |       | $               | —     |   | $ | — |   |
|                                      |       |         |       |                  |       |                  |       |            |       |   |   |   |   |
| Operating lease commitments               |       | $            | 467,238    |                  | $          | 478,120               |       | $               | —     |   | $ | — |   |
|                                      |       |         |       |                  |       |                  |       |            |       |   |   |   |   |
| Hire purchase commitments                 |       | $            | 192,442    |                  | $          | 221,057               |       | $               | —     |   | $ | — |   |

 

TheCompany’s purchase obligations are in respect of its subcontracted research anddevelopment activities and equipment purchases.

 

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**Item6.            Directors, Senior Managementand Employees**

** **

**Item 6.A         Directors and Senior Management**

** **

The Directorsof the Company as of the date of this Annual Report are:

 

**Sidney C. Hack**, CPA *(Chairman)*

 

*In office from November 19, 2008 up to the date ofthis Report*

 

Mr. Hack,71, was appointed as a Director on November 19, 2008 and was appointed as theCompany’s Chairman of the Board on November 25, 2009.  He also serves as Chairman of both theCompany’s Audit Committee and its Corporate Governance Committee.  He is a Certified Practising Accountant andRegistered Company Auditor and retired in 2006 after serving 30 years as asenior partner of Hack Anderson & Thomas, Chartered Accountants.  Mr. Hack has extensive experience in largecompany audits, financial planning and taxation and has served on various otherBoards during his career.

 

**Tommaso Bonvino**, FAICD *(Non-Executive)*

 

*In office from November 25, 2009 up to the date ofthis Report*

 

Mr. Bonvino, 49, wasappointed to the Board on November 25, 2009.  He also serves on the Company’s CorporateGovernance Committee.  He has over 27years experience in consumer marketing and product development and has managedcompanies for various Italian, Spanish and French firms, distributing andmarketing goods throughout South-East Asia. He has established strong bilateral trade relationships betweenAustralian and European companies in the technology and consumer goodssectors.  Mr. Bonvino was the formerChief Executive Officer of IM Medical Ltd., an ASX-listed company committed tothe use of innovative technology to promote health and well being, spearheadingthe strategic review which led to significant expansion of the IM Medicalbusiness.  He also spent time as a Boardmember of the Italian Chamber of Commerce from 2001 to March 2009, spending thelast four years as Vice President.

 

**Dr. Malcolm R. Brandon**, BScAgr, PhD *(Non-Executive)*

 

*In office from October 5, 2009 up to the date ofthis Report*

 

Dr. Brandon,62, was appointed to the Board on October 5, 2009 and also serves on theCompany’s Audit Committee.  He has spenthis career in the biotech and life sciences sector where he has over 35 yearsexperience in commercially focused research and development and in buildingsuccessful companies which have commercialized a wide range of Australian andinternational technologies.  As thefounding director of the Centre for Animal Biotechnology, Dr. Brandon was alsoresponsible for fund raising and the development of many important agriculturaltechnologies and products.  He wasco-founder and Director of Stem Cell Sciences Ltd. and Smart Drug Systems Inc.and is currently the Managing Director of genetics and artificial animalbreeding company Clone International which uses cloning technologies to breedelite cattle, sheep and horses and to preserve the genetics of elite animals.

 

**Huw D. Jones**, BSc (Hons), MBA,MAICD *(Non-Executive)*

 

*In office from 19 November 2008 up to the date ofthis Report*

 

Mr. Jones,46, was appointed to the Board on November 19, 2008.  He also serves as a member of the Company’sAudit Committee and its Corporate Governance Committee and is currentlyExecutive Director and Chief Executive Officer of Aeris Environmental Ltd., anASX-listed environmental services company focused on the removal of biologicalcontamination in food cold storage, air-conditioning and commercial watersystems.  Prior to joining Aeris, he wasManaging Director of Datex-Ohmeda Australasia (now part of GE Healthcare).

 

During the2009 financial year, Mr. Henry Bosch AO, Mr. John Dawkins AO, Dr. Leanne RoweAM, Mr. David Carruthers and Mr. Michael Ohanessian also served as Directors ofthe Company until their removal on November 19, 2008 at the Company’s 2008Annual General Meeting.  Also during the2009 year, Dr. Mervyn Jacobson also served as a Director of the Company untilhis resignation on December 12, 2008.

 

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**Senior Management**

 

We have a professional team of qualified andexperienced research and development scientists and technicians.  The Company currently has 65full-time-equivalent employees, of which five have PhD qualifications.  The members of Senior Management, and a briefsummary of their relevant experience, is as follows:

 

**Dr. Paul D.R. MacLeman**, BVSc, MBA, Grad Dip Tech Mgt, Grad CertEng, FAICD *(Chief Executive Officer)*

 

Dr. MacLeman,43, was appointed as Chief Executive Officer on May 4, 2009.  He is a registered veterinary surgeon andholds additional qualifications including an MBA (MGSM), Grad Dip Tech Mgt,Grad Cert Eng and is a member of the AICD. He is the current Chairman of the Ausbiotech Agricultural, Environmentaland Industrial Advisory Committee and was most recently Chief Executive Officerof Hatchtech Pty. Limited where he led the company from research through tointernational Phase II human clinical trials. Dr. MacLeman was responsible for opening up animal health andagricultural opportunities, climaxing in an agreement with one of the top threeglobal chemicals companies.  Prior tothis, he was Chief Operating Officer of Imugene Ltd. and Vice President atAgenix Ltd.  Dr. MacLeman has alsopreviously founded life sciences start-ups and worked in investment bankingfocusing on the analysis and financing of technology companies.

 

**Thomas G. Howitt**, BCom, ACA, FTIA, ACIS, AICPA *(ChiefFinancial Officer and Company Secretary)*

 

Mr. Howitt, 45, was appointed as the Group’s firstfull-time Chief Financial Officer in June 2004 and as Company Secretary in June2005.  During his 20-plus year career, hehas served as CFO and Company Secretary for a number of companies, listed onboth the ASX and foreign stock exchanges. His wide experience covers all facets of financial management andcontrol across a variety of industries, including resources and technology(domestic and international), having been instrumental in the successfuldevelopment, patenting and commercialisation of several innovativetechnologies.  He has played key roles inthe raising of bank debt and equity capital and the management of complex duediligence programs and has worked as a senior Taxation Consultant for Ernst &Young and in the investment banking industry. He also serves as President of theCompany’s Canadian-listed subsidiary, Gtech International Resources Limited.

 

**Alison J. Mew**, MSc Hons *(Chief Operating Officer)*

 

Ms. Mew, 51, was appointed as the Group’s ChiefOperating Officer on August 31, 2009. Prior to joining the Group, she had extensive experience in thebio-pharmaceutical industry in operations management roles - both in Australiaand overseas.  Her most recent corporateexperience was 13 years with CSL Ltd., in senior executive positions across theAnimal Health, Biosciences and Pharmaceutical Divisions - managing vaccines,diagnostics and other biologicals manufacture. Just prior to joining Genetic Technologies Limited, Ms. Mew spent threeyears providing consulting services in both operational and strategicmanagement areas to both local and international organizations.

 

**Dr. David J. Sparling**BVSc Hons, LLB (Hons), Grad Dip CorpGovernance *(Vice President Legal and Corporate Development)*

 

Dr. Sparling,37, was appointed as the Group’s first Vice President Legal and Corporate Developmenton October 26, 2009.  He is anexperienced corporate development executive who has been appointed to driveM&A, expansion and strategy development. Dr. Sparling’s expertise includes: senior executive management, intellectual propertymaintenance and defence, licensing, corporate governance, corporate finance and strategic planning.  His experience extends to both pharmaceutical and diagnosticapplications; in both human and animal health. Prior to joining the Group, Dr. Sparling was chief operating officerfor Solbec Pharmaceuticals Ltd., a publicly listed bio-pharmaceutical companybased in Perth, Western Australia.  Dr. Sparlingis also currently a director of Solbec Pharmaceuticals.  Prior to this, he was Commercial Counsel for AgenixLimited, a listed biotechnology company in Queensland.

 

**Gregory J. McPherson**BA, BBus *(VicePresident Sales and Marketing)*

 

Mr. McPherson, 45, was appointed as the Group’s firstVice President Sales and Marketing on July 20, 2009.  He brings over 20 years experience indeveloping both retail and consumer businesses in Australia and the Asianregion, including the development of new retail formats and multi-mediacampaigns for chains such as Mitre 10, Spotlight and Symbion Health.  There, his expertise in multi-site customeroperations translated strategy into broad line management accountability.  Overseas assignments in Asia for WhirlpoolCorporation included setting up Joint Ventures in China and India and Pan-Asiansupplier negotiations.  Whilst working inAustralia, he assisted in the development of manufacturer/wholesalers such asElectrolux, Whirlpool and Brivis/Carrier, where he implemented advancedmeasurement and process improvement techniques directly increasingprofitability and shareholder value.

 

**Catherine M. Barclay**, BA, PGDipHRM *(GeneralManager - Human Resources)*

 

Mrs. Barclay,42, was appointed as General Manager - Human Resources on December 3,2007.  During her 20 year career,   she has served in a variety of managementroles, including managing human resources, customer service and accountingsupport functions, in both Australia and New Zealand.  Her experience covers all aspects of humanresources including organizational development, employee and industrial relations,change management and development and implementation of human resourcespolicies and processes.  She has beenresponsible from a human resources perspective for acquisitions anddivestitures and has played a key role in developing corporate HR strategywhilst working for AXA Asia Pacific Holdings Ltd.

 

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**Item 6.B****                         ****Compensation**

 

Details of the nature and amount of each major elementof the compensation of each director of the Company and each of the namedofficers of the Company and its subsidiaries, for services in all capacitiesduring the financial year ended June 30, 2009 are listed below.  All figures are stated in Australian dollars(AUD).

 
| **Name and title of**                        | ** ** | ** ** | ** ** | **Short-term**  | ** ** | ** ** | ** ** | **Post-employment** | ** ** | **Long-term**          | ** ** | **Share-based** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|-----------------|------------|------------|------------|---------------------|------------|------------------------|------------|-----------------|------------|------------|------------|
| **Directors**                                | ** ** | **Year**   | ** ** | **Salary/fees** | ** ** | **Other**  | ** ** | **Superannuation**  | ** ** | **Long service leave** | ** ** | **Options**     | ** ** | **Totals** | ** ** |
| ** **                                   | ** ** | ** ** | ** ** | **$**           | ** ** | **$**      | ** ** | **$**               | ** ** | **$**                  | ** ** | **$**           | ** ** | **$**      | ** ** |
| Fred Bart                                    | ** ** | **2009**   |       | 62,324          |       | —     |       | 5,609               |       | —                 |       | —          |       | 67,933     |       |
| Non-Executive Chairman                       |       | 2008       |       | 42,282          |       | —     |       | 3,805               |       | —                 |       | —          |       | 46,087     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Sidney C. Hack (note 1)                      | ** ** | **2009**   |       | —          |       | —     |       | 33,583              |       | —                 |       | —          |       | 33,583     |       |
| Non-Executive Director                       |       | 2008       |       | —          |       | —     |       | —              |       | —                 |       | —          |       | —     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Huw D. Jones (note 2)                        | ** ** | **2009**   |       | 30,810          |       | —     |       | 2,773               |       | —                 |       | —          |       | 33,583     |       |
| Non-Executive Director                       |       | 2008       |       | —          |       | —     |       | —              |       | —                 |       | —          |       | —     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Henry Bosch AO (note 3)                      | ** ** | **2009**   |       | 57,981          |       | —     |       | —              |       | —                 |       | —          |       | 57,981     |       |
| Ex. Non-Executive Chairman                   |       | 2008       |       | 126,846         |       | —     |       | —              |       | —                 |       | 12,921          |       | 139,767    |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| David Carruthers (note 3)                    | ** ** | **2009**   |       | 19,327          |       | —     |       | 1,739               |       | —                 |       | —          |       | 21,066     |       |
| Ex. Non-Executive Director                   |       | 2008       |       | 50,000          |       | —     |       | 4,500               |       | —                 |       | —          |       | 54,500     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| John S. Dawkins AO (note 3)                  | ** ** | **2009**   |       | 19,327          |       | —     |       | 1,739               |       | —                 |       | —          |       | 21,066     |       |
| Ex. Non-Executive Director                   |       | 2008       |       | 42,282          |       | —     |       | 3,805               |       | —                 |       | 12,921          |       | 59,008     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Dr. Mervyn Jacobson (note 4)                 | ** ** | **2009**   |       | 22,724          |       | —     |       | —              |       | —                 |       | —          |       | 22,724     |       |
| Ex. Non-Executive Director                   |       | 2008       |       | 138,461         |       | —     |       | —              |       | —                 |       | —          |       | 138,461    |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Dr. Leanne Rowe AM (note 3)                  | ** ** | **2009**   |       | —          |       | —     |       | 21,066              |       | —                 |       | —          |       | 21,066     |       |
| Ex. Non-Executive Director                   |       | 2008       |       | —          |       | —     |       | 11,353              |       | —                 |       | —          |       | 11,353     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Sub-totals for Directors                     | ** ** | **2009**   |       | 212,493         |       | —     |       | 66,509              |       | —                 |       | —          |       | 279,002    |       |
|                                         |       | 2008       |       | 399,871         |       | —     |       | 23,463              |       | —                 |       | 25,842          |       | 449,176    |       |
| ** **                                   | ** ** | ** ** |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| **Executives**                               | ** ** | ** ** |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| ** **                                   | ** ** | ** ** |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Dr. Paul D.R. MacLeman(note 5)               | ** ** | **2009**   |       | 35,821          |       | —     |       | 3,224               |       | —                 |       | —          |       | 39,045     |       |
| Chief Executive Officer                      |       | 2008       |       | —          |       | —     |       | —              |       | —                 |       | —          |       | —     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Thomas G. Howitt (notes 6, 7)                | ** ** | **2009**   |       | 214,000         |       | 55,000     |       | 24,210              |       | 7,863                  |       | 28,083          |       | 329,156    |       |
| Chief Financial Officer andCompany Secretary |       | 2008       |       | 200,000         |       | 35,000     |       | 21,150              |       | 4,403                  |       | 30,759          |       | 291,312    |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| M. Luisa Ashdown (notes 8,9)                 | ** ** | **2009**   |       | 141,440         |       | 5,000      |       | 13,180              |       | 4,628                  |       | 5,880           |       | 170,128    |       |
| Int. Chief Operating Officer                 |       | 2008       |       | —          |       | —     |       | —              |       | —                 |       | —          |       | —     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Michael B. Ohanessian(notes 10, 11,  12)     | ** ** | **2009**   |       | 183,616         |       | 345,000    |       | 39,466              |       | (356                   | )          | (68,175         | )          | 499,551    |       |
| Ex. Chief Executive Officer                  |       | 2008       |       | 239,252         |       | —     |       | 20,769              |       | 356                    |       | 68,175          |       | 328,552    |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Ross Barrow (note 13, 14)                    | ** ** | **2009**   |       | 115,821         |       | —     |       | 11,337              |       | —                 |       | —          |       | 127,158    |       |
| Ex. Chief Operating Officer                  |       | 2008       |       | 54,006          |       | —     |       | 4,860               |       | —                 |       | —          |       | 58,866     |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Dr. Gary Cobon (notes 15, 16)                | ** ** | **2009**   |       | —          |       | —     |       | —              |       | —                 |       | —          |       | —     |       |
| Ex. Chief Operating Officer                  |       | 2008       |       | 66,047          |       | 82,500     |       | 74,619              |       | —                 |       | —          |       | 223,166    |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Sub-totals for Executives                    | ** ** | **2009**   |       | 690,698         |       | 405,000    |       | 91,417              |       | 12,135                 |       | (34,212         | )          | 1,165,038  |       |
|                                         |       | 2008       |       | 559,305         |       | 117,500    |       | 121,398             |       | 4,759                  |       | 98,934          |       | 901,896    |       |
|                                         |       |       |       |            |       |       |       |                |       |                   |       |            |       |       |       |
| Total remuneration of                        | ** ** | **2009**   |       | 903,191         |       | 405,000    |       | 157,926             |       | 12,135                 |       | (34,212         | )          | 1,444,040  |       |
| Key Management Personnel                     |       | 2008       |       | 959,176         |       | 117,500    |       | 144,861             |       | 4,759                  |       | 124,776         |       | 1,351,072  |       |

 

Note:         TheCompany and the Group had only five Executives, as defined, during the yearended June 30, 2009.

 

Thecolumn above entitled “Other” of $405,000 (2008: $117,500) comprisestermination benefits of $345,000 (2008: $82,500), bonuses of $60,000 (2008:$35,000) (refer notes below).

 

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Thedetails of those Executives nominated as Key Management Personnel under section300A of the *Corporations Act 2001* have beendisclosed in this Report.  No otheremployees of the Company meet the definition of “Key Management Personnel” asdefined in *IAS 24 Related Party Disclosures*, or “seniormanager” as defined in the *Corporations Act 2001*.

 

----

Notes:

 

1.                   Mr. Hack was appointed as a Director ofthe Company on November 19, 2008.

 

2.                   Mr. Jones was appointed as a Director ofthe Company on November 19, 2008.

 

3.                   Messrs. Bosch, Carruthers, Dawkins and Dr.Rowe were removed as Directors of the Company on November 19, 2008.

 

4.                   Dr. Jacobson resigned as a Director ofthe Company on December 12, 2008.

 

5.                   Dr. MacLeman was appointed as ChiefExecutive Officer of the Company on May 4, 2009.

 

6.                   Mr. Howitt served as Interim ChiefExecutive Officer of the Company from December 17, 2008 until May 3, 2009.

 

7.                   During the year ended June 30, 2009, Mr. Howittreceived an STI payment of $40,000 in respect of the prior year and anadditional payment of $15,000 in recognition of his acting as Interim ChiefExecutive Officer during the year.

 

8.                   Ms. Ashdown was appointed as InterimChief Operating Officer of the Company on January 7, 2009.  She was not classified as part of KeyManagement Personnel during the year ended June 30, 2008.

 

9.                   During the year ended June 30, 2009, Ms. Ashdownreceived an additional payment of $5,000 in recognition of her acting asInterim Chief Operating Officer during the year.

 

10.             Mr. Ohanessian was removed as a Directorand as Chief Executive Officer of the Company on November 19, 2008.

 

11.             During the year ended June 30, 2009, Mr. Ohanessianreceived $345,000 in respect of a termination benefit and $30,000 in respect ofa motor vehicle allowance.

 

12.             The share-based payments creditattributable to Mr. Ohanessian during the year ended June 30, 2009 arose fromthe forfeiture of his options following his removal as Chief Executive Officerof the Company on November 19, 2008.

 

13.             Mr. Barrow was appointed as the Company’sChief Operating Officer on April 14, 2008.

 

14.             Mr. Barrow resigned as the Company’sChief Operating Officer on December 31, 2008.

 

15.             Dr. Cobon resigned as the Company’s ChiefOperating Officer on March 28, 2008.

 

16.             During the year ended June 30, 2008, Dr. Cobonreceived $82,500 in respect of a termination benefit.

 

Executive officers are those officers who wereinvolved during the year in the strategic direction, general management orcontrol of the business at a company or operating division level who receivedthe five highest annualized compensation amounts.  The remuneration paid to Executives is setwith reference to prevailing market levels and comprises a fixed salary,various short term incentives (which are linked to agreed key performanceindicators), and an option component.  Options are granted to Executives in line withtheir respective levels of experience and responsibility.

 

**Options**

 

We introduced a Staff Share Plan on November 30,2001.  On November 19, 2008, theshareholders of the Company approved the introduction of a new Employee OptionPlan.  Collectively, these Plansestablish the eligibility of our employees and those of any subsidiaries, andof consultants and independent contractors to a participating company who aredeclared by the Board to be eligible, to participate.  Broadly speaking, the respective Planspermits us, at the discretion of the Board, to issue traditional options (withan exercise price).  The Plans conformwith the IFSA Executive Share and Option Scheme Guidelines and, whereparticipation is to be made available to staff who reside outside Australia,there may have to be modifications to the terms of grant to meet or bettercomply with local laws or practice.

 

On August 29, 2000, shareholders approved the grant of3,000,000 options to Directors.  Eachoption granted to Directors was exercisable into one Ordinary Share at any timeon or before April 14, 2005 at a fixed price of $0.45 per share.  On August 12, 2003, Mr. Ian Dennis exercised1,000,000 options at $0.45 by paying $450,000 and simultaneously sold theresulting 1,000,000 shares.  Theremaining 2,000,000 lapsed unexercised on April 14, 2005.

 

On November 30, 2001, under our Constitution, shareholders approved thecreation of a Staff Share Plan (the “Plan”). Under the Plan, the Directors may at their discretion, grant optionsover our Ordinary Shares to Directors, executives and members of staff of theconsolidated entity.  The options, issuedfor nil consideration, are granted in accordance with guidelines established bythe Directors.  The options are generallyissued for a term of up to six years.  Inaccordance with the terms of the Plan, options generally vest on the basis of25% per annum and can be exercised at any time after vesting prior to the dateof their expiry.  The options are nottransferable and are not quoted on the ASX.

 

There are currently two executives and elevenemployees who have been granted options under the Plans.  Options issued under the Plan carry no rightsto dividends and no voting rights.

 

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Options issued under the Plans during thefollowing financial years are as follows:

 

Year ended June 30, 2007:

 

There were no options granted during the year ended June30, 2007.

 

A total of 1,175,000 of the options issued under thePlans were forfeited during the year ended June 30, 2007 and a further1,525,000 options were cancelled.

 

Year ended June 30, 2008:

 
| **Grant date**     | ** ** | **Expiry date**     | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|--------------------|------------|---------------------|------------|--------------------|------------|--------------------|------------|
|               |       |                |       |               |       |               |       |
| September 24, 2007 |       | September 24,  2012 |       | 3,650,602          |       | $                  | 0.17       |   |
| October 23, 2007   |       | October 23, 2012    |       | 3,500,000          |       | $                  | 0.22       |   |
| June 30, 2008      |       | June 30, 2013       |       | 1,000,000          |       | $                  | 0.13       |   |
|               |       | Total               |       | 8,150,602          |       |               |       |

 

On September 24, 2007, we issued 3,650,602 options underthe Plan to Michael Ohanessian, our former Chief Executive Officer.  These options, which were subsequentlyforfeited during the year ended June 30, 2009, were exercisable at $0.17.  On October 23, 2007, we issued 3,500,000 newoptions under the Plans to a number of employees.  These options are exercisable at $0.22 andexpire on October 23, 2012.  Theremaining 1,000,000 options were issued to Ross Barrow, our former ChiefOperating Officer.  These options, whichwere also subsequently forfeited during the year ended June 30, 2009, wereexercisable at $0.13.  A total of2,900,000 options were forfeited during the year ended June 30, 2008 and afurther 6,052,500 options that had been issued under the Plans were cancelled.

 

Year ended June 30, 2009:

 

There were no options granted during the year ended June30, 2009.

 

A total of 5,700,602 of the options issued under thePlan were forfeited during the year ended June 30, 2009 and a further 1,075,000options were cancelled.

 

As of the date of this Annual Report, there was atotal of 4,400,000 options outstanding.

 

On August 2, 2001, the Company announced that it hadentered into an agreement with GTH Capital of New York to pursue its listing onthe National Association of Securities Dealers Automated Quotations (“NASDAQ”).  This agreement was assigned by GTH Capital toGMCG, LLC, the successor of GTH Capital, on April 1, 2002.  In accordance with the agreement, GeneticTechnologies issued 150,000 shares to GTH Capital on October 10, 2001 andagreed to issue 900,000 options at an exercise price of $0.70 to GTH Capitalwithin three years, subject to it meeting certain performance criteria.  On January 14, 2002, GTH were entitled toreceive 540,000 of the options.  Duringthe year ended June 30, 2004, GMCG, LLC became entitled to a further 60,000options.  We have now issued to GMCG, LLCthe 600,000 options that have met specific performance criteria.  Subsequent to June 30, 2005, the partiesagreed not to proceed with the issue of the 300,000 remaining options, notwithstandingthe successful listing of the Company’s Level II ADR’s on NASDAQ on September 2,2005, as certain performance criteria were not met by GMCG, LLC.  The 600,000 options granted to GMCG, LLClapsed on September 7, 2007.

 

On May 22, 2001, Gtech International ResourcesLimited, a controlled entity issued 130,000 directors options to Dr. MervynJacobson at an exercise price of CAD0.38 which vested immediately.  These options lapsed unexercised on May 22,2006.  On February 3, 2005, Fred Bart andIan Dennis exercised a total of 158,500 options in Gtech International at anexercise price of CAD0.20 each.  On August26, 2005, 100,000 options in Gtech International were granted to each of TomHowitt and Elizabeth Sy, both Directors of Gtech, at an exercise price ofCAD0.45 each.

 

On September 4, 2003, as part of the placement of13,333,333 shares at $0.75, we issued the subscriber with 6,666,667 optionsexercisable at $1.00 on or before September 30, 2005.  These options subsequently lapsed on September30, 2005.

 

Options granted under thePlans carry no rights to dividends and no voting rights.  In accordance with the terms of the Plans,options granted prior to June 2007 generally vest on the basis of 25% per annumand can be exercised at any time after vesting to the date of theirexpiry.  The options generally have anexpiry date of six years from the date of grant.  Options granted after July 2007, generallyvest on the basis of 100% after three years from the date of grant and can beexercised at any time after vesting to the date of their expiry.  These later options generally have an expirydate of five years from the date of grant.

 

During the years ended June30, 2009, 2008 and 2007, the Company recorded a share-based payments(credit)/expense in respect of the options granted of $(43,497), $164,533 and$257,906, respectively.

 

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The following is additional information relating tothe options granted under the respective Plans as of June 30, 2009:

 
| ** **                     | ** ** | **Options outstanding** | ** ** | **Options exercisable**               | ** ** |
|--------------------------------|------------|-------------------------|------------|---------------------------------------|------------|
| **Range of  exercise  prices** | ** ** | **Number of  options**  | ** ** | **Weighted  average exercise  price** | ** ** | **Remaining weighted  average contractual  life (years)** | ** ** | **Number of  options** | ** ** | **Weighted average  exercise price** | ** ** |
| $0.21 - $0.30                  |       | 2,400,000               |       | $                                     | 0.22       |   | 3.32 |   | — |   | N/A |   |
| $0.31 - $0.40                  |       | 150,000                 |       | $                                     | 0.40       |   | 2.92 |   | 112,500 |   | $ | 0.40 |   |
| $0.41 - $0.50                  |       | 1,400,000               |       | $                                     | 0.47       |   | 1.31 |   | 1,312,500 |   | $ | 0.47 |   |
| $0.51 - $0.60                  |       | 450,000                 |       | $                                     | 0.54       |   | 1.47 |   | 387,500 |   | $ | 0.55 |   |
|                           |       | 4,400,000               |       | $                                     | 0.34       |   | 2.48 |   | 1,812,500 |   | $ | 0.48 |   |

 

The following is additional information relating tothe options granted under the respective Plans as of June 30, 2008:

 
| ** **                     | ** ** | **Options outstanding** | ** ** | **Options exercisable**               | ** ** |
|--------------------------------|------------|-------------------------|------------|---------------------------------------|------------|
| **Range of  exercise  prices** | ** ** | **Number of  options**  | ** ** | **Weighted  average exercise  price** | ** ** | **Remaining weighted  average contractual  life (years)** | ** ** | **Number of  options** | ** ** | **Weighted average  exercise price** | ** ** |
| $0.11 - $0.20                  |       | 4,650,602               |       | $                                     | 0.16       |   | 4.62 |   | — |   | N/A |   |
| $0.21 - $0.30                  |       | 2,800,000               |       | $                                     | 0.22       |   | 4.32 |   | — |   | N/A |   |
| $0.31 - $0.40                  |       | 625,000                 |       | $                                     | 0.39       |   | 3.07 |   | 400,000 |   | $ | 0.39 |   |
| $0.41 - $0.50                  |       | 2,650,000               |       | $                                     | 0.46       |   | 1.94 |   | 2,112,500 |   | $ | 0.46 |   |
| $0.51 - $0.60                  |       | 450,000                 |       | $                                     | 0.54       |   | 0.47 |   | 325,000 |   | $ | 0.53 |   |
|                           |       | 11,175,602              |       | $                                     | 0.27       |   | 3.73 |   | 2,837,500 |   | $ | 0.46 |   |

 

The following is additional information relating tothe options granted under the respective Plans as of June 30, 2007:

 
| ** **                     | ** ** | **Options outstanding** | ** ** | **Options exercisable**               | ** ** |
|--------------------------------|------------|-------------------------|------------|---------------------------------------|------------|
| **Range of  exercise  prices** | ** ** | **Number of  options**  | ** ** | **Weighted  average exercise  price** | ** ** | **Remaining weighted  average contractual  life (years)** | ** ** | **Number of  options** | ** ** | **Weighted average  exercise price** | ** ** |
| $0.31 - $0.40                  |       | 875,000                 |       | $                                     | 0.40       |   | 4.32 |   | 350,000 |   | $ | 0.39 |   |
| $0.41 - $0.50                  |       | 4,652,500               |       | $                                     | 0.46       |   | 2.87 |   | 2,827,500 |   | $ | 0.47 |   |
| $0.51 - $0.60                  |       | 3,950,000               |       | $                                     | 0.55       |   | 2.48 |   | 2,900,000 |   | $ | 0.56 |   |
| $0.61 - $0.70                  |       | 2,500,000               |       | $                                     | 0.61       |   | 0.42 |   | 2,500,000 |   | $ | 0.61 |   |
|                           |       | 11,977,500              |       | $                                     | 0.52       |   | 2.34 |   | 8,577,500 |   | $ | 0.54 |   |

 

Thefair value for the options issued to employees was estimated at the date ofgrant using a Black-Scholes option-pricing model with the following weighted-averageassumptions for June 30:

 
| ** **                       | ** ** | ** ** | ** ** | **June 30,**   | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                       | ** ** | **2009**   | ** ** | **2008**       | ** ** | **2007**   | ** ** |
| Risk Free Interest Rate          |       | N/A        |       | 5.99% to 6.50% |       | N/A        |       |
| Expected Dividend Yield          |       | N/A        |       | —         |       | N/A        |       |
| Historic and Expected Volatility |       | N/A        |       | 75%            |       | N/A        |       |
| Option Exercise Prices           |       | N/A        |       | $0.17 to $0.22 |       | N/A        |       |
| Weighted Average Exercise Price  |       | N/A        |       | $0.19          |       | N/A        |       |
| Expected Lives                   |       | N/A        |       | 3 to 5 years   |       | N/A        |       |

 

Nooptions were granted during the years ended June 30, 2009 and June 30, 2007.

 

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**Indemnificationand Insurance with Respect to Directors**

 

We are obligated pursuant to an indemnity agreement,to indemnify the current Directors and executive officers and former Directorsagainst all liabilities to third parties that may arise from their position asDirectors or officers of the Company and our controlled entities, except whereto do so would be prohibited by law. Under the terms of this agreement, we are obligated to meet the fullamount of any such liabilities, including costs and expenses.  In connection with the GeneType AGacquisition, Fred Bart and Ian Dennis provided counter-indemnities to us and toGeneType AG shareholders in respect of the existence of undisclosed liabilitiesas at May 15, 2000.  Thesecounter-indemnities lapsed on May 15, 2005.

 

In addition, we currently carry insurance in respectof Directors’ and officers’ liabilities for current and former Directors,Company Secretary and executive officers or employees.

 

**Item 6.C         Board Practices**

** **

**TheBoard of Directors**

 

Under our Constitution,our Board of Directors is required to comprise at least three Directors.  As of the date of this Annual Report, ourBoard comprised four Directors.

 

The role of the Board includes:

 

(a)                  Reviewingand making recommendations in remuneration packages and policies applicable todirectors, senior executives and consultants.

 

(b)                 Nominationof external auditors and reviewing the adequacy of external audit arrangements.

 

(c)                  Establishingthe overall internal control framework over financial reporting, quality andintegrity of personnel and investment appraisal.  In establishing an appropriate framework, theboard recognized that no cost effective internal control systems will precludeall errors and irregularities.

 

(d)                 Establishingand maintaining appropriate ethical standards in dealings with businessassociates, suppliers, advisers and regulators, competitors, the community andother employees.

 

(e)                  Identifyingareas of significant business risk and implementing corrective action as soonas practicable after a risk is identified.

 

(f)                    Nominating of audit and nomination and remuneration committee members.

 

The Board meets to discuss business regularlythroughout the year, with additional meetings being held when circumstanceswarrant.  Included in the table below aredetails of the meetings of the Board and the committees of the Board that wereheld during the 2009 financial year.

 
| ** **                      | ** ** | ** **                   | ** ** | **Sub-committees of the Board** | ** ** |
|---------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **Directors’ meetings** | ** ** | **Audit**                       | ** ** | **Corporate Governance** | ** ** |
| **Name of Director**            | ** ** | **Eligible**                 | ** ** | **Attended**                    | ** ** | **Eligible** | ** ** | **Attended** | ** ** | **Eligible** | ** ** | **Attended** | ** ** |
| Fred Bart                       |       | 17                           |       | 16                              |       | 3 |   | 3 |   | — |   | — |   |
| Sidney C. Hack (note 1)         |       | 9                            |       | 9                               |       | 3 |   | 3 |   | — |   | — |   |
| Huw D. Jones (note 1)           |       | 9                            |       | 9                               |       | 3 |   | 3 |   | — |   | — |   |
| Henry Bosch AO (note 2)         |       | 7                            |       | 7                               |       | 3 |   | 3 |   | 1 |   | 1 |   |
| David Carruthers  (note 2)      |       | 7                            |       | 7                               |       | 3 |   | 3 |   | — |   | — |   |
| John S. Dawkins  AO (note 2)    |       | 7                            |       | 7                               |       | 3 |   | 1 |   | — |   | — |   |
| Dr. Mervyn  Jacobson (note 3)   |       | 11                           |       | 10                              |       | — |   | — |   | 1 |   | 1 |   |
| Michael B.  Ohanessian (note 2) |       | 7                            |       | 6                               |       | — |   | — |   | 1 |   | 1 |   |
| Dr. Leanne Rowe  AM (note 2)    |       | 7                            |       | 7                               |       | — |   | — |   | — |   | — |   |

 

----

Notes:

 

1.          Messrs. Hack and Jones were appointed asDirectors of the Company on November 19, 2008.

 

2.          Messrs. Bosch, Carruthers, Dawkins,Ohanessian and Dr. Rowe were removed as Directors of the Company on November 19,2008.

 

3.          Dr. Jacobson resigned as a Director ofthe Company on December 12, 2008.

 

4.          In accordance with the Charter, theauditor attended five meetings of the Audit Committee at the request of theCommittee.

 

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**Committees of the Board**

 

TheBoard has established an Audit Committee which operates under a specificCharter approved by the Board.  It is theBoard’s responsibility to ensure that an effective internal control frameworkexists within the entity.  This includesinternal controls to deal with both the effectiveness and efficiency ofsignificant business processes, the safeguarding of assets, the maintenance ofproper accounting records, and the reliability of financial information as wellas non-financial considerations such as the benchmarking of operational keyperformance indicators.

 

TheBoard has delegated the responsibility for the establishment and maintenance ofa framework of internal control and ethical standards for the management of theGroup to the Audit Committee.  The AuditCommittee also provides the Board with assurance regarding the reliability offinancial information for inclusion in the financial reports.  All members of the Audit Committee areindependent Non-Executive Directors.

 

**Committeemembership**

 

As atthe date of this Report, the Company had an Audit Committee and a CorporateGovernance Committee of the Board of Directors (the latter being formerly knownas the Nomination and Remuneration Committee).

 

Theindividuals who served as members of these Committees during the financial yearwere:

 
| ** **                    | ** ** | **Audit Committee**                | ** ** | **Corporate Governance Committee** | ** ** |
|-------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| **Name of Member**            | ** ** | **Period served**                  | ** ** | **Period served**                  | ** ** |
| Fred Bart                     |       | November 19, 2008 to June 30, 2009 |       | Not applicable                     |       |
| Sidney C. Hack (note 1)       |       | November 19, 2008 to June 30, 2009 |       | November 19, 2008 to June 30, 2009 |       |
| Huw D. Jones                  |       | November 19, 2008 to June 30, 2009 |       | December 12, 2008 to June 30, 2009 |       |
| Henry Bosch AO (note 2)       |       | July 1, 2008 to November 19, 2008  |       | July 1, 2008 to November 19, 2008  |       |
| David Carruthers  (note 3)    |       | July 1, 2008 to November 19, 2008  |       | Not applicable                     |       |
| John S. Dawkins  AO           |       | July 1, 2008 to November 19, 2008  |       | July 1, 2008 to November 19, 2008  |       |
| Dr. Mervyn  Jacobson (note 4) |       | Not applicable                     |       | July 1, 2008 to December 12, 2008  |       |
| Michael B.  Ohanessian        |       | Not applicable                     |       | July 1, 2008 to November 19, 2008  |       |
| Dr. Leanne Rowe  AM           |       | Not applicable                     |       | Not applicable                     |       |

 

----

Notes:

 

1.          Mr. Hack served as the Chairman of theAudit Committee from November 19, 2008 to June 30, 2009.  He also served as the Chairman of theCorporate Governance Committee from December 12, 2008 to June 30, 2009.

 

2.          Mr. Bosch served as the Chairman of theCorporate Governance Committee from July 1, 2008 to November 19, 2008.

 

3.          Mr. Carruthers served as the Chairman ofthe Audit Committee from July 1, 2008 to November 19, 2008.

 

4.          Dr. Jacobson served as the Chairman ofthe Corporate Governance Committee from November 19, 2008 to December 12, 2008.

 

As ofthe date of this Annual Report, the members of the Audit Committee were:

 

Sidney C. Hack *(Chairman)*

**Dr. Malcolm R. Brandon

Huw D. Jones

 

Duringthe 2005 financial year, the Board established a Nomination and RemunerationCommittee, which meets to ensure that the Board continues to operate within theestablished guidelines including selecting candidates for the position ofDirector.  During the 2006 financialyear, the role of the Committee was expanded to include matters related to theCompany’s Corporate Governance affairs and its name changed to the CorporateGovernance Committee to reflect that additional role.  The members of the Committee have the rightto appoint an independent consultant to attend meetings of the Committee, asappropriate.

 

As ofthe date of this Annual Report, the members of the Corporate GovernanceCommittee were:

 

Sidney C. Hack *(Chairman)*

Tommaso Bonvino

Huw D. Jones

 

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**Compliancewith NASDAQ Rules**

 

NASDAQlisting rules require that we disclose the home country practices that we willfollow in lieu of compliance with NASDAQ corporate governance rules.  The following describes the home countrypractices and the related NASDAQ rule:

 

Majorityof Independent Directors:  We follow home countrypractice rather than NASDAQ’s requirement in Marketplace Rule 4350(c)(1) thatthe majority of the Board of each issuer be comprised of independent directorsas defined in Marketplace Rule 4200.  Asof the date of this Annual Report, our Board of Directors comprises of amajority of independent directors.

 

Compensationof Officers:  We follow home country practice rather thanNASDAQ’s requirement in Marketplace Rule 4350(c)(3) that chief executivecompensation be determined or recommended to the Board by the majority ofindependent directors or a compensation committee of independentdirectors.  Similarly, compensation ofother officers is not determined or recommended to the Board by a majority ofthe independent directors or a compensation committee comprised solely ofindependent directors.  These decisionsare made by our corporate governance committee which is comprised of a majorityof independent directors.  The ASX doesnot have a requirement that each listed issuer have a remuneration committee orotherwise follow the procedures embodied in NASDAQ’s Marketplace Rule.  Furthermore, no law, rule or regulation ofthe ASIC has such a requirement nor does the applicable corporate lawlegislation.  Such home country practicesare not prohibited by the laws of Australia.

 

Nomination: We follow home country practice rather than NASDAQ’s requirement inMarketplace Rule 4350(c)(4) that director nominees be selected or recommendedby a majority of the independent directors or by a nominations committee (inour case, the Corporate Governance Committee) comprised of independentdirectors.  These decisions are made byour corporate governance committee which is comprised of a majority ofindependent directors.  The ASX does nothave a requirement that each listed issuer have a nominations committee orotherwise follow the procedures embodied in NASDAQ’s Marketplace Rule.  Furthermore, no law, rule or regulation ofthe ASIC has such a requirement nor does the applicable corporate lawlegislation.  Accordingly, selections orrecommendations of director nominees by a committee that is not comprised of amajority of directors that are not independent is not prohibited by the laws ofAustralia.

 

Quorum: We follow home country practice rather than NASDAQ’s requirement inMarketplace Rule 4350(f) that each issuer provide for a quorum of at least 331/3 percent of the outstanding shares of the issuer’s ordinary stock (votingstock).  Pursuant to our Constitution weare currently required to have a quorum for a general meeting of three personsholding at least 10% of our Ordinary Shares. The practice followed by us is not prohibited by Australian law.

 

**Item 6.D         Employees**

** **

The Company currently employs 65 full-time equivalentemployees.  The number of full-timeequivalent employees as of the end of each respective financial year ended June30 are as follows:

 
| 2009 |   | 65 |   |
|------|--------|----|--------|
| 2008 |   | 60 |   |
| 2007 |   | 54 |   |

** **

**Item 6.E         Share Ownership**

** **

The relevant interest of each director in the sharecapital of the Company as notified by the directors to the AustralianSecurities Exchange in accordance with section 205G(1) of the *Corporations Act 2001* as of the date of this Annual Reportis as follows:

 
| **Director**            | ** ** | **Ordinary shares** | ** ** | **Percentage of Capital held** | ** ** |
|-------------------------|------------|---------------------|------------|--------------------------------|------------|
| Sidney C. Hack          |       | —              |       | N/A                            |       |
| Tommaso Bonvino         |       | —              |       | N/A                            |       |
| Dr. Malcolm R.  Brandon |       | —              |       | N/A                            |       |
| Huw D. Jones            |       | —              |       | N/A                            |       |

 

Notes:             Asof the date of this Annual Report, no options over Ordinary Shares are held bythe Directors.

 

Inaddition to the above, Ms. Luisa Ashdown (a member of Key Management Personnelduring the year ended June 30, 2009), owned 622,045 Ordinary Shares as of thedate of this Annual Report, representing 0.17% of the Company’s total issuedcapital.

 

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**Item 7.****                                  ****MajorShareholders and Related Party Transactions**

 

**Item 7.A**                          Major Shareholders

** **

The table below sets forth the beneficial owners of 5%or more of our voting securities as of the date of this Annual Report:

 
| **Name**                 | ** ** | **Number of Ordinary Shares held** | ** ** | **Percentage of Capital held** | ** ** |
|--------------------------|------------|------------------------------------|------------|--------------------------------|------------|
|                     |       |                               |       |                           |       |
| Dr. Mervyn Jacobson |       | 150,931,900 (note 1)               |       | 40.29                          | %          |
|                     |       |                               |       |                           |       |
| Fred Bart                |       | 25,642,364 (note 2)                |       | 6.84                           | %          |

 

----

| Notes: | 1.  includes shares held by Mervyn Jacobson ApS  and JGT ApS.             |
|--------|--------------------------------------------------------------------------------|
|   |                                                                           |
|   | 2.  includes  shares held by Security & Equity Resources Limited |

 

The number of Ordinary Shares on issue in GeneticTechnologies as of the date of this Annual Report was 374,644,801.  The number of holders of Ordinary Shares inGenetic Technologies as of the date of this Annual Report was approximately2,970.

 

The Company is not aware of any direct or indirectownership or control of it by another corporation(s), by any foreign governmentor by any other natural or legal person(s) severally or jointly.  Principal shareholders do not enjoy anyspecial or different voting rights from those to which other holders ofOrdinary Shares are entitled.

 

The Company does not know of any arrangements, theoperation of which may at a subsequent date result in a change in control ofthe Company.

 

**Item 7.B**                          Related Party Transactions

** **

Duringthe year ended June 30, 2009:

 

·**                 **GeneType Pty.Ltd., a subsidiary, paid a total of $529,234 (2008: $501,239; 2007: $445,384)to Bankberg Pty. Ltd., a company associated with a former Director and majorityshareholder of the Company, Dr. Mervyn Jacobson, for rent and its share ofbody corporate expenses in respect of the office and laboratory premises inFitzroy, Victoria that are leased by the Group. As of June 30, 2009, a dispute existed between the Company andBankberg Pty. Ltd. in relation to amounts receivable from the landlord in respectof the premises leased by the Company in Fitzroy.  On July 28, 2009, a Letter of Intent wassigned by the parties which established the parameters for calculating theamount to be paid as of June 30, 2009. On August 20, 2009, the parties reached agreement as to the amountof this payment which has been reflected in the Group’s balance sheet as of June 30,2009.

 

·**                 **GeneticTechnologies Limited paid a total of $131,851 (2008: $420,219; 2007: $nil) toTransmedia Inc., another company associated with Dr. Jacobson, in respectof commissions paid in relation to licensing services provided to the Companyof $72,401 (2008: $414,133; 2007 $nil) and reimbursement of associated travelexpenses of $59,450 (2008: $6,086; 2007: $nil).

 

·**                 **GeneticTechnologies Limited paid a total of $99,458 (2008: $79,936; 2007: $nil) toGovernment Relations Australia Advisory Pty. Ltd., a company associated with Mr. JohnDawkins AO, a former Director of the Company, in respect of consulting servicesprovided to the Company.

 

·**                 **Former DirectorDr. Mervyn Jacobson acquired a total of 27 ordinary shares in ImmunAidPty. Ltd., a subsidiary of the Company. As at June 30, 2009, Dr. Jacobson held a total of 549 ordinaryshares in ImmunAid Pty. Ltd., representing approximately 4.0% of that company’stotal issued capital.

 

All transactions with directors are undertaken onnormal commercial terms and conditions.  All managementfees were disclosed as general and administrative expenses in the respectiveyears.

 

**Item 7.C****                         ****Interests of Experts and Counsel**

 

Not applicable.

 

**Item8.**                                   FinancialInformation

** **

**Item 8.A**                          Consolidated Statements and OtherFinancial Information

** **

The information included in Item 18 of this AnnualReport is referred to and incorporated by reference into this Item 8.A.

 

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**Item 8.B**                          Litigation and Other Legal Proceedings

** **

**Bioscentia Institut furMedizinische Diagnostik GmbH**

 

On June 10, 2009, theCompany advised that the nullification action filed in the German FederalPatent Court against one of the Company’s German patents (Patent number69029018.7) by Bioscientia Institut fuer Medizinische Diagnostik GmbH(“Bioscientia”) of Ingelheim, Germany had been withdrawn by Bioscientia, withthe approval of the Court.  Bioscientiahas no right of appeal.  German Patentnumber 69029018.7, which is owned by Genetic Technologies Limited, is part ofthe Company’s worldwide family of patents covering so-called “non-coding DNA”and forms the basis of the Company’s out-licensing program.

 

**Application for patent re-examination**

 

On May 26, 2009, the UnitedStates Patent and Trademark Office issued a first non-final Office Actionrelating to one of the Company’s patents covering its non-coding DNA analysistechnology.  Seven of the thirty sixclaims of United States Patent number 5,612,179 are the subject of there-examination.  This initial action ispreliminary and non-final and the Company has since filed a response to theaction.  As the re-examination has beeninitiated *ex parte,* there is no third party to theproceedings.  The Company is confidentthat the claims under examination will be upheld.

 

We do not express an opinionas to the probable outcome of any of the pending or threatened litigation ordisputes referred to above or to estimate the potential amount or range of anyloss, but do not believe any amounts to be material to the Company.

 

With the exception of these proceedings, we areunaware of any material proceedings involving us.

 

**Item 8.C**                          Dividends

** **

Until our businesses are profitable beyond ourexpected research and development needs, our Directors are unlikely to be ableto recommend that any dividend be paid to our shareholders.  Our Directors will not resolve a formaldividend policy until we generate profits. Our current intention is to reinvest our income in the continueddevelopment and expansion of our businesses.

 

**Item 8.D****                         ****SignificantChanges to Financial Information**

 

Ourconsolidated financial statements are set out on pages F1 to F43 of thisAnnual Report (refer to Item 18 “Financial Statements”).

 

**Adoptionof IFRS**

 

Wepreviously filed our Annual Report with the SEC in a Form 20-F whichincluded consolidated financial statements that were prepared in accordancewith U.S. GAAP.

 

Followingthe publication of SEC Release 33-8879, “*AcceptanceFrom Foreign Private Issuers of Financial Statements Prepared in AccordanceWith International Financial Reporting Standards Without Reconciliation to U.S.GAAP*,” we decided to file our consolidated financial statements inour Forms 20-F in accordance with International Financial Reporting Standardsas issued by the International Accounting Standards Board.

 

Anexplanation of the significant differences between IFRS and U.S. GAAP that arerelevant to our consolidated financial statements is presented below togetherwith tabular reconciliations for the financial years ended June 30, 2007and June 30, 2006 for consolidated net income and consolidatedshareholders’ equity previously reported in accordance with U.S. GAAP to theequivalent measures restated in accordance with IFRS.

 
| ** **                               | ** ** | ** ** | ** ** | **Years  ended June 30,** | ** ** |
|------------------------------------------|------------|------------|------------|--------------------------------|------------|
| ** **                               | ** ** | **Note**   | ** ** | **2007  AUD**                  | ** ** | **2006  AUD** | ** ** |
| **Income  statement**                    |       |       |       |                           |       |   |   |
| ** **                               |       |       |       |                           |       |   |   |
| **Net  income / (loss) under U.S. GAAP** |       |       |       | (1,788,506                     | )          | (5,378,359 | ) |
| IFRS adjustments:                        |       |       |       |                           |       |   |   |
| Amortization of patent  costs            |       | (a)        |       | (2,762,482                     | )          | (2,937,720 | ) |
| Stock compensation  expenses             |       | (b)        |       | 222,445                        |       | 385,306 |   |
| Other                                    |       | (d)        |       | —                         |       | 12,000 |   |
|                                     |       |       |       |                           |       |   |   |
| Net IFRS adjustments                     |       |       |       | (2,540,037                     | )          | (2,540,414 | ) |
|                                     |       |       |       |                           |       |   |   |
| **Net  income / (loss) under IFRS**      |       |       |       | (4,328,543                     | )          | (7,918,773 | ) |

 

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| ** **                                     | ** ** | ** ** | ** ** | **Years ended June 30,** | ** ** |
|------------------------------------------------|------------|------------|------------|-------------------------------|------------|
| ** **                                     | ** ** | **Note**   | ** ** | **2007  AUD**                 | ** ** | **2006  AUD** | ** ** |
| **Shareholders’  equity**                 | ** ** |       |       |                          |       |   |   |
| ** **                                     | ** ** |       |       |                          |       |   |   |
| **Shareholders’  equity under U.S. GAAP** | ** ** | ** ** |       | 16,737,828                    |       | 18,259,694 |   |
| IFRS adjustments:                              |       |       |       |                          |       |   |   |
| Patent costs                                   |       | (a)        |       | 8,550,553                     |       | 11,313,035 |   |
| Government loan                                |       | (c)        |       | 700,000                       |       | 700,000 |   |
| Other                                          |       | (d)        |       | (30,590                       | )          | (30,590 | ) |
|                                           |       |       |       |                          |       |   |   |
| **Shareholders’  equity under IFRS**      |       |       |       | 25,957,791                    |       | 30,242,139 |   |

 

----

(a)          **Capitalization of patent costs** - Under U.S.GAAP, the Company expensed patent costs as incurred whereas under IFRS theCompany had capitalized these patent costs and amortized them over their usefullife.

 

(b)         **Stock compensation expenses** - Certaindifferences between IFRS 2 and FAS 123(R) arise in relation to the phasingof stock compensation expenses over each accounting period.  The Company has recognized compensation expenseon a straight line basis in accordance with FAS 123(R) and on a gradedbasis under IFRS 2.  This differenceresulted in differences in expense during the respective year.

 

(c)          **Government loans** - Differencesexist between IAS 20 and ARB 43 related to the accounting for governmentloans.  Notwithstanding that the loan didnot need to be recognized under IFRS, under U.S. GAAP, the Company determinedit was still required to recognize the loan as a liability of the Company.

 

(d)         **Other** - immaterialdifferences.

 

**Cost ofsales**

 

EffectiveJuly 1, 2008, a standard costing system was implemented which allowed theGroup to calculate the direct labour and materials used in each of the genetictests offered.  As a result, this is thefirst time that cost of sales information has been separately identified in theincome statement.  Data has not beencollected in the prior period in a way that allows reclassification andtherefore the Group has determined it is not practicable to recreate theinformation.  Cost of sales informationhas not been provided in respect of Frozen Puppies Dot Com Pty. Ltd., however,as the business was acquired during the year. Such information will be provided as from July 1, 2009.

 

**Item 8.E****                           ****Significant Other Changes**

 

On March 8,2007, the Company announced that the Australian Securities and InvestmentsCommission (“ASIC”) had sought information from the Company regarding certainpast trading in its shares.  The Companyhas cooperated fully with ASIC.  TheCompany later clarified to the Market that, whilst the information being soughtby ASIC did not relate to any suspected wrongdoing by the Company itself, itdid relate to the activities of certain individuals who were Executives of theCompany at the time.  On December 12,2008, various charges were laid against the two former Executives under section1041A of the *Corporations Act 2001*.  The Company believes that a further hearingin respect of this matter, which is being prosecuted by the CommonwealthDirector of Public Prosecutions, will be held in February 2010.

 

On October 26, 2007, the Companyreceived a letter from the Australian Taxation Office (“ATO”) regarding a“Comprehensive review” of the Company. In the letter, the ATO requested the Company to provide it withextensive documents in relation to its taxation affairs.  The Company has complied fully with the ATO’srequest.  On October 30, 2008, theCompany received a further letter from the ATO advising that the ATO wasproceeding to audit.  As at the date ofthis Annual Report, the audit has been completed but no correspondence as tothe outcome of the audit has been received from the ATO.

 

On July 22, 2008, the Group acquired 100% ofthe issued capital of Frozen Puppies Dot Com Pty. Ltd. (“FPDC”), Australia’sforemost provider of canine reproductive services.  Under the terms of the Agreement between theCompany and FPDC, Genetic Technologies acquired 100% of the issued sharecapital of FPDC in return for the issue to the FPDC shareholders of 12,254,902ordinary shares in Genetic Technologies and the payment of $153,160 incash.  In other terms of the acquisition,Genetic Technologies advanced $346,840 in loan funds to FPDC to enableshareholder loans to be repaid and Employment Agreements were executed betweenthe Company and the five principals of FPDC. Voluntary Restriction Agreements were also executed with all former FPDCshareholders.  As a result, 80% of the12,254,902 Genetic Technologies’ shares that were issued as part of theacquisition are subject to voluntary escrow and will be released from escrow infour equal tranches after the expiration of 6, 12, 18 and 24 months from the date of issue, respectively.

 

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On August 27,2008, the Group sold its entire interest in the North Laverton Joint Venture toits partner, Regis Resources Limited (“Regis”), for $185,000 comprising$100,000 in cash and 500,000 fully paid ordinary shares in Regis which had afair value of $0.17 each on the date of issue. As part of the sale, the Group had returned to it a performance bondwhich had a face value of $68,917 as at June 30, 2008.  Further, the Group has been fully indemnifiedby Regis against any future rehabilitation liabilities which may arise from theexploration activities of the Joint Venture undertaken up until the date ofsale.  This indemnification enabled theGroup, during the year ended June 30, 2009, to fully reverse the provisionof $94,987 in respect of such liabilities which had been recorded in theGroup’s balance sheet as at June 30, 2008. As at June 30, 2009, the 500,000 fully paid ordinary shares inRegis were still on hand and had been revalued to their fair value of $255,000. Between October 30, 2009 and December 4,2009, the Company sold all of its shares in Regis generating net proceeds of$295,195, and a net profit of $210,195.

 

On November 19,2008, at the Company’s 2008 Annual General Meeting of shareholders, five of theCompany’s Directors (Non-Executive Chairman Mr. Henry Bosch AO, Mr. JohnDawkins AO, Dr. Leanne Rowe AM, Mr. David Carruthers and ChiefExecutive Officer Mr. Michael Ohanessian) were removed as Directors of theCompany.  On the same day, immediatelyfollowing the AGM, Mr. Huw Jones and Mr. Sid Hack were appointed asDirectors of the Company to fill casual vacancies.  Subsequent to Mr. Ohanessian’s removalas a Director, the Company paid him a termination benefit of $345,000 under theterms of his employment agreement.  Thetermination of the other Directors did not incur any form of terminationpayment.

 

On 12 December 2008,Dr. Mervyn Jacobson resigned as a Director of the Company.

 

On 4 May 2009,Dr. Paul MacLeman was appointed as Chief Executive Officer of the Company,replacing Mr. Ohanessian.

 

On October 5, 2009, Dr. Malcolm RoyBrandon was appointed as a Director of the Company.

 

On November 25, 2009, PricewaterhouseCooperswas appointed as the Group’s auditor in respect of financial periods ending on,or after, December 31, 2009.

 

On November 25, 2009, Mr. Tommaso Bonvinowas appointed as a Director of the Company.

 

Since June 30, 2009, there has not been anymatter or circumstance, other than as referred to elsewhere in this AnnualReport, Note 38 of the attached Financial Statements or the notes thereto, thathas arisen that has significantly affected, or may significantly affect ouroperations, results of those operations or the state of our affairs in futureyears.

 

**Item 9.****                                  ****The Offer and Listing**

 

**Item 9.A**                          Offer and Listing Details

** **

The Company’s Ordinary Shares were listed on theAustralian Securities Exchange (the “ASX”) in July 1987.  Set out below is the highest and lowestmarket quotations for the Ordinary Shares reported on the Daily Official Listof the ASX since that date.

 
| **Financial Year**       | ** ** | **Period Covered**                     | ** ** | **High**       | ** ** | **Low** | ** ** |
|--------------------------|------------|----------------------------------------|------------|----------------|------------|---------|------------|
| ** **               | ** ** | ** **                             | ** ** | **(in $0.00)** | ** ** |
| **Yearly  data** 2005    |       | Year ended  June 30, 2005         |       | 0.67           |       | 0.305   |       |
| 2006                     |       | Year ended  June 30, 2006         |       | 0.595          |       | 0.315   |       |
| 2007                     |       | Year ended  June 30, 2007         |       | 0.42           |       | 0.12    |       |
| 2008                     |       | Year ended  June 30, 2008         |       | 0.26           |       | 0.09    |       |
| 2009                     |       | Year ended  June 30, 2009         |       | 0.10           |       | 0.03    |       |
|                     |       |                                   |       |           |       |    |       |
| **Quarterly  data** 2008 |       | Quarter ended  September 30, 2007 |       | 0.185          |       | 0.13    |       |
|                     |       | Quarter ended  December 31, 2007  |       | 0.26           |       | 0.145   |       |
|                     |       | Quarter ended  March 31, 2008     |       | 0.175          |       | 0.10    |       |
|                     |       | Quarter ended  June 30, 2008      |       | 0.125          |       | 0.09    |       |
| 2009                     |       | Quarter ended  September 30, 2008 |       | 0.10           |       | 0.06    |       |
|                     |       | Quarter ended  December 31, 2008  |       | 0.084          |       | 0.036   |       |
|                     |       | Quarter ended  March 31, 2009     |       | 0.05           |       | 0.035   |       |
|                     |       | Quarter ended  June 30, 2009      |       | 0.071          |       | 0.04    |       |
|                     |       |                                   |       |           |       |    |       |
| **Monthly  data** 2009   |       | Month ended  June 30, 2009        |       | 0.071          |       | 0.04    |       |
|                     |       | Month ended  July 31, 2009        |       | 0.063          |       | 0.046   |       |
|                     |       | Month ended  August 31, 2009      |       | 0.063          |       | 0.051   |       |
|                     |       | Month ended  September 30, 2009   |       | 0.06           |       | 0.05    |       |
|                     |       | Month ended  October 31, 2009     |       | 0.057          |       | 0.048   |       |
|                     |       | Month ended  November 30, 2009    |       | 0.056          |       | 0.044   |       |

 

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As of the date of this Annual Report, we had374,644,801 Ordinary Shares on issue, without par value.  See Item 10B “Our Constitution” for adetailed description of the rights attaching to our shares and Item 12D“American Depositary Receipts” for a description of the rights attaching to theAmerican Depositary Shares.

 

The Company’s securities are also listed on NASDAQGlobal Market (under the ticker GENE) in the form of American DepositaryShares.  Each American Depositary Shareevidences thirty Ordinary Shares.  Sincelisting on the NASDAQ Global Market on September 2, 2005, the ADRs have tradedin a range from a low of USD0.35 to a high of USD13.85.  The most recent sale of the ADRs, on December 11,2009, occurred at a price of USD1.29.

 

Following the listing of the Company’s ADRs in September 2005,our Ordinary Shares are registered under Section 12 of the SecuritiesExchange Act of 1934 and we file an Annual Report with the Securities andExchange Commission on Form 20-F. As a foreign private issuer, we are not be subject to the proxy rules underSection 14 of the Securities Exchange Act of 1934, and our officers,Directors and principal stockholders are not subject to the insider short-swingprofit disclosure and recovery provisions of Section 16 of that Act.

 

Starting in January 14, 2002, the ADSs havetraded in the USA over-the-counter market under the symbol “GNTLY” and dealers’prices for the ADSs have been quoted in the “pink sheets” published by theNational Quotations Bureau, Inc. Commencing on September 2, 2005, our ADSs were listed on the NASDAQGlobal Market under the ticker “GENE”.

 

The Company has registered one class of AmericanDepositary Shares (ADSs) on Form F-6 pursuant to the U.S. Securities Act of1933, as amended.  One ADS representsthirty Ordinary Shares without par value. As of June 30, 2009, there were 328,979 ADSs outstanding.

 

The table below sets forth the high and low salesprices for the ADSs during the periods indicated:

 
| **Financial Year**       | ** ** | **Period Covered**                     | ** ** | **High**          | ** ** | **Low** | ** ** |
|--------------------------|------------|----------------------------------------|------------|-------------------|------------|---------|------------|
| ** **               | ** ** | ** **                             | ** ** | **(in USD 0.00)** | ** ** |
| **Yearly  data** 2005    |       | Year ended  June 30, 2005         |       | 13.85             |       | 8.00    |       |
| 2006                     |       | Year ended June 30,  2006         |       | 13.85             |       | 7.25    |       |
| 2007                     |       | Year ended  June 30, 2007         |       | 10.00             |       | 3.50    |       |
| 2008                     |       | Year ended  June 30, 2008         |       | 5.21              |       | 2.26    |       |
| 2009                     |       | Year ended  June 30, 2009         |       | 4.99              |       | 0.35    |       |
|                     |       |                                   |       |              |       |    |       |
| **Quarterly  data** 2008 |       | Quarter ended  September 30, 2007 |       | 4.29              |       | 3.55    |       |
|                     |       | Quarter ended December 31,  2007  |       | 5.21              |       | 3.55    |       |
|                     |       | Quarter ended  March 31, 2008     |       | 4.50              |       | 3.03    |       |
|                     |       | Quarter ended  June 30, 2008      |       | 3.39              |       | 2.26    |       |
| 2009                     |       | Quarter ended  September 30, 2008 |       | 2.67              |       | 1.45    |       |
|                     |       | Quarter ended  December 31, 2008  |       | 2.09              |       | 0.35    |       |
|                     |       | Quarter ended  March 31, 2009     |       | 3.60              |       | 0.80    |       |
|                     |       | Quarter ended  June 30, 2009      |       | 4.99              |       | 1.30    |       |
|                     |       |                                   |       |              |       |    |       |
| **Monthly  data** 2009   |       | Month ended  June 30, 2009        |       | 2.20              |       | 1.30    |       |
|                     |       | Month ended  July 31, 2009        |       | 1.99              |       | 1.25    |       |
|                     |       | Month ended  August 31, 2009      |       | 1.94              |       | 1.43    |       |
|                     |       | Month ended  September 30, 2009   |       | 1.85              |       | 1.40    |       |
|                     |       | Month ended  October 31, 2009     |       | 1.55              |       | 1.31    |       |
|                     |       | Month ended  November 30, 2009    |       | 1.46              |       | 1.30    |       |

** **

**Item 9.B**                          Plan of Distribution

** **

Not applicable.

 

**Item 9.C**                          Markets

** **

Effective September 2, 2005, our ADSs were listedon the NASDAQ Global Market under the ticker “GENE”.  Our Ordinary Shares are listed and trade onthe ASX under the code “GTG”.

 

**Item 9.D**                          Selling Shareholders

** **

Not applicable.

 

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**Item 9.E****                           ****Dilution**

 

Not applicable.

 

**Item 9.F**                            Expenses of the Issue

** **

Notapplicable.

 

**Item10.**                                    AdditionalInformation

** **

**Item 10.A**                   Share Capital

** **

As of June 30, 2009, we had a total of374,644,801 Ordinary Shares on issue. With the exception of 4,901,956 such Shares which were the subject of avoluntary escrow arrangement, all of these Ordinary Shares were listed on theAustralian Securities Exchange and were freely tradable.  As of the date of this Annual Report, we hada total of 374,644,801 Ordinary Shares on issue, of which a total of 4,901,956such shares which were the subject of a voluntary escrow arrangement.

 

Based on our review of shareholder records (basedsolely on the addresses), as of June 30, 2009 there were 49 U.S. residentshareholders of our Ordinary Shares holding 8,585,036 shares representing 2.3%of the total issued and outstanding Ordinary Shares.  Our Ordinary Shares do not have a parvalue.  These figures do not include anyOrdinary Shares which may held by U.S. residents in the form of AmericanDepositary Receipts (ADRs).

 

During the last five years, our capital has increased,in connection with acquisition transactions and the exercise of options.  In 2001, we issued 9,754,080 Ordinary Sharesto owners of shares of Cytomation Inc. resulting in a total of 257,793,804Ordinary Shares being on issue as of June 30, 2001.  On July 30, 2001, we acquired thebusiness of DNA-Id Labs of Perth, Western Australia, by payment ofconsideration that included 94,340 Ordinary Shares, with further considerationbeing paid on August 1, 2002, following fulfillment of performancewarranties.  On September 4, 2000,our shares were transferred from the mining board of the ASX to the industrialboard under the new symbol of “GTG”.

 

Between July 1, 2001 and June 30, 2003, weissued a total of 4,440,621 Ordinary Shares resulting from the exercise ofvendor options, the exercise of options granted under the Staff Share Plan, asmall placement for cash of 1,000,000 shares, two exchanges of our shares forshares in XY, Inc., and the issuance of shares in lieu of legal fees toour counsel, all of which resulted in 262,234,425 Ordinary Shares beingoutstanding as of June 30, 2003. Subsequently, on September 4, 2003, we completed a brokered privateplacement to professional Australian investors of 13,333,333 Ordinary Shares at$0.75 each, raising $10,000,000.  As partof the placement, we also issued 6,666,667 options to the subscribers to theplacement with an exercise price of $1.00 on or before September 30, 2005.

 

On June 15, 2004, we issued 16,666,667 OrdinaryShares to the C.Y. O’Connor ERADE Village Foundation, as consideration underour licensing agreement with that Foundation. During the year ended June 30, 2005, we issued a further 65,561,338Ordinary Shares resulting from the exercise of vendor options and a smallnumber of options granted under the Staff Share Plan.  During the year ended June 30, 2006, weissued a further 20,000 Ordinary Shares as consideration for the acquisition ofcertain intellectual property, all of which resulted in 362,389,899 OrdinaryShares being outstanding as of June 30, 2006.  There were no shares issued during the yearsended June 30, 2007 and June 30, 2008.

 

On July 22, 2008, we issued 12,254,902 OrdinaryShares to the five former owners of Frozen Puppies Dot Com Pty. Ltd. in partconsideration for the acquisition of that company by Genetic TechnologiesLimited (refer to the attached financial statements).  As a result, there is a total of 374,644,801Ordinary Shares on issue as of the date of this Annual Report.

 

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As at June 30, 2009 and 2008, the followingoutstanding unlisted options, together with their respective ASX codes andexpiry dates, were convertible into Ordinary Shares.  The exercise prices are quoted in Australiandollars.

 
| **Option description**                    | ** ** | **2009**  | ** ** | **Weighted ave.  exercise price** | ** ** | **2008**  | ** ** | **Weighted ave.  exercise price** | ** ** |
|-------------------------------------------|------------|-----------|------------|-----------------------------------|------------|-----------|------------|-----------------------------------|------------|
| GTGAA (expiring  September 6, 2010)  |       | 750,000   |       | $                                 | 0.48       |      | 750,000    |                              | $          | 0.48 |   |
| GTGAD (expiring  August 12, 2011)    |       | 350,000   |       | $                                 | 0.43       |      | 700,000    |                              | $          | 0.43 |   |
| GTGAE (expiring  August 12, 2011)    |       | 250,000   |       | $                                 | 0.53       |      | 250,000    |                              | $          | 0.53 |   |
| GTGAH (expiring  May 31, 2012)       |       | 150,000   |       | $                                 | 0.40       |      | 450,000    |                              | $          | 0.40 |   |
| GTGAI (expiring  June 30, 2013)      |       | —    |       | —                            |       | 1,000,000 |       | $                                 | 0.13       |   |
| GTGAK (expiring  June 11, 2009)      |       | —    |       | —                            |       | 200,000   |       | $                                 | 0.45       |   |
| GTGAQ (expiring  May 20, 2009)       |       | —    |       | —                            |       | 700,000   |       | $                                 | 0.44       |   |
| GTGAS (expiring  May 20, 2009)       |       | —    |       | —                            |       | 175,000   |       | $                                 | 0.38       |   |
| GTGAW (expiring  September 24, 2012) |       | —    |       | —                            |       | 3,650,602 |       | $                                 | 0.17       |   |
| GTGAY (expiring  October 23, 2012)   |       | 2,400,000 |       | $                                 | 0.22       |      | 2,800,000  |                              | $          | 0.22 |   |
| GTGAZ (expiring  February 27, 2010)  |       | 200,000   |       | $                                 | 0.56       |      | 200,000    |                              | $          | 0.56 |   |
| GTGAZ (expiring  February 27, 2010)  |       | 300,000   |       | $                                 | 0.49       |      | 300,000    |                              | $          | 0.49 |   |
| Balance at the end of the  financial year |       | 4,400,000 |       | $                                 | 0.34       |      | 11,175,602 |                              | $          | 0.27 |   |

** **

**Item 10.B**                   Our Constitution

** **

At the Annual General Meeting of the Companyheld on November 23, 2005, the shareholders resolved to replace theexisting Constitution with a revised version. A copy of the Constitution has been posted on the Company’s website: www.gtglabs.com.  The principal changes which have beenimplemented in the new Constitution may be summarized as follows:

 

·**                 **General changes — general changes areproposed to make the Constitution consistent with best practice, update legalmatters under the existing Constitution consistent with legislative andregulatory developments and to address certain content and language aspects.

 

·**                 **ASX Listing Rules — it provides thatthe Listing Rules prevail in the event of any inconsistency.

 

·**                 **Shares — it allows the Directors to issueshares subject to the Corporations Act and the Listing Rules.

 

·**                 **Proportionate takeover power — theexisting Constitution has a clause in it requiring shareholder approval to beobtained before any proportionate takeover is made.  However, that clause is ineffective becauseit needs to have been renewed at least every three years in accordance with therequirements of the Corporations Act. The new Constitution does not include this clause on the basis that itoffers no real benefit.

 

·**                 **Unmarketable parcels — the newConstitution permits the Company to sell holdings of less than a marketableparcel in accordance with the procedural and timing requirements of the ListingRules.  This only applies if ashareholder has an opportunity to opt out of any proposed sale arrangement anddoes not do so.

 

·**                 **Notice of shareholders’ meetings — thenew Constitution enables notice of shareholders’ meetings to be given byelectronic means.

 

·**                 **Changes to general meetings — the newConstitution enables the Directors to change the venue for, and postpone orcancel a general meeting if such meeting is unnecessary, in the interests ofshareholders, if the venue would be unreasonable or impractical, or for reasonsof efficiency.  This does not apply inthe event of a meeting requisitioned by shareholders.

 

·**                 **Quorum for shareholders’ meetings — aquorum of three shareholders represents a quorum for shareholders’ meetings,whether by way of being personally present, attorney, proxy or corporaterepresentative.

 

·**                 **Casting vote — the Chairman of ashareholders’ meeting does not have a casting vote.

 

·**                 **Number of Directors — it contemplatesthat the number of Directors need to be not less than three nor more than thenumber determined by the Directors which, until otherwise determined, is ten.

 

·**                 **Share qualification — a Director need nothold any shares in the Company in order to be a Director.

 

·**                 **Alternate directors — there are noprovisions entitling the Directors to appoint alternate directors, on the basisthat this is an outdated and undesirable approach.

 

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·**                 **Directors’ tenure of office — a Directormust retire from office or seek re-election by no later than the third AnnualGeneral Meeting following his or her appointment or re-election or three years,whichever is longer (other than the Managing Director).

 

·**                 **Vacation of office — the office of aDirector is automatically vacated if the Director is an Executive Directorunder an employment agreement and that agreement terminates, unless the Boardotherwise determines.

 

·**                 **Powers of Directors — the Directors havea general power to manage the Company’s business.

 

·**                 **Meetings of Directors — the Directors maymeet in person or by electronic means.

 

·**                 **Quorum for Directors’ meetings — thequorum for Directors’ meetings is three, unless otherwise determined.

 

·**                 **Casting vote — the Chairman has a castingvote at Directors’ meetings.

 

·**                 **Indemnity — the new Constitution containsan updated indemnity clause in favour of the current and former Directors,Secretaries indemnifying them from liability consistent with the CorporationsAct provisions and to the maximum extent permitted by law.

 

·**                 **Insurance — the Company must maintain andpay insurance premiums with respect to its current and former Directors,Secretaries and other officers to the extent permitted by law.

 

·**                 **Access — current and former Directors mayaccess the financial and other records of the Company for the purposes of legalproceedings involving the person.

 

**Item 10.C**                           Material Contracts

** **

Apart from the acquisition of Frozen Puppies Dot ComPty. Ltd. on July 22, 2008 (refer to the attached Financial Statements),there were no material contracts entered into during the two years precedingthe date of this Annual Report which were outside the ordinary course ofbusiness.  See also Item 4B “Our Licensesand Commercial Collaborations”.

 

**Item 10.D**                   Exchange Controls and Other Limitations AffectingSecurity Holders

** **

Under existing Australian legislation, the ReserveBank of Australia does not inhibit the import and export of funds, and,generally, no permission is required to be given to Genetic Technologies forthe movement of funds in and out of Australia. However, payments to or from (or relating to) Iraq, its agencies ornationals, the government or a public authority of Libya, or certain Libyanundertakings, the authorities in the Federal Republic of Yugoslavia (Serbia andMontenegro) or their agencies, the Taliban (also referred to as the IslamicEmirate of Afghanistan), or the National Union for the Total Independence ofAngola (also known as UNITA), its senior officials or the adult members oftheir immediate families, may**not be madewithout the specific approval of the Reserve Bank of Australia.

 

Accordingly, at the present time, remittances of anydividends, interest or other payment by Genetic Technologies to non-residentholders of Genetic Technologies’ securities in the US are not, subject to theabove, restricted by exchange controls or other limitations.

 

**TakeoversAct**

 

There are no limitations, either under the laws ofAustralia or under the Company’s Constitution, to the right of non-residents tohold or vote Genetic Technologies Ordinary Shares other than the CommonwealthForeign Acquisitions and Takeovers Act 1975 (the “Takeovers Act”).  The Takeovers Act may affect the right ofnon-Australian residents, including US residents, to hold Ordinary Shares butdoes not affect the right to vote, or any other rights associated with, anyOrdinary Shares held in compliance with its provisions.  Acquisitions of shares in Australiancompanies by foreign interests are subject to review and approval by theTreasurer of the Commonwealth of Australia under the Takeovers Act.  The Takeovers Act applies to any acquisitionof outstanding shares of an Australian company that exceeds, or results in aforeign person or persons controlling the voting power of more than a certainpercentage of those shares.  Thethresholds are 15% where the shares are acquired by a foreign person, or groupof associated foreign persons, or 40% in aggregate in the case of foreignpersons who are not associated.  Anyproposed acquisition that would result in an individual foreign person (withassociates) holding more than 15% must be notified to the Treasurer in advanceof the acquisition.  As of the date ofthis Annual Report, approximately 51.6% of the outstanding Ordinary Shares inthe Company were held by shareholders whose registered addresses were located outsideAustralia.  In addition to the TakeoversAct, there are statutory limitations in Australia on foreign ownership ofcertain businesses, such as banks and airlines, not relevant to the Company.  However, there are no other statutory orregulatory provisions of Australian law or Australian Securities Exchangerequirements that restrict foreign ownership or control of GeneticTechnologies.

 

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**Corporations Act 2001**

 

As applied to Genetic Technologies Limited, the *Corporations Act 2001* (the “*CorporationsAct 2001*”) prohibits any legal person (including a corporation) fromacquiring a relevant interest in Ordinary Shares if after the acquisition thatperson or any other person’s voting power in Genetic Technologies Limitedincreases from 20% or below to more than 20%, or from a starting point that isabove 20% and below 90%.

 

This prohibition is subject to a number of specificexceptions set out in section 611 of the *Corporations Act 2001*which must be strictly complied with to be applicable.

 

In general terms, a person is considered to have a“relevant interest” in a share in Genetic Technologies if that person is the holderof that share, has the power to exercise, or control the exercise of, a rightto vote attached to that share, or has the power to dispose of, or to controlthe exercise of a power to dispose of that share.

 

It does not matter how remote the relevant interest isor how it arises.  The concepts of“power” and “control” are given wide and extended meanings in this context inorder to deem certain persons to hold a relevant interest.  For example, each person who has voting powerabove 20% in a company or a managed investment scheme which in turn holdsshares in Genetic Technologies is deemed to have a relevant interest in thoseGenetic Technologies shares.  Certainsituations (set out in section 609 of the *Corporations Act 2001*)which would otherwise constitute the holding of a relevant interest areexcluded from the definition.

 

A person’s voting power in Genetic TechnologiesLimited is that percentage of the total votes attached to Ordinary Shares inwhich that person and its associates (as defined in the *CorporationsAct 2001*) holds a relevant interest.

 

**Item 10.E****                    ****Taxation**

 

Thissummary of material tax consequences is based on the tax laws of the United States(including the Internal Revenue Code of 1986, as amended, its legislativehistory, existing and proposed regulations thereunder, published rulings andcourt decisions) and on the Australian tax law and practice as in effect on the date hereof.  In addition, this summary is based on the incometax convention between the United States and Australia (the “Treaty”).  The foregoing laws and legal authorities aswell as the Treaty are subject to change (or changes in interpretation),possibly with retroactive effect. Finally, this summary is based in part upon the representations of our ADR Depositary and the assumptionthat each obligation in the Deposit Agreement and any related agreement will beperformed in accordance with its terms.

 

Thediscussion does not address any aspects of U.S. taxation other than federalincome taxation or any aspects of Australian taxation other than federal incometaxation, stamp duty and goods and services tax.  This discussion does not address all aspectsof U.S. or Australian federal tax considerations that may be important to particularinvestors in light of their individual investment circumstances or investorssubject to special tax regimes, like broker-dealers, insurancecompanies, banks or other financial institutions, tax-exempt organizations,regulated investment companies, real estate investment trusts or financialasset securitization investment trusts, persons who actually or constructivelyown 10% or more of our ADRs or Ordinary Shares, persons who hold ADRs orOrdinary Shares as part of a straddle, hedge, conversion or constructive saletransaction or other integrated transaction, persons who have electedmark-to-market accounting, U.S. holders whose functional currency is not theU.S. dollar, U.S. expatriates, investors liable for the alternative minimumtax, partnerships and other pass-through entities, or persons who acquiredtheir ADRs or Ordinary Shares through the exercise of options or similarderivative securities or otherwise as compensation.  Prospective investors are urged to consult their tax advisers regardingthe U.S. and Australian federal, state and local tax consequences and any othertax consequences of owning and disposing of ADRs and shares.

 

**Australian TaxConsequences**

 

In thissection, we discuss Australian tax considerations that apply to non-Australiantax residents who are residents of the United States with respect to theownership and disposal by the absolute beneficial owners of ADRs.  This summary does not discuss any foreign orstate tax considerations, other than stamp duty.

 

**Nature of ADRs forAustralian Taxation Purposes**

 

ADRs heldby a U.S. holder will be treated for Australian taxation purposes as being heldunder a “bare trust” for that holder. Consequently, the underlying Ordinary Shares will be regarded as ownedby the ADR holder for Australian income tax and capital gains tax purposes.  Dividends paid on the underlying OrdinaryShares will also be treated as dividends paid to the ADR holder, as the personbeneficially entitled to those dividends. Therefore, in the following analysis, we discuss the tax consequences tonon-Australian resident holders of Ordinary Shares which, for Australiantaxation purposes, will be the same as to U.S. holders of ADRs.

 

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**Taxation ofDividends**

 

Australiaoperates a dividend imputation system under which dividends may be declared tobe “franked” to the extent of tax paid on company profits.  Fully franked dividends are not subject todividend withholding tax.  Dividendspayable by our company to non-Australian resident stockholders will be subjectto dividend withholding tax, to the extent the dividends are unfranked.  Dividend withholding tax will be imposed at30%, unless a stockholder is a resident of a country with which Australia has adouble taxation agreement.  Under theprovisions of the Treaty, the Australian tax withheld on unfranked dividendspaid by us to which a resident of the United States is beneficially entitled isgenerally limited to 15% if the U.S. resident holds less than 10% of the votingrights of our company, unless the shares are effectively connected to apermanent establishment or fixed base in Australia through which thestockholder carries on business or provides independent personal services,respectively.  Where the U.S. residentholds 10% or more of the voting rights of our company, the withholding tax rateis reduced to 5%.

 

**Tax on Sales orother Dispositions of Shares - Capital Gains Tax**

 

Non-Australian resident stockholders will not besubject to Australian capital gains tax on the gain made on a sale or otherdisposal of our shares, unless they, together with their associates, hold 10%or more of our issued capital at any time during the five years before thedisposal of the shares.  If anon-Australian resident stockholder did, together with his or her associates,own a 10% or more interest, that stockholder would be subject to Australiancapital gains tax to the same extent as Australian resident stockholders.  The Australian Taxation Office maintains theview that the Double Taxation Convention between the United States and Australiadoes not limit Australian capital gains tax. Australian capital gains taxapplies to net capital gains charged at a taxpayer’s marginal tax rate but, forcertain stockholders, a discount of the capital gain may apply if the shareshave been held for 12 months or more. For individuals, this discount is 50%. For superannuation funds, the discount is 33%.  There is no discount for a company thatderives a capital gain.  Net capitalgains are calculated after deducting capital losses, which may only be offsetagainst such gains.

 

**Tax on Sales orother Dispositions of Shares - Stockholders Holding Shares on Revenue Account**

 

Somenon-Australian resident stockholders may hold shares on revenue rather than oncapital account, for example, share traders. These stockholders may have the gains made on the sale or other disposalof the shares included in their assessable income under the ordinary incomeprovisions of the income tax law, if the gains are sourced in Australia.  Non-Australian resident stockholdersassessable under these ordinary income provisions in respect of gains made onshares held on revenue account would be assessed for those gains at theAustralian tax rates for non-Australian residents, which start at a marginalrate of 29%.  Some relief from theAustralian income tax may be available to non-Australian resident stockholdersunder the Double Taxation Convention between the United States and Australia,for example, because the stockholder does not have a permanent establishment inAustralia.  To the extent an amount wouldbe included in a non-Australian resident stockholder’s assessable income underboth the capital gains tax provisions and the ordinary income provisions, thecapital gain amount would generally be reduced, so that the stockholder wouldnot be subject to double tax on any part of the income gain or capital gain.

 

**Dual Residency**

 

If astockholder were a resident of both Australia and the United States under thosecountries’ domestic taxation laws, that stockholder may be subject to tax as anAustralian resident.  If, however, thestockholder is determined to be a U.S. resident for the purposes of the DoubleTaxation Convention between the United States and Australia, the Australian taxwould be subject to limitation by the Double Taxation Convention.  Stockholders should obtain specialisttaxation advice in these circumstances.

 

**Stamp Duty**

 

Anytransfer of shares through trading on the Australian Securities Exchange,whether by Australian residents or foreign residents, is not subject to stampduty within Australia.

 

**Australian DeathDuty**

 

Australiadoes not have estate or death duties.  Nocapital gains tax liability is realized upon the inheritance of a deceasedperson’s shares.  The subsequent disposalof inherited shares by beneficiaries, may, however, give rise to a capitalgains tax liability.

 

**Goods and ServicesTax**

 

The issueor transfer of shares will not incur Australian goods and services tax and doesnot require a stockholder to register for Australian goods and services taxpurposes.

 

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**United States Federal Income Taxation**

 

As used below, a “U.S. holder” is abeneficial owner of an ADR that is, for U.S. federal income tax purposes, (i) acitizen or resident alien individual of the United States, (ii) acorporation (or an entity treated as a corporation) created or organized underthe law of the United States, any State thereof or the District of Columbia, (iii) an estate theincome of which is subject to U.S. federal income tax without regard to itssource or (iv) a trust if (1) a court within the United Statesis able to exercise primary supervision over the administration of the trust,and one or more United States persons have the authority to control allsubstantial decisions of the trust, or (2) the trust has a valid electionin effect under applicable U.S. Treasury Regulations to be treated as a UnitedStates person.  For purposes of thisdiscussion, a “non-U.S. holder” is a beneficial owner of an ADR that is (i) anonresident alien individual, (ii) a corporation (or an entity treated asa corporation) created or organized in or under the law of a country other thanthe United States or a political subdivision thereof or (iii) an estate ortrust that is not a U.S. Holder.  If apartnership (including for this purpose any entity treated as a partnership forU.S. federal tax purposes) is a beneficial owner of an ADR, the U.S. federaltax treatment of a partner in the partnership generally will depend on thestatus of the partner and the activities of the partnership.  A holder of an ADR that is a partnership andpartners in that partnership should consult their own tax advisers regardingthe U.S. federal income tax consequences of holding and disposing of ADRs.  Wehave not sought a ruling from the Internal Revenue Service (“IRS”) or anopinion of counsel as to any U.S. federal income tax consequence describedherein.  The IRS may disagree with thedescription herein, and its determination may be upheld by a court.

 

**GIVEN THE COMPLEXITY OF THE TAXLAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR MAY BEAFFECTED BY MATTERS NOT DISCUSSED HEREIN, PROSPECTIVE INVESTORS ARE URGED TOCONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OFTHE ACQUISITION, OWNERSHIP AND DISPOSITION OF ADRs, INCLUDING THE APPLICABILITYAND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAXLAWS.**

 

**TO ENSURE COMPLIANCE WITHREQUIREMENTS IMPOSED BY THE IRS UNDER TREASURY CIRCULAR 230, WE INFORM YOUTHAT (1) ANY DISCUSSION OF U.S. FEDERAL INCOME TAX ISSUES CONTAINED HEREIN(INCLUDING ANY ATTACHMENTS), UNLESS OTHERWISE SPECIFICALLY STATED, WAS NOTINTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDINGPENALTIES UNDER THE UNITED STATES INTERNAL REVENUE CODE, AND (2) EACH U.S.HOLDER SHOULD SEEK ADVICE BASED UPON THEIR PARTICULAR CIRCUMSTANCES FROM ANINDEPENDENT TAX ADVISOR.**

 

**Natureof ADRs for U.S. Federal Income Tax Purposes**

 

In general, for U.S.federal income tax purposes, a holder of an ADR will be treated as the owner ofthe underlying shares.  Accordingly,except as specifically noted below, the tax consequences discussed below withrespect to ADRs will be the same as for shares in the Company, and exchanges ofshares for ADRs, and ADRs for shares, generally will not be subject to U.S.federal income tax.

 

**Taxationof Dividends**

 

**U.S. holders.**  In general, subject to the passive foreigninvestment company rules discussed below, a distribution on an ADR willconstitute a dividend for U.S. federal income tax purposes to the extent thatit is made from our current or accumulated earnings and profits as determinedunder U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings andprofits, it will be treated as a non-taxable reduction of basis to the extentof the U.S. holder’s tax basis in the ADR on which it is paid, and to theextent it exceeds that basis it will be treated as capital gain.  For purposes of this discussion, the term “dividend”means a distribution that constitutes a dividend for U.S. federal income taxpurposes.

 

The gross amount of anydividend on an ADR (which will include the amount of any Australian taxeswithheld) generally will be subject to U.S. federal income tax as foreignsource dividend income, and will not be eligible for the corporate dividendsreceived deduction.  The amount of adividend paid in Australian dollars will be its value in U.S. dollars based onthe prevailing spot market exchange rate in effect on the day the U.S. holderreceives the dividend or, in the case of a dividend received in respect of anADR, on the date the Depositary receives it, whether or not the dividend isconverted into U.S. dollars.  A U.S.holder will have a tax basis in any distributed Australian dollars equal to itsU.S. dollar amount on the date of receipt, and any gain or loss realized on asubsequent conversion or other disposition of Australian dollars generally willbe treated as U.S. source ordinary income or loss.  If dividends paid in Australian dollars areconverted into U.S. dollars on the date they are received by a U.S. holder, theU.S. holder generally should not be required to recognize foreign currency gainor loss in respect of the dividend income.

 

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Subject to certainexceptions for short-term and hedged positions, a dividend that a non-corporateholder receives on an ADR in a taxable year beginning before January 1,2011 will be subject to a maximum tax rate of 15% if the dividend is a “qualifieddividend.”  A dividend on an ADR will bea qualified dividend if (i) either (a) the ADRs are readily tradableon an established market in the United States or (b) we are eligible forthe benefits of a comprehensive income tax treaty with the United States thatthe Secretary of the Treasury determines is satisfactory for purposes of these rules andthat includes an exchange of information program, and (ii) we were not, inthe year prior to the year the dividend was paid, and are not, in the year thedividend is paid, a passive foreign investment company (“PFIC”).  The ADRs are listed on the Nasdaq GlobalMarket, which should qualify them as readily tradable on an establishedsecurities market in the United States. In any event, the Treaty satisfies the requirements of clause (i)(b),and we are a resident of Australia entitled to the benefits of the Treaty.  Based on our audited financial statements andrelevant market and shareholder data, we believe we were not a PFIC for U.S.federal income tax purposes for our taxable years ended June 30, 2008 and June 30,2009, respectively, but we may be classified as a PFIC in the current taxableyear.  Given that the determination ofPFIC status involves the application of complex tax rules, and that it is basedon the nature of our income and assets from time to time, no assurances can beprovided that we will not be considered a PFIC for the current (or any past orfuture) taxable year.  In addition,as described in the section below entitled “Passive Foreign Investment CompanyRules,” if we were a PFIC in a year while a U.S. holder held an ADR, and if theU.S. holder has not made a qualified electing fund election effective for thefirst year the U.S. holder held the ADR, the ordinary share underlying the ADRremains an interest in a PFIC for all future years or until such an election ismade. The IRS takes the position that such rule will apply for purposes ofdetermining whether an ADR is an interest in a PFIC in the year a dividend ispaid or in the prior year, even if we do not satisfy the tests to be a PFIC ineither of those years.  Even if dividends onthe ADRs would otherwise be eligible for qualified dividend treatment, in orderto qualify for the reduced qualified dividend tax rates, a non-corporate holdermust hold the ordinary share on which a dividend is paid for more than 60 daysduring the 120-day period beginning 60 days before the ex-dividend date,disregarding for this purpose any period during which the non-corporate holderhas an option to sell, is under a contractual obligation to sell or has made(and not closed) a short sale of substantially identical stock or securities,is the grantor of an option to buy substantially identical stock or securitiesor, pursuant to Treasury regulations, has diminished their risk of loss byholding one or more other positions with respect to substantially similar orrelated property.  In addition, toqualify for the reduced qualified dividend tax rates, the non-corporate holdermust not be obligated to make related payments with respect to positions insubstantially similar or related property. Payments in lieu of dividends from short sales or other similartransactions will not qualify for the reduced qualified dividend taxrates.  A non-corporate holder thatreceives an extraordinary dividend eligible for the reduced qualified dividendrates must treat any loss on the sale of the stock as a long-term capital lossto the extent of the dividend.  Forpurposes of determining the amount of a non-corporate holder’s deductibleinvestment interest expense, a dividend is treated as investment income only ifthe non-corporate holder elects to treat the dividend as not eligible for thereduced qualified dividend tax rates. Special limitations on foreign tax credits with respect to dividendssubject to the reduced qualified dividend tax rates apply to reflect the reducedrates of tax.

 

The U.S. Treasury hasannounced its intention to promulgate rules pursuant to whichnon-corporate holders of stock of non-U.S. corporations, and intermediariesthrough whom the stock is held, will be permitted to rely on certificationsfrom issuers to establish that dividends are treated as qualifieddividends.  Because those procedures havenot yet been issued, it is not clear whether we will be able to comply withthem.

 

Non-corporate holders ofordinary shares are urged to consult their own tax advisers regarding theavailability of the reduced qualified dividend tax rates with respect todividends received on the ADRs in the light of their own particularcircumstances.

 

Any Australian withholdingtax imposed on dividends received with respect to the ADRs will be treated as aforeign income tax eligible for credit against a U.S. holder’s U.S. federalincome tax liability, subject to generally applicable limitations under U.S.federal income tax law.  For purposes ofcomputing those limitations separately under current law for specificcategories of income, a dividend generally will constitute foreign source “passiveincome” or, in the case of certain holders, “financial services income” forpurposes of taxable years beginning before January 1, 2007.  For taxable years beginning after December 31,2006, “passive income” generally will be treated as “passive category income,”and “financial services income” generally will be treated as “general categoryincome.”  A U.S. holder will be denied aforeign tax credit with respect to Australian income tax withheld fromdividends received with respect to the ADRs to the extent the U.S. holder hasnot held the ADRs for at least 16 days of the 30-day period beginning on thedate which is 15 days before the ex-dividend date or to the extent the U.S.holder is under an obligation to make related payments with respect tosubstantially similar or related property. Any days during which a U.S. holder has substantially diminished itsrisk of loss on the ADRs are not counted toward meeting the 16-day holdingperiod required by the statute. The rules relating to the determination ofthe foreign tax credit are complex, and U.S. holders are urged to consult withtheir own tax advisers to determine whether and to what extent they will beentitled to foreign tax credits as well as with respect to the determination ofthe foreign tax credit limitation (including changes in the rules fortaxable years beginning after December 31, 2006).  Alternatively, any Australian withholding taxmay be taken as a deduction against taxable income, provided the U.S. holdertakes a deduction and not a credit for all foreign income taxes paid or accruedin the same taxable year.  In general, specialrules will apply to the calculation of foreign tax credits in respect ofdividend income that is subject to preferential rates of U.S. federal incometax.

 

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**Non-U.S. holders****.**  A dividend paid to a non-U.S. holder of anADR will not be subject to U.S. federal income tax unless the dividend iseffectively connected with the conduct of trade or business by the non-U.S.holder within the United States (and is attributable to a permanentestablishment or fixed base the non-U.S. holder maintains in the United Statesif an applicable income tax treaty so requires as a condition for the non-U.S.holder to be subject to U.S. taxation on a net income basis on income from theADR).  A non-U.S. holder generally willbe subject to tax on an effectively connected dividend in the same manner as aU.S. holder.  A corporate non-U.S. holderunder certain circumstances may also be subject to an additional “branch profitstax,” the rate of which may be reduced pursuant to an applicable income taxtreaty.

 

**Taxation of Capital Gains**

 

**U.S. holders.**  Subject to the passive foreign investmentcompany rules discussed below, on a sale or other taxable disposition ofan ADR, a U.S. holder will recognize capital gain or loss in an amount equal tothe difference between the U.S. holder’s adjusted basis in the ADR and theamount realized on the sale or other disposition, each determined in U.S.dollars.  Such capital gain or loss willbe long-term capital gain or loss if at the time of the sale or other taxabledisposition the ADR has been held for more than one year.  In general, any adjusted net capital gain ofan individual in a taxable year beginning before January 1, 2011 is subjectto a maximum tax rate of 15%.  In lateryears, the maximum tax rate on the net capital gain of an individual will be20%.  Capital gains recognized bycorporate U.S. holders generally are subject to U.S. federal income tax at thesame rate as ordinary income.  Thedeductibility of capital losses is subject to limitations.

 

Any gain a U.S. holderrecognizes generally will be U.S. source income for U.S. foreign tax creditpurposes, and, subject to certain exceptions, any loss will generally be a U.S.source loss.  If an Australian tax ispaid on a sale or other disposition of an ADR, the amount realized will includethe gross amount of the proceeds of that sale or disposition before deductionof the Australian tax.  The generallyapplicable limitations under U.S. federal income tax law on crediting foreignincome taxes may preclude a U.S. holder from obtaining a foreign tax credit forany Australian tax paid on a sale or other disposition of an ADR.  The rules relating to the determinationof the foreign tax credit are complex, and U.S. holders are urged to consultwith their own tax advisers regarding the application of such rules.  Alternatively, any Australian tax paid on thesale or other disposition of an ADR may be taken as a deduction against taxableincome, provided the U.S. holder takes a deduction and not a credit for allforeign income taxes paid or accrued in the same taxable year.

 

**Non-U.S. holders****.**  A non-U.S. holder will not be subject to U.S. federal income tax on gainrecognized on a sale or other disposition of an ADR unless (i) the gain iseffectively connected with the conduct of trade or business by the non-U.S.holder within the United States (and is attributable to a permanentestablishment or fixed base the non-U.S. holder maintains in the United Statesif an applicable income tax treaty so requires as a condition for the non-U.S.holder to be subject to U.S. taxation on a net income basis on income from theADR), or (ii) in the case of a non-U.S. holder who is an individual, theholder is present in the United States for 183 or more days in the taxable yearof the sale or other disposition and certain other conditions apply.  Any effectively connected gain of a corporatenon-U.S. holder may also be subject under certain circumstances to anadditional “branch profits tax,” the rate of which may be reduced pursuant toan applicable income tax treaty.

 

**Passive Foreign Investment Company Rules**

 

A special set of U.S.federal income tax rules applies to a foreign corporation that is a PFICfor U.S. federal income tax purposes.  Asnoted above, based on our auditedfinancial statements and relevant market and shareholder data, we believe thatwe were not a PFIC for U.S. federal income tax purposes for our taxable yearsended June 30, 2008 and June 30, 2009, respectively, but we may beclassified as a PFIC in the current taxable year.  In addition, given that the determination ofPFIC status involves the application of complex tax rules, and that it is basedon the nature of our income and assets from time to time, no assurances can beprovided that we will not be considered a PFIC for any past or future taxableyears.

 

In general, a foreigncorporation is a PFIC if at least 75% of its gross income for the taxable yearis passive income or if at least 50% of its assets for the taxable year producepassive income or are held for the production of passive income.  In general, passive income for this purposemeans, with certain designated exceptions, dividends, interest, rents,royalties (other than certain rents and royalties derived in the active conductof trade or business), annuities, net gains from dispositions of certainassets, net foreign currency gains, income equivalent to interest, income fromnotional principal contracts and payments in lieu of dividends.  The determination of whether a foreigncorporation is a PFIC is a factual determination made annually and is thereforesubject to change.  Subject to exceptionspursuant to certain elections that generally require the payment of tax, once stockin a foreign corporation is stock in a PFIC in the hands of a particularshareholder that is a United States person, it remains stock in a PFIC in thehands of that shareholder.

 

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If we are treated as aPFIC, contrary to the tax consequences described in “U.S. Federal Income TaxConsiderations—Taxation of Dividends” and “U.S. Federal Income TaxConsiderations—Taxation of Capital Gains” above, a U.S. holder that does notmake an election described in the succeeding two paragraphs would be subject tospecial rules with respect to (i) any gain realized on a sale orother disposition of an ADR (for purposes of these rules, a disposition of anADR includes many transactions on which gain or loss is not realized undergeneral U.S. federal income tax rules) and (ii) any “excess distribution”by the Company to the U.S. holder (generally, any distribution during a taxableyear in which distributions to the U.S. holder on the ADR exceed 125% of theaverage annual taxable distributions (whether actual or constructive andwhether or not out of earnings and profits) the U.S. holder received on the ADRduring the preceding three taxable years or, if shorter, the U.S. holder’sholding period for the ADR).  Under thoserules, (i) the gain or excess distribution would be allocated ratably overthe U.S. holder’s holding period for the ADR, (ii) the amount allocated tothe taxable year in which the gain or excess distribution is realized would betaxable as ordinary income in its entirety and not as capital gain, would beineligible for the reduced qualified dividend rates, and could not be offset byany deductions or losses, and (iii) the amount allocated to each prioryear, with certain exceptions, would be subject to tax at the highest tax ratein effect for that year, and the interest charge generally applicable tounderpayments of tax would be imposed in respect of the tax attributable toeach of those years.  A U.S. holder whoowns an ADR during any year we are a PFIC may have to file IRS Form 8621.

 

The special PFIC rules describedabove will not apply to a U.S. holder if the U.S. holder makes a timelyelection, which remains in effect, to treat the Company as a “qualifiedelecting fund” (“QEF”) in the first taxable year in which the U.S. holder ownsan ADR and the Company is a PFIC and if the Company complies with certainreporting requirements.  Instead, ashareholder of a QEF generally is currently taxable on a pro rata share of theCompany’s ordinary earnings and net capital gain as ordinary income andlong-term capital gain, respectively. Neither that ordinary income nor any actual dividend from the Companywould qualify for the 15% maximum tax rate on dividends described above if theCompany is a PFIC in the taxable year the ordinary income is realized or thedividend is paid or in the preceding taxable year.  We have not yet determined whether, if we area PFIC, we would make the computations necessary to supply U.S. holders withthe information needed to report income and gain pursuant to a QEFelection.  It is, therefore, possiblethat U.S. holders would not be able to make or retain that election in any yearwe are a PFIC.  Although a QEF electiongenerally cannot be revoked, if a U.S. holder made a timely QEF election forthe first taxable year it owned an ADR and the Company is a PFIC (or is treatedas having done so pursuant to any of certain elections), the QEF election willnot apply during any later taxable year in which the Company does not satisfythe tests to be a PFIC.  If a QEFelection is not made in that first taxable year, an election in a later yeargenerally will require the payment of tax and interest.

 

In lieu of a QEF election,a U.S. holder of stock in a PFIC that is considered marketable stock couldelect to mark the stock to market annually, recognizing as ordinary income orloss each year an amount equal to the difference as of the close of the taxableyear between the fair market value of the stock and the U.S. holder’s adjustedbasis in the stock.  Losses would beallowed only to the extent of net mark-to-market gain previously included inincome by the U.S. holder under the election for prior taxable years.  A U.S. holder’s adjusted basis in the ADRswill be adjusted to reflect the amounts included or deducted with respect tothe mark-to-market election.  If themark-to-market election were made, the rules set forth in the secondpreceding paragraph would not apply for periods covered by the election.  A mark-to-market election will not applyduring any later taxable year in which the Company does not satisfy the teststo be a PFIC.  In general, the ADRs willbe marketable stock if the ADRs are traded, other than in *de minimis* quantities, on at least 15 daysduring each calendar quarter on a national securities exchange that isregistered with the SEC or on a designated national market system or on anyexchange or market that the Treasury Department determines to have rules sufficientto ensure that the market price accurately represents the fair market value ofthe stock**.**  Under current law, the mark-to-marketelection may be available to U.S. holders of ADRs because the ADRs are listedon the Nasdaq Global Market, which constitutes a qualified exchange, althoughthere can be no assurance that the ADRs will be “regularly traded” for purposesof the mark-to-market election.

 

**Given the complexities of the PFIC rules andtheir potentially adverse tax consequences, U.S. holders of ADRs are urged toconsult their own tax advisers about the PFIC rules, including the consequencesto them of making a QEF election or a mark-to-market election with respect tothe ordinary shares in the event that the Company is classified as a PFIC forany taxable year**.

 

**Information Reporting and Backup Withholding**

 

Dividends paid on, and proceeds from the sale or other disposition of, an ADR to a U.S.holder generally may be subject to information reporting requirements and maybe subject to backup withholding at the rate of 28% unless the U.S. holderprovides an accurate taxpayer identificationnumber or otherwise establishes an exemption. The amount of any backup withholding collected from a payment to a U.S.holder will be allowed as a credit against the U.S. holder’s U.S. federalincome tax liability and may entitle the U.S. holder to a refund, providedcertain required information is furnished to the Internal Revenue Service.  A non-U.S. holder generally will be exemptfrom these information reporting requirements and backup withholding tax butmay be required to comply with certain certification and identificationprocedures in order to establish its eligibility for exemption.

 

THE DISCUSSION ABOVE IS NOT INTENDED TOCONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO ANINVESTMENT IN ADRs.  HOLDERS ANDPOTENTIAL HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS CONCERNING THETAX CONSEQUENCES RELEVANT TO THEM IN THEIR PARTICULAR SITUATION.

 

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**Item 10.F****                    ****Dividends andPaying Agents**

 

No dividends have been paid by the Company orrecommended by the directors since the end of the previous financial year.

 

**Item 10.G**                   Statement by Experts

** **

Not applicable.

 

**Item 10.H****                  ****Documents on Display**

 

The documents concerning the Company which arereferred to in this Annual Report may be inspected at the offices of theCompany at 60-66 Hanover Street, Fitzroy, Victoria 3065 Australia.  Following our listing on NASDAQ Global Marketin September 2005, we are now subject to the information requirements ofthe U.S. Securities Exchange Act of 1934, as amended, and, in accordancetherewith, we are required to file reports, including annual reports on Form 20-F,and other information with the U.S. Securities and Exchange Commission inelectronic form.  These materials,including this Annual Report and the exhibits thereto, may be inspected andcopied at the Commission’s public reference room in Washington, D.C.  Please call the Commission at 1-800-SEC-0330for further information regarding the public reference rooms.  As a foreign private issuer, we are requiredto make filings with the Commission by electronic means.  Any filings we make electronically will beavailable to the public over the Internet at the Commission’s website athttp://www.sec.gov.  We also maintain awebsite at www.gtglabs.com.  Informationon our website and websites linked to it do not constitute a part of thisAnnual Report.

 

**Item 10.I**                        Subsidiary Information

** **

The following is a list of the Company’s subsidiariesas of the date of this Annual Report:

 
| **Name of subsidiary**                      | ** ** | **Place of incorporation**   | ** ** | **Interest held** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|-------------------|------------|
| GeneType AG                                 |       | Zug, Switzerland             |       | 100               | %          |
| GeneType Corporation                        |       | California, U.S.A.           |       | 100               | %          |
| GeneType Pty. Ltd.                          |       | Victoria, Australia          |       | 100               | %          |
| Genetic Technologies  Corporation Pty. Ltd. |       | New South Wales, Australia   |       | 100               | %          |
| Frozen Puppies Dot Com  Pty. Ltd.           |       | New South Wales, Australia   |       | 100               | %          |
| RareCellect Pty. Ltd.                       |       | New South Wales, Australia   |       | 100               | %          |
| Genetic Technologies  (Beijing) Limited     |       | Beijing Municipality,  China |       | 100               | %          |
| Gtech International  Resources Limited      |       | Yukon Territory, Canada      |       | 75.8              | %          |
| ImmunAid Pty. Ltd.                          |       | Victoria, Australia          |       | 70.5              | %          |
| AgGenomics Pty. Ltd.                        |       | Victoria, Australia          |       | 50.1              | %          |

** **

**Item11.**                            QuantitativeAnd Qualitative Disclosures About Market Risk

** **

Genetic Technologies Limited has exposure to changesin foreign currency exchange rates and interest rates.  Refer to Note 36 of the attached financialstatements for further analysis surrounding market risk.

 

We invest excess cash in interest-bearing,investment-grade securities and time deposits in high-qualityinstitutions.  We do not utilizederivative financial instruments, derivative commodity instruments, positionsor transactions in any material matter. Accordingly, we believe that, while the investment-grade securities andtime-deposits we hold are subject to changes in financial standing of theissuer of such securities, the principal is not subject to any material risksarising from changes in interest rates, foreign currency exchange rates,commodity prices, equity prices or other market changes that affect market risksensitive instruments.  Since we investin locations outside Australia, we are subject to certain cross-border risks.

 

We operate in Australia, and we will be subject tocertain foreign currency exposure. Historically, currency translation gains and losses have been reflectedas adjustments to stockholders’ equity, while transaction gains and losses havebeen reflected as components of income and loss.  Transaction gains and losses could bematerial depending upon changes in the exchange rates between the Australian dollarand the U.S. dollar.  A significantamount of our license revenue has historically been denominated in U.S.dollars.

 

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Credit risk represents the accounting loss that wouldbe recognized at the reporting date if counterparties failed completely toperform as contracted.  Concentrations ofcredit risk (whether on or off-balance sheet) that arise from financialinstruments exist for groups of customers or counterparties when they havesimilar economic characteristics that would cause their ability to meetcontractual obligations to be similarly affected by changes in economic orother conditions.  Financial instrumentson the balance sheet that potentially subject the Company to concentration ofcredit risk consist principally of cash and cash equivalents and trade accountsreceivable.  The Company places its cashand cash equivalents with quality institutions holding superior credit ratingsin order to limit the degree of credit exposure.  The Company has established guidelinesrelative to credit ratings, diversification and maturities that seek tomaintain safety and liquidity.  TheCompany does not require collateral to provide credit.  In addition, the majority of the Company’slicensing customers are large, reputable organizations, which also reduces therisk of credit exposure.  The Company hasnot entered into any transactions that would qualify as a financial derivativeinstrument.

 

At June 30, 2009, two customersaccounted for 30% ($572,127) and 24% ($451,000), respectively, of tradeaccounts receivable, which related to the research segment in Australia.  At June 30, 2008, one customer accountedfor 31% ($495,000) of trade accounts receivable, which related to the testingsegment in Australia.

 

At June 30, 2009, two suppliersaccounted for 20% ($331,662) and 15% ($243,540), respectively, of tradeaccounts payable, both of which related to the research segment inAustralia.  At June 30, 2008, two suppliersaccounted for 21% ($267,300) and 18% ($227,700), respectively, of tradeaccounts payable, both of which related to the research segment in Australia.

 

In 2009, therewere no customers from whom the Group generated revenues representing more than10% of the total consolidated revenue from operations.  In 2008, two customers accounted for 25%($3,952,569) and 14% ($2,164,009), respectively, of the Company’s totalrevenue.  All revenues attributable tothese customers relate to the licensing segment in Australia.

 

Export sales, mainly to the USA, were$5,918,421, $10,060,541 and $10,476,321 in 2009, 2008 and 2007, respectively.

 

**Item12.**                            Description OfSecurities Other Than Equity Securities

** **

**Item 12.A**                   Debt Securities

** **

Not applicable.

 

**Item 12.B**                   Warrants and Rights

** **

Not applicable.

 

**Item 12.C**                   Other Securities

** **

Not applicable

 

**Item 12.D**                   American Depositary Shares

** **

Not applicable.

 

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**PART II**

 

**Item13.**                            Defaults,Dividend Arrearages and Delinquencies

** **

Not applicable.

 

**Item14.**                            MaterialModifications to The Rights Of Security Holders and Use Of Proceeds

** **

Not applicable.

 

**Item 15.****                           ****Controls and Procedures**

 

**Item 15A.****                  ****Disclosure controls and procedures**

 

We maintain disclosure controls and procedures assuch term is defined in Rules 13 a - 15 (e) and 15 d - 15 (e) underthe Securities Exchange Act of 1934 (the “Exchange Act”), as amended, that aredesigned to ensure that information required to be disclosed in the reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in the rules andforms of the Securities and Exchange Commission.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed in our reports filed or submitted under the SecuritiesExchange Act of 1934 is accumulated and communicated to management, includingour Chief Executive Officer and ChiefFinancial Officer, asappropriate, to allow timely decisions regarding required disclosure.  Disclosure controls and procedures, no matterhow well designed and operated, can only provide reasonable assurance ofachieving the desired control objectives.

 

OurManagement has carriedout an evaluation, under the supervision and with the participation ofour various Chief Executive Officers and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2009. Based on that evaluation, including the material weaknesses noted belowin Item 15B, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedureswere ineffective as of June 30,2009.

 

Our Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosurecontrols and procedures or our internal control over financial reporting willprovide absolute assurance that all appropriate information will, in fact, becommunicated to management to allow timely decisions to be made or prevent allerror and fraud.  A control system, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met.  Additionally, the design of a control systemmust reflect the fact that there are resource constraints, and the benefit ofcontrols must be considered relative to their costs.  Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the company have beendetected or that our control system will operate effectively under allcircumstances.  Moreover, the design ofany system of controls is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions.

 

**Item 15****B.****                  ****Management’s annualreport on internal control over financial reporting**

 

Our Management is responsible for establishing andmaintaining adequate internal control over financial reporting.  The Securities Exchange Act of 1934 definesinternal control over financial reporting in Rule 13a-15(f) and15d-15(f) as a process designed by, or under the supervision of, theCompany’s principal executive and principal financial officers and effected bythe Company’s Board of directors, Management and other personnel, to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles and includes those policies andprocedures that:

 

·**                 **Pertain to the maintenance of recordsthat in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Company;

 

·**                 **Provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordancewith authorizations of Management and directors of the Company; and

 

·**                 **Provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition, use or dispositionof the company’s assets that could have a material effect on the consolidatedfinancial statements.

 

A material weakness is a deficiency, or a combinationof deficiencies, in internal control over financial reporting such that thereis a reasonable possibility that a material misstatement of the annualfinancial statements will not be prevented or detected on a timely basis.

 

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Our Management, under the supervision and with theparticipation of our Chief ExecutiveOfficer and Chief Financial Officer, have assessed the effectiveness of the Company’sinternal control over financial reporting as of June 30, 2009.  In making this assessment, Management usedthe criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission, or COSO, in Internal Control-Integrated Framework.  As a result of that assessment, Managementidentified the following control deficiencies as of June 30, 2009 thatconstituted material weaknesses:

 

·                  *Deficiencies in the financial statement close process*. We did not maintain effective controls over the financial statementclose process which affected our ability to complete and report ourconsolidated financial statements without material auditor-identifiedadjustments.  Specifically, auditadjustments were identified after the close process which were not identifiedby the review and approval controls in place relating to the estimation andreconciliation of acquisitions, as well as the classification of interestbearing liabilities and available for sale investments.  This resulted in a number of post-closingadjustments to our books and records.

 

·                  *The Company did not maintain anadequate segregation of duties with respect to internal control over financialreporting*.  Specifically, the Company did not design orimplement controls to ensure that the duties and responsibilities related tothe authorization, custody, recordkeeping and reconciliation of transactionsrelated to payables and cash were performed by individuals who had incompatibleroles and responsibilities or were otherwise not monitored by those in chargeof governance.  This control deficiencydid not result in material adjustments to the financial statements, howeverthere is a reasonable possibility that a material misstatement of the annualfinancial statements would not have been prevented or detected on a timelybasis due to the failure to design and implement appropriate segregation ofduty controls.

 

Based upon its assessment, because of the materialweaknesses described above, our Management has concluded that, as of June 30,2009, our internal control over financial reporting is not effective based uponthe abovementioned criteria.

 

ThisAnnual Report does not include an attestation report of the Company’sregistered public accounting firm regarding internal control over financialreporting.  Management’s report was notsubject to attestation by the Company’s registered public accounting firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit the company to provide only Management’s report in this Annual Report.

 

**Item 15****C.****                  ****Attestation report ofthe registered public accounting firm**

 

Not applicable.

 

**Item 15****D.****                  ****Changes in internalcontrol over financial reporting**

 

Except asdescribed above, there were no other changes in our internalcontrol over financial reporting during the period covered by this Annual Report that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

**Remediationplans**

 

*Deficienciesin the financial statement close process. *We plan to mitigate this deficiency by consultingwith and / or hiring outside accounting advisers with respect to the technicalrequirements applicable to our financial statements.  The Company plans to address the failure todesign and put into operation appropriate controls around the financial statementclose process during the 2010 year by implementing more sensitive oversight andreview processes to be performed by both the Audit Committee and Board ofDirectors.

 

*Segregationof duties*.  TheCompany plans to remediate the identified segregation of duties conflicts byimplementing appropriate access controls within the payables and cashapplications, as well as additional review and oversight responsibilities toindividuals who are independent to the processing of transactions for thesesignificant accounts.

 

**Item 16A.****                  ****Audit Committee Financial Expert**

 

Followingthe retirement of Mr. Robert Edge on November 17, 2006, we did nothave an audit committee financial expert within the meaning of theSarbanes-Oxley Act and related regulations. However, on February 26, 2007, we appointed Mr. DavidCarruthers as a Non-Executive Director who replaced Mr. Edge as Chairmanof the Audit Committee and who we believe qualified as a financial expertwithin the meaning of the Sarbanes-Oxley Act and related regulations.  On November 19, 2008, Mr. Carrutherswas removed as a Director of the Company and was replaced as Chairman of theAudit Committee by Mr. Sid Hack on that date.  We believe Mr. Hack does not qualify asa financial expert within the meaning of the Sarbanes-Oxley Act and relatedregulations.

 

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**Item 16B.**                   Code Of Ethics

** **

We have adopted a Code of Ethics (styled Code ofConduct) that applies to all of our Directors and employees, including ourprincipal executive officer, principal financial officer, principal accountingofficer or controller.  The Code can bedownloaded at our website (www.gtglabs.com). Additionally, any person, upon request, can ask for a hard copy orelectronic file of such Code.  If we makeany substantive amendment to the Code of Ethics or grant any waivers, includingany implicit waiver, from a provision of the Code of Ethics, we will disclosethe nature of such amendment or waiver on our website.  During the year ended June 30, 2009, nosuch amendment was made or waiver granted. Our Board ofDirectors is responsible for the corporate governance of the consolidatedentity and guides and monitors the business and affairs of Genetic Technologieson behalf of the shareholders by whom they are elected and to whom they areaccountable.  We are required to publisha Corporate Governance Statement annually that accords with the introductionlast year of the Australian Securities Exchange Corporate Governance Council’s(the “Council’s”) “Principles of Good Corporate Governance and Best PracticeRecommendations”.  In accordance with theCouncil’s recommendations, the Corporate Governance Statement must now containcertain specific information and must disclose the extent to which we havefollowed the guidelines during the period. Where a recommendation has not been followed, that fact must bedisclosed, together with the reasons for the departure.  The Company’s Corporate Governance Statementis now structured with reference to the Corporate Governance Council’sprinciples and recommendations.  Below isan extract from the Company’s most recent Corporate Governance Statement:

 

As of the date of this AnnualReport, the following eleven Corporate Governance documents had been adopted bythe Board, in addition to the Company’s Constitution which was revised andapproved by the shareholders of the Company in November 2005.  All of these documents are available on the Company’s website: www.gtglabs.com

 

·**                 **Board Charter which defines the role of the Boardand that of Management;

·**                 **Audit Committee Charter;

·**                 **Corporate Governance Committee Charter;

·**                 **Board Protocol whichclarifies the responsibilities of Directors and the Company’s expectations ofthem;

·**                 **Code of Conduct, including a DocumentRetention Policy;

·**                 **Board Performance Evaluation Policy;

·**                 **Risk and Compliance Policy;

·**                 **Continuous Disclosure Policy;

·**                 **Securities Trading Policy;

·**                 **Shareholder Communications Policy; and

·**                 **Whistleblower Policy.

 

**Item 16C.****                   PrincipalAccountant Fees And Services**

 

The following table sets forth the fees billed to usby our Independent Registered Public Accounting Firm, Ernst & Young,during the financial years ended June 30, 2009 and 2008, respectively:

 
| ** **                    | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
| Audit fees (refer note below) |       | $        | 541,532    |     | $          | 177,500 |   |
| Tax fees                      |       | 99,480   |       | 38,350   |       |
| Other fees                    |       | 20,618   |       | —   |       |
| Total                         |       | $        | 661,630    |     | $          | 215,850 |   |

 

Note:                  Audit fees paid during the year ended June 30,2009 include the fees paid by the Group to Ernst & Young in respect ofits US reporting requirements for the year ended June 30, 2008.

 

Audit fees in the above table are the aggregate feesbilled by Ernst & Young in connection with the audit of our annualfinancial statements and review of our semi-annual financial information.  Tax fees related to the preparation of theCompany’s income tax returns.  Other feesrelate to advisory services in relation to a proposed acquisition.

 

*AuditCommittee Pre-Approval Policies and Procedures*

 

Our Board of Directors has established pre-approvaland procedures for the engagement of its Independent Registered PublicAccounting Firm for audit and non-audit services.

 

The Board of Directors reviews the scope of theservices to be provided, before their commencement, in order to ensure thatthere are no independence issues and the services are not prohibited services,as defined by the Sarbanes-Oxley Act of 2002.

 

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**Item 16D.**                   Exemptions From The Listing Standards For AuditCommittees

** **

Not applicable.

 

**Item 16E.**                     Purchases Of Equity Securities By The Issuer AndAffiliated Purchasers

** **

Not applicable.

 

**Item 16F.**                     Change in Company’s Certifying Accountant

** **

With effect from November 25,2009, Ernst & Young resigned as the Company’s independent registeredpublic accounting firm.  On the samedate, PricewaterhouseCoopers was engaged as the Company’s new independentregistered public accounting firm for the financial year ending June 30,2010 and subsequent years.  The Board ofDirectors of the Company accepted the resignation of Ernst & Young andthe appointment of PricewaterhouseCoopers as its independent registered publicaccounting firm.  None of the reports ofErnst & Young on the Company’s financial statements for either of thepast two years contained an adverse opinion or disclaimer of opinion, nor werethey qualified or modified as to uncertainty, audit scope or accountingprinciples.

 

In connection withthe audits for fiscal years ended June 30, 2009 and 2008, Ernst &Young, the Company’s independentregistered public accounting firm, concurred with the Company’s assessment that the following matters represent material weaknessesin the operation of internal control over financial reporting:

 

·**                 **Deficiencies in the financial statement close process; and

·**                 **Inadequate segregation of duties with respect to internal control overfinancial reporting.

 

Apart from theaforementioned, there were no other reportable events as described in Item304(a)(1)(v) of Regulation S-K.

 

During the Company’stwo most recent fiscal years, there were no disagreements with Ernst &Young, whether or not resolved, on any matter of accounting principles orpractices, financial statement disclosure, or auditing scope or procedure,which, if not resolved to Ernst & Young’s satisfaction, would havecaused it to make reference to the subject matter of the disagreement inconnection with its report on the Company’s financial statements.

 

The Company hasrequested that Ernst & Young furnish it with a letter addressed to theSecurities and Exchange Commission stating whether it agrees with the above statements.  This letter has since been received and isattached as an Exhibit herein.

 

During the two mostrecent fiscal years, the Company did not consult with PricewaterhouseCoopersregarding (1) the application of accounting principles to specific transactions,(2) the type of audit opinion that might be rendered on the Company’sfinancial statements, (3) the provision of written or oral advice thatPricewaterhouseCoopers concluded would be an important factor considered by theCompany in reaching a decision as to an accounting, auditing or financialreporting issue, or (4) any matter that was the subject of a disagreementbetween the Company and its predecessor auditor as described in Item 304(a)(1)(iv) ora reportable event as described in Item 304(a)(1)(v) of Regulation S-K.

 

**Item 16G.**                   Corporate Governance

** **

Refer to Item 6C.regarding the Company’s Corporate Governance practices and the key differencesbetween the Listing Rules of the Australian Securities Exchange and theMarketplace Rules of Nasdaq as they apply to us.

 

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**PART III**

 

**Item17.**                            FinancialStatements

** **

TheCompany has responded to Item 18 in lieu of responding to this Item.

 

**Item18.**                            FinancialStatements

** **

**GENETIC TECHNOLOGIES LIMITED**

**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| ** **                                                                                                                          | **Page** |
|-------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                |     |
| Genetic Technologies Limited - Report of Independent  Registered Public Accounting Firm.                                            | F1       |
|                                                                                                                                |     |
| Genetic Technologies Limited - Consolidated Income  Statements for the years ended June 30, 2009, 2008 and 2007.               | F2       |
|                                                                                                                                |     |
| Genetic Technologies Limited - Consolidated Balance  Sheets as of June 30, 2009 and 2008.                                      | F3       |
|                                                                                                                                |     |
| Genetic Technologies Limited - Consolidated Statements  of Changes in Equity for the years ended June 30, 2009, 2008 and 2007. | F4       |
|                                                                                                                                |     |
| Genetic Technologies Limited - Consolidated Cash Flows  Statements for the years ended June 30, 2009, 2008 and 2007.           | F5       |
|                                                                                                                                |     |
| Genetic Technologies Limited - Notes to Consolidated  Financial Statements.                                                         | F6       |

** **

**Item19.**                            Exhibits

** **

The following documents are filed as exhibits to thisAnnual Report on Form 20-F:

 

1.1           Constitution of the Registrant. #

 

2.1           Deposit Agreement, dated as of January 14,2002, by and among Genetic Technologies Limited, The Bank of New York Mellon,as Depositary, and the Owners and Holders of American Depositary Receipts (suchagreement is incorporated herein by reference to the Registration Statement on Form F-6relating to the ADSs (File No. 333-14270) filed with the Commission on January 14,2002).

 

2.2.          The total indebtedness authorized underany instrument relating to long term debt of the Company does not exceed 10% ofour total consolidated assets.  Anyinstrument relating to indebtedness will be supplied to the Commission upon itsrequest.

 

4.1           Consulting contract with Dr. StephenKent for Technical Review Committee for ImmunAid Pty. Ltd., dated September 14,2001.+

 

4.2           Staff Share Plan 2001 dated November 30,2001. +

 

4.3           License agreement with an effective dateof 7 March 2003 between Genetic Technologies Limited and PyrosequencingAB. +

 

4.4           Research license dated as of July 22,2003 between Genetic Technologies Limited and University of Sydney, andAgreement to Assign Intellectual Property dated September 4, 2003. +

 

4.5           License agreement dated as of August 1,2003 between Genetic Technologies Limited and Quest Diagnostics Inc. +

 

4.6           License Agreement dated as of December 31,2003 between Genetic Technologies Limited and TM Bioscience Corporation. +

 

4.7           License Agreement dated as of February 5,2004 between Genetic Technologies Limited and Laboratory Corporation of AmericaHoldings.* ++

 

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4.8           Settlement and License Agreement dated asof June 15, 2004 between Genetic Technologies Limited and C.Y. O’ConnorERADE Village Foundation (incorporating the Immunogenetics Research Foundationand the Institute of Molecular Genetics and Immunology Incorporated). +

 

4.9           Sponsored Research Agreement dated as of June 15,2004 between Genetic Technologies Limited and the C.Y.  O’Connor ERADE Village Foundation. +

 

4.10         IP Sale and Royalty Agreement dated as ofJune 15, 2004 between Genetic Technologies Limited and C.Y.  O’Connor ERADE Village Foundation. +

 

4.11         License Agreement dated as of September 17,2004 between the Company and Genzyme Corporation.* ++

 

4.12         License Agreement dated as of September 17,2004 between the Company and MetaMorphix, Inc. +

 

4.13         License Agreement dated as of September 27,2004 among the Company, MetaMorphix, Inc. and MMI Genomics, Inc. +

 

4.14         Patent License Agreement with aneffective date of December 1, 2006 between Genetic Technologies Limitedand Genosense Diagnostic GMBH.*+++

 

4.15         Settlement and License Agreement with aneffective date of June 20, 2007 between Genetic Technologies Limited andMonsanto Company.*+++

 

4.16         License Agreement and Release with aneffective date of June 29, 2007 between Genetic Technologies Limited andThermo Fisher Scientific Inc.*+++

 

4.17         License Agreement with an effective dateof August 22, 2007 between Genetic Technologies Limited and MonsantoCompany.*+++

 

4.18         License Agreement with an effective dateof September 28, 2007 between Genetic Technologies Limited and SyngentaCrop Protection AG.*+++

 

4.19         License Agreement with an effective dateof September 30, 2007 between Genetic Technologies Limited and BioSearchTechnologies Inc.*+++

 

4.20         Share Purchase Agreement with aneffective date of July 22, 2008 between Genetic Technologies Limited andthe shareholders of Frozen Puppies Dot Com Pty. Ltd. ##

 

4.21         Standstill and OptionAgreement dated December 2009.

 

12.01       Section 302 Certification

 

12.02       Section 302 Certification

 

13.01       Section 1350 Certification

 

13.02       Section 1350 Certification

 

99.1         Letter of Ernst& Young dated December 24, 2009

 

----

*  Certainprovisions of this exhibit have been omitted and filed separately with theCommission pursuant to an application for confidential treatment under Rule 24b-2promulgated under the Securities Exchange Act of 1934, as amended.

 

+  Previouslyfiled with the Company’s Registration Statement on Form 20-F (File No. 0-51504),filed with the Commission on August 19, 2005 and incorporated herein byreference.

 

++  Previouslyfiled with Amendment No. 1 to the Company’s Registration Statement on Form 20-F(File No. 0-51504), filed with the Commission on August 29, 2005 andincorporated herein by reference.

 

#  Previouslyfiled with the Company’s Annual Report on Form 20-F (File No. 0-51504),filed with the Commission on December 30, 2005 and incorporated herein byreference.

 

+++  Previouslyfiled with the Company’s Annual Report on Form 20-F (File No. 0-51504),filed with the Commission on December 20, 2007 and incorporated herein byreference.

 

##  Previouslyfiled with the Company’s Annual Report on Form 20-F (File No. 0-51504),filed with the Commission on December 30, 2008.

 

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**SIGNATURES**

 

The registrant hereby certifies that it meets all ofthe requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this Annual Report on its behalf.

 
|                           | GENETIC  TECHNOLOGIES LIMITED |
|--------------------------------|-------------------------------|
|                           |                          |
|                           |                          |
| Dated:  December 24, 2009 | By:                           | /s/  Dr. Paul D.R. MacLeman |
|                           |                          | Name:  Dr. Paul D.R. MacLeman |
|                           |                          | Title:   Chief Executive Officer |

 

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**Report of Independent Registered Public Accounting Firm**

 

The Board of Directorsand Shareholders of Genetic Technologies Limited

 

Wehave audited the accompanying consolidated balance sheets of GeneticTechnologies Limited and subsidiaries as of June 30, 2009 and 2008, andthe related consolidated statements of income, shareholders’ equity, and cashflows for each of the three years in the period ended June 30, 2009.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  We were notengaged to perform an audit of the Company’s internal control over financialreporting. Our audits included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Genetic TechnologiesLimited and subsidiaries at June 30, 2009 and 2008, and the consolidatedresults of their operations and their cash flows for each of the three years inthe period ended June 30, 2009, in conformity with International Financial ReportingStandards as issued by the International Accounting Standards Board.

 

As discussed in Note 2(h) tothe consolidated financial statements, in 2009 the Company changed theclassification of expenses by including cost of sales information within aseparate caption in the consolidated income statement.  Prior years have not been reclassifiedthereby impacting comparability of information presented in the consolidatedincome statement.

 

 

/s/ERNST & YOUNG

Melbourne, Victoria,Australia

December 15, 2009

 

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**CONSOLIDATED INCOME STATEMENTS**

For the year ended June 30, 2009

 
| **(Australian dollars)**                                                                               | ** ** | **Notes**  | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                                             | ** ** | ** ** | ** ** | **$**      | ** ** | **$**      | ** ** | **$**      | ** ** |
| ** **                                                                                             |       |       | ** ** | ** ** |       |       | ** ** | ** ** | ** ** |
| **Revenue from operations**                                                                            |       |       | ** ** | ** ** |       |       | ** ** | ** ** | ** ** |
| ** **                                                                                             |       |       | ** ** | ** ** |       |       | ** ** | ** ** | ** ** |
| Genetic testing services                                                                               |       |       |       | 4,599,286  |       | 3,918,692  |       | 3,119,131  |       |
| Reproductive services                                                                                  |       |       |       | 782,803    |       | —     |       | —     |       |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| Total revenue from  operations                                                                         |       |       |       | 5,382,089  |       | 3,918,692  |       | 3,119,131  |       |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| Less: cost of sales                                                                                    |       | 6          |       | (2,203,839 | )          | —     |       | —     |       |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| Gross profit from  operations                                                                          |       |       |       | 3,178,250  |       | 3,918,692  |       | 3,119,131  |       |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| Other revenue                                                                                          |       | 4          |       | 6,012,014  |       | 11,689,120 |       | 11,595,297 |       |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| Other income                                                                                           |       | 5          |       | 787,529    |       | 276,606    |       | 340,486    |       |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| Employee benefits expenses                                                                             |       | 6          |       | (6,439,549 | )          | (6,568,966 | )          | (5,556,644 | )          |
| Amortization and  depreciation expenses                                                                |       | 6          |       | (3,987,996 | )          | (4,755,155 | )          | (4,602,992 | )          |
| Legal and patent fees                                                                                  |       |       |       | (1,386,393 | )          | (873,854   | )          | (748,605   | )          |
| Administration expenses                                                                                |       |       |       | (1,304,682 | )          | (839,226   | )          | (901,380   | )          |
| Contract research and trial  expenses                                                                  |       |       |       | (1,209,260 | )          | (1,267,748 | )          | (1,247,775 | )          |
| Genetic testing expenses                                                                               |       |       |       | (748,254   | )          | (1,599,644 | )          | (1,989,098 | )          |
| Rent and outgoings                                                                                     |       |       |       | (584,980   | )          | (533,644   | )          | (535,045   | )          |
| Royalties, license fees  and commissions paid                                                          |       |       |       | (354,684   | )          | (889,520   | )          | (580,122   | )          |
| Impairment losses and  other write-downs                                                               |       | 6          |       | (318,025   | )          | (2,378,000 | )          | (1,306,960 | )          |
| Marketing and promotion  expenses                                                                      |       |       |       | (272,726   | )          | (221,644   | )          | (437,087   | )          |
| Finance costs                                                                                          |       | 6          |       | (89,499    | )          | (66,763    | )          | (90,929    | )          |
| Net foreign exchange  losses                                                                           |       |       |       | —     |       | (254,954   | )          | (317,317   | )          |
| Other expenses                                                                                         |       |       |       | (1,140,066 | )          | (1,086,938 | )          | (1,086,662 | )          |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| **Loss before income tax**                                                                             | ** ** | ** ** |       | (7,858,321 | )          | (5,451,638 | )          | (4,345,702 | )          |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| Income tax expense                                                                                     |       | 7          |       | —     |       | —     |       | —     |       |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| **Loss for the year**                                                                                  |       |       |       | (7,858,321 | )          | (5,451,638 | )          | (4,345,702 | )          |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| **Loss is attributable to:**                                                                           |       |       |       |       |       |       |       |       |       |
| Equity holders of Genetic  Technologies Limited                                                        |       |       |       | (7,841,073 | )          | (5,446,089 | )          | (4,328,543 | )          |
| Minority interests                                                                                     |       | 24         |       | (17,248    | )          | (5,549     | )          | (17,159    | )          |
| ** **                                                                                             |       |       |       | (7,858,321 | )          | (5,451,638 | )          | (4,345,702 | )          |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| **Earnings per share (cents per  share)**                                                              | ** ** | ** ** |       |       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic loss for the year  attributable to the ordinary equity holders of Genetic Technologies Limited   |       | 8          |       | (2.1       | )          | (1.5       | )          | (1.2       | )          |
|                                                                                                   |       |       |       |       |       |       |       |       |       |
| Diluted loss for the year  attributable to the ordinary equity holders of Genetic Technologies Limited |       | 8          |       | (2.1       | )          | (1.5       | )          | (1.2       | )          |

 

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**CONSOLIDATED BALANCE SHEETS**

As at June 30, 2009

 
| **(Australian dollars)**          | ** ** | **Notes**  | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|-----------------------------------|------------|------------|------------|-------------|------------|-------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **$**       | ** ** | **$**       | ** ** |
| ** **                        |       |       |       |        |       |        |       |
| **ASSETS**                        |       |       |       |        |       |        |       |
| **Current assets**                |       |       |       |        |       |        |       |
| Cash and cash equivalents         |       | 9          |       | 7,826,902   |       | 12,920,772  |       |
| Trade and other  receivables      |       | 10         |       | 1,829,239   |       | 1,596,738   |       |
| Prepayments and other  assets     |       | 11         |       | 446,825     |       | 857,225     |       |
| Performance bond and  deposits    |       | 12         |       | 200         |       | 519,117     |       |
| ** **                        |       |       |       |        |       |        |       |
| **Total current assets**          |       |       |       | 10,103,166  |       | 15,893,852  |       |
|                              |       |       |       |        |       |        |       |
| **Non-current assets**            |       |       |       |        |       |        |       |
| Available-for-sale  investments   |       | 13         |       | 255,000     |       | 207,195     |       |
| Property, plant and  equipment    |       | 14         |       | 3,010,025   |       | 1,703,757   |       |
| Intangible assets and  goodwill   |       | 15         |       | 4,609,540   |       | 6,289,774   |       |
|                              |       |       |       |        |       |        |       |
| **Total non-current assets**      |       |       |       | 7,874,565   |       | 8,200,726   |       |
| ** **                        |       |       |       |        |       |        |       |
| **Total assets**                  |       |       |       | 17,977,731  |       | 24,094,578  |       |
| ** **                        |       |       |       |        |       |        |       |
| **LIABILITIES**                   |       |       |       |        |       |        |       |
| **Current liabilities**           |       |       |       |        |       |        |       |
| Trade and other payables          |       | 16         |       | 2,158,557   |       | 1,786,412   |       |
| Interest-bearing  liabilities     |       | 17         |       | 373,444     |       | 111,117     |       |
| Deferred revenue                  |       | 18         |       | 229,008     |       | 138,941     |       |
| Withholding tax payable           |       |       |       | 370,346     |       | 326,361     |       |
| Provisions                        |       | 19         |       | 648,030     |       | 684,171     |       |
|                              |       |       |       |        |       |        |       |
| **Total current liabilities**     |       |       |       | 3,779,385   |       | 3,047,002   |       |
| ** **                        |       |       |       |        |       |        |       |
| **Non-current liabilities**       |       |       |       |        |       |        |       |
| Interest-bearing  liabilities     |       | 20         |       | —      |       | 187,082     |       |
| Provisions                        |       | 19         |       | 86,301      |       | 75,421      |       |
|                              |       |       |       |        |       |        |       |
| **Total non-current liabilities** |       |       |       | 86,301      |       | 262,503     |       |
| ** **                        |       |       |       |        |       |        |       |
| **Total liabilities**             |       |       |       | 3,865,686   |       | 3,309,505   |       |
| ** **                        |       |       |       |        |       |        |       |
| **Net assets**                    |       |       |       | 14,112,045  |       | 20,785,073  |       |
|                              |       |       |       |        |       |        |       |
| **EQUITY**                        |       |       |       |        |       |        |       |
| Contributed equity                |       | 21         |       | 71,285,663  |       | 70,243,996  |       |
| Reserves                          |       | 22         |       | 1,701,899   |       | 1,588,804   |       |
| Accumulated losses                |       | 23         |       | (59,030,262 | )          | (51,189,189 | )          |
| Parent entity interest            |       |       |       | 13,957,300  |       | 20,643,611  |       |
| Minority interests                |       | 24         |       | 154,745     |       | 141,462     |       |
|                              |       |       |       |        |       |        |       |
| **Total equity**                  |       |       |       | 14,112,045  |       | 20,785,073  |       |

 

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**CONSOLIDATED STATEMENTS OFCHANGES IN EQUITY**

For the year ended June 30, 2009

 

**Attributable to Members ofGenetic Technologies Limited**

 
| **(Australian dollars)**                          | ** ** | **Contributed  equity** | ** ** | **Reserves** | ** ** | **Accumulated  losses** | ** ** | **Parent  interests** | ** ** | **Minority  interests** | ** ** | **Total equity** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|--------------|------------|-------------------------|------------|-----------------------|------------|-------------------------|------------|------------------|------------|
| ** **                                        | ** ** | **$**                   | ** ** | **$**        | ** ** | **$**                   | ** ** | **$**                 | ** ** | **$**                   | ** ** | **$**            | ** ** |
| **At 30 June 2006**                          |       | 70,243,996              |       | 1,237,524    |       | (41,414,557             | )          | 30,066,963            |       | 175,176                 |       | 30,242,139       |       |
| Currency translation  differences                 |       | —                  |       | (38,535      | )          | —                  |       | (38,535               | )          | (12,999                 | )          | (51,534          | )          |
| Loss for the year                                 |       | —                  |       | —       |       | (4,328,543              | )          | (4,328,543            | )          | (17,159                 | )          | (4,345,702       | )          |
| Total recognized income  and expense for the year |       | —                  |       | (38,535      | )          | (4,328,543              | )          | (4,367,078            | )          | (30,158                 | )          | (4,397,236       | )          |
| Share-based payments                              |       | —                  |       | 257,906      |       | —                  |       | 257,906               |       | —                  |       | 257,906          |       |
| **At 30 June 2007**                          |       | 70,243,996              |       | 1,456,895    |       | (45,743,100             | )          | 25,957,791            |       | 145,018                 |       | 26,102,809       |       |
| Currency translation  differences                 |       | —                  |       | (32,624      | )          | —                  |       | (32,624               | )          | (9,161                  | )          | (41,785          | )          |
| Loss for the year                                 |       | —                  |       | —       |       | (5,446,089              | )          | (5,446,089            | )          | (5,549                  | )          | (5,451,638       | )          |
| Total recognized income  and expense for the year |       | —                  |       | (32,624      | )          | (5,446,089              | )          | (5,478,713            | )          | (14,710                 | )          | (5,493,423       | )          |
| Share of issued capital                           |       | —                  |       | —       |       | —                  |       | —                |       | 11,154                  |       | 11,154           |       |
| Share-based payments                              |       | —                  |       | 164,533      |       | —                  |       | 164,533               |       | —                  |       | 164,533          |       |
| **At 30 June 2008**                          |       | 70,243,996              |       | 1,588,804    |       | (51,189,189             | )          | 20,643,611            |       | 141,462                 |       | 20,785,073       |       |
| Currency translation  differences                 |       | —                  |       | (13,408      | )          | —                  |       | (13,408               | )          | 6,133                   |       | (7,275           | )          |
| Loss for the year                                 |       | —                  |       | —       |       | (7,841,073              | )          | (7,841,073            | )          | (17,248                 | )          | (7,858,321       | )          |
| Net gain on  available-for-sale investments       |       | —                  |       | 170,000      |       | —                  |       | 170,000               |       | —                  |       | 170,000          |       |
| Total recognized income  and expense for the year |       | —                  |       | 156,592      |       | (7,841,073              | )          | (7,684,481            | )          | (11,115                 | )          | (7,695,596       | )          |
| Shares issued during the  year                    |       | 1,041,667               |       | —       |       | —                  |       | 1,041,667             |       | —                  |       | 1,041,667        |       |
| Share of issued capital                           |       | —                  |       | —       |       | —                  |       | —                |       | 24,398                  |       | 24,398           |       |
| Share-based payments                              |       | —                  |       | (43,497      | )          | —                  |       | (43,497               | )          | —                  |       | (43,497          | )          |
| **At 30 June 2009**                          |       | 71,285,663              |       | 1,701,899    |       | (59,030,262             | )          | 13,957,300            |       | 154,745                 |       | 14,112,045       |       |

 

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**CONSOLIDATED CASH FLOW STATEMENTS**

For the year ended June 30, 2009

 
| **(Australian dollars)**                                                  | ** ** | **Notes**  | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                                                                | ** ** | ** ** | ** ** | **$**       | ** ** | **$**       | ** ** | **$**       | ** ** |
| ** **                                                                |       |       |       |        |       |        |       |        |       |
| **Cash flows (used in)********/********from  operating activities**       |       |       |       |        |       |        |       |        |       |
| Receipts from customers                                                   |       |       |       | 9,216,374   |       | 12,961,170  |       | 14,541,621  |       |
| Payments to suppliers and  employees                                      |       |       |       | (15,224,721 | )          | (13,642,885 | )          | (12,723,248 | )          |
| Interest received                                                         |       |       |       | 585,776     |       | 919,447     |       | 489,824     |       |
| Other income                                                              |       |       |       | 469,430     |       | 217,076     |       | 379,978     |       |
| Refund of performance bond                                                |       |       |       | 68,917      |       | —      |       | —      |       |
| Interest paid                                                             |       |       |       | (39,267     | )          | (32,038     | )          | (90,929     | )          |
| **Net cash flows (used in)********/********from  operating activities**   |       | 9          |       | (4,923,491  | )          | 422,770     |       | 2,597,246   |       |
|                                                                      |       |       |       |        |       |        |       |        |       |
| **Cash flows (used in)********/********from  investing activities**       |       |       |       |        |       |        |       |        |       |
| Proceeds from the sale of  plant and equipment                            |       |       |       | 338,269     |       | 70,611      |       | —      |       |
| Proceeds from the sale of  shares                                         |       |       |       | —      |       | —      |       | 332,709     |       |
| Purchases of plant and  equipment                                         |       |       |       | (213,300    | )          | (118,010    | )          | (158,699    | )          |
| Investment in Frozen  Puppies Dot Com Pty. Ltd.                           |       |       |       | (469,730    | )          | —      |       | —      |       |
| Costs incurred on  acquisition of subsidiary                              |       |       |       | (8,430      | )          | —      |       | —      |       |
| Advances to unrelated  parties                                            |       |       |       | —      |       | —      |       | (80,000     | )          |
| **Net cash flows (used in)********/********from  investing activities**   |       |       |       | (353,191    | )          | (47,399     | )          | 94,010      |       |
|                                                                      |       |       |       |        |       |        |       |        |       |
| **Cash flows used in financing  activities**                              |       |       |       |        |       |        |       |        |       |
| Repayment of hire purchase  principal                                     |       |       |       | (192,591    | )          | (528,899    | )          | (502,505    | )          |
| **Net cash flows used in  financing activities**                          |       |       |       | (192,591    | )          | (528,899    | )          | (502,505    | )          |
| **Net increase********/********(decrease)  in cash and cash equivalents** |       |       |       | (5,469,273  | )          | (153,528    | )          | 2,188,751   |       |
| Cash and cash equivalents  at beginning of year                           |       |       |       | 13,370,772  |       | 13,783,750  |       | 11,885,247  |       |
| Net foreign exchange  difference                                          |       |       |       | (74,597     | )          | (259,450    | )          | (290,248    | )          |
| **Cash and cash equivalents at  end of year**                             |       | 9          |       | 7,826,902   |       | 13,370,772  |       | 13,783,750  |       |

 

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**NOTES TO THE FINANCIAL STATEMENTS**

 

For the year ended June 30, 2009

 

**1.****     ****CORPORATE INFORMATION**

 

TheFinancial Report of Genetic Technologies Limited (the “Company”) for the yearended June 30, 2009 was authorized for issue in accordance with aresolution of the Directors dated November 24, 2009.  Genetic Technologies Limited is incorporatedin Australia and is a company limited by shares.  The Company’s ordinary shares are publiclytraded on the Australian Securities Exchange under the symbol GTG and, viaLevel II American Depositary Receipts, on the NASDAQ Global Market under theticker GENE.

 

**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

**(a)****   ****Basisof preparation**

 

This general purpose FinancialReport has been prepared in accordance with Australian Accounting Standards,other authoritative pronouncements of the Australian Accounting Standards Boardand the *Corporations Act 2001.*

 

*Compliance with IFRS*

 

The Financial Report complieswith Australian Accounting Standards as issued by the Australian AccountingStandards Board and International Financial Reporting Standards (IFRS) asissued by the International Accounting Standards Board.

 

*Historical costconvention*

 

These financial statements havebeen prepared under the historical cost convention, as modified by themeasurement of the available-for-sale investments at fair value.

 

*Significant accountingestimates*

 

The preparation of financialstatements requires the use of certain critical accounting estimates.  It also requires Management to exercise itsjudgement in the process of applying the Group’s accounting policies.  The areas involving a higher degree ofjudgement or complexity, or areas where assumptions and estimates aresignificant to the financial statements, are disclosed in Note 3.

 

**(b)****   ****New accounting standards andinterpretations**

 

In respect of the year ended June 30, 2009, theGroup has assessed all new accounting standards mandatory for adoption duringthe current year, noting no new standards which would have a material affect onthe disclosure in these financial statements. There has been no affect on the profit and loss or the financialposition of the Group.

 

Certain International FinancialReporting Standards and interpretations have been issued or amended that arenot mandatory for the June 30, 2009 reporting period.  The assessment of the impact of thesestandards and interpretations which are considered to be of relevance to theGroup in future reporting periods is set out below.

 

·    *IAS 1 (Revised):**Presentation of FinancialStatements**and consequential amendments to other International AccountingStandards*

 

IAS 1 (Revised) isapplicable to annual reporting periods beginning on or after January 1, 2009.  IAS 1 (Revised) introduces a statement ofcomprehensive income.  Other revisionsinclude impacts on the presentation of items in the statement of changes inequity, new presentation requirements for restatements or reclassifications ofitems in the financial statements, changes in the presentation requirements fordividends and changes to the titles of the financial statements.  Theseamendments are only expected to affect the presentation of the Group’sFinancial Report and will not have a direct impact on the measurement andrecognition of amounts disclosed in the Financial Report.  The Group has not determined at this stagewhether to present a single statement of comprehensive income or two separatestatements.

 

·    *IFRS 2 (Revised): Amendments to**International**Accounting Standard — Share-based Payments: Vesting Conditions andCancellations*

 

IFRS 2 (Revised) is applicable to annualreporting periods beginning on or after January 1, 2009.  The amendments clarify the definition of “vestingconditions”, introducing the term “non-vesting conditions” for conditions otherthan vesting conditions as specifically defined and prescribe the accountingtreatment of an award that is effectively cancelled because a non-vesting conditionis not satisfied.  The Group hasshare-based payment arrangements that may be affected by these amendments.  However, the Group has not yet determined theextent of the impact, if any.

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(b)****   ****New accounting standards andinterpretations (cont.)**

 

·    *Amendment to IAS 39 FinancialInstruments: Recognition and measurement*

 

IAS 39 *FinancialInstruments: Recognition and Measurement* has been amended and mustbe applied retrospectively in accordance with IAS 8 *AccountingPolicies, Changes in Accounting Estimates and Error*.  The amendment makes two significant changes.  It prohibits inflation as a hedgeablecomponent of a fixed rate debt and prohibits the inclusion of time value in theone-side hedged risk when designating options as hedges.  The Group will apply the amended standardfrom July 1, 2009, if hedging activity is undertaken.

 

·    *IFRS 7 (Revised): FinancialInstruments: Disclosures*

 

Theamendments to IFRS 7 require enhanced disclosures about fair value measurementsand liquidity risk.  In particular, theamendments:

 

(a)   clarify that the existing fair valuedisclosure requirements in IFRS 7 must be made separately for each class offinancial instrument;

 

(b)   require disclosure of any change in amethod for determining fair value and the reasons for the change;

 

(c)   introduce a three-level hierarchy for makingfair value measurements, as follows:

 

·   level 1 –quoted prices (unadjusted) in active markets for identical assets orliabilities;

·   level 2 –inputs, other than quoted prices included within level 1, that are observablefor the asset or liability; and

·   level 3 –inputs for the asset or liability that are not based on observable market data(unobservable inputs);

 

(d)   require disclosure about the relativereliability of each fair value measurement in the statement of financialposition;

 

(e)   clarify that the current maturityanalysis for non-derivative financial instruments should include issuedfinancial guarantee contracts; and

 

(f)    requires maturity analysis of derivativeliabilities based on either how the entity manages the liquidity risk, or itscontractual maturity if it is essential for an understanding of the timing ofthe cash flows (e.g. interest rate swap in a cash flow hedge or loancommitments).

 

IFRS 7 (Revised) isapplicable to annual reporting periods beginning on or after January 1,2009.  These amendments are only expectedto affect the presentation of the Group’s Financial Report and will not have adirect impact on the measurement or recognition of the amounts disclosed in theFinancial Report.

 

·**   ***IFRS 9 Financial Instruments*

 

On November 12,2009, the International Accounting Standards Board published the first phase ofIFRS 9*Financial Instruments*, the accountingstandard that will eventually replace IAS 39*Financial Instruments:Recognition and Measurement*and is applicable to annual reportingperiods beginning on or after January 1, 2013.  The Standard introduces a number ofsignificant changes in the classification and measurement of financialassets.  It requires that at initialrecognition, all financial assets are measured at fair value (plus transactioncosts for those items measured at amortised cost).  For subsequent measurement of debtinstruments, the financial assets are classified as amortised cost or fairvalue on the basis of both the entity’s business model for managing thefinancial assets and the contractual cash flow characteristics of the financialassets.  Debt instruments may besubsequently measured at amortised cost if the asset is held within a businessmodel whose objective is to hold the assets to collect the contractual cashflows and the contractual terms of the financial asset give rise, on specifieddates, to cash flows that are solely payments of principal and interest on theprincipal amount.

 

The Standard also requiresthat all financial assets that are equity investments be measured at fair valueeither through Other Comprehensive Income (“OCI”) or profit and loss.  This is an irrevocable choice the entitymakes by instrument unless the equity investments are held for trading, inwhich case they must be measured at fair value through profit and loss.  The Group has not yet determined the extentof the impact of this Standard, if any.

 

·    *Improvementsto IFRSs*

 

Certain improvements toIFRSs are applicable to annual reporting periods beginning on or after January 1,2009 except for amendments to IFRS 5, which are effective from July 1,2009.  The improvements project is anannual project that provides a mechanism for making non-urgent, but necessary,amendments to IFRSs.  The IASB hasseparated the amendments into two parts: Part 1 deals with changes theIASB has identified which result in accounting changes; whilst Part IIdeals with either terminology or editorial amendments that the IASB believeswill have minimal impact.  The Group hasnot yet determined the extent of the impact of the amendments, if any.

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(b)****    ****New accounting standards andinterpretations (cont.)**

 

·    *IAS 27 (Revised): Consolidated and Separate Financial Statements*

 

IAS 27 (Revised) isapplicable to reporting periods beginning on or after July 1, 2009.  Under the revised standard, a change in theownership interest of a subsidiary (that does not result in loss of control)will be accounted for as an equity transaction. If the Group changes its ownership interest in existing subsidiaries inthe future, the change will be accounted for as an equity transaction.  This will have no impact on goodwill, norwill it give rise to a gain or a loss in the Group’s income statement.

 

·    *IFRS 3 (Revised): Business Combinations*

 

IFRS 3 (Revised) isapplicable to annual reporting periods beginning on or after July 1,2009.  The revised standard introduces anumber of changes to the accounting for business combinations, the mostsignificant of which allows entities a choice for each business combinationentered into - to measure a non-controlling interest (formerly a minorityinterest) in the acquiree either at its fair value or at its proportionateinterest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to100% of the business (applying the fair value option) or recognising goodwillrelating to the percentage interest acquired. The changes apply prospectively. The Group will apply the revised standards prospectively to all businesscombinations and transactions with non-controlling interests from July 1,2009.

 

·    *IAS 23 (Revised): Borrowing Costs and consequentialamendments to other Australian Accounting Standards*

 

IAS 23 (Revised) is applicableto annual reporting periods beginning on or after January 1, 2009.  These amendments to IAS 23 (Revised) requirethat all borrowing costs associated with a qualifying asset becapitalized.  There will be no impact onthe Financial Report of the Group, as the Group does not have any borrowingcosts.

 

·    *IAS 27 (Revised): Cost of an Investment in a Subsidiary, JointlyControlled Entity or Associate*

 

IAS 27 (Revised) has beenamended by deleting the “cost method” and requiring all dividends from asubsidiary, jointly controlled entity or associate to be recognized in profitor loss in an entity’s separate financial statements (i.e. parent companyaccounts).  The distinction between pre-and post-acquisition profits is no longer required.  However, the payment of such dividendsrequires the entity to consider whether there is an indicator ofimpairment.  IAS 27 (Revised) has alsobeen amended to effectively allow the cost of an investment in a subsidiary, inlimited reorganizations, to be based on the previous carrying amount of thesubsidiary (that is, share of equity) rather than its fair value.  The application of these amendments will nothave any material impact on the Financial Report of the Group and the parententity.  However, if the Group entersinto any group reorganization establishing new parent entities, an assessmentwill need to be made to determine if the reorganization meets the conditionsimposed to be effectively accounted for on a “carry-over basis” rather than atfair value.  IAS 27 (Revised) isapplicable to annual reporting periods beginning on or after July 1, 2009.

 

·    *Further amendments to IFRSs*

 

The amendments to someStandards result in accounting changes for presentation, recognition ormeasurement purposes, while some amendments that relate to terminology andeditorial changes are expected to have no or minimal effect on accountingexcept for the following:

 

(a)   The amendment to IAS 17removes the specific guidance on classifying land as a lease so that only thegeneral guidance remains.  Assessing landleases based on the general criteria may result in more land leases beingclassified as finance leases and if so, the type of asset which is to berecorded (intangible vs. property, plant and equipment) needs to be determined.

 

(b)   The amendment to IAS 1stipulates that the terms of a liability that could result, at anytime, in itssettlement by the issuance of equity instruments at the option of thecounterparty do not affect its classification.

 

(c)   The amendment to IAS 7explicitly states that only expenditure that results in a recognised asset canbe classified as a cash flow from investing activities.

 

(d)   The amendment to IAS 18provides additional guidance to determine whether an entity is acting as aprincipal or as an agent.  The featuresindicating an entity is acting as a principal are whether the entity:

 

·   hasprimary responsibility for providing the goods or service;

·   hasinventory risk;

·   hasdiscretion in establishing prices; and

·   bearsthe credit risk.

 

The above amendments are applicable to annualreporting periods beginning on or after January 1, 2010.  The Group has not yet determined the extentof the impact of these amendments, if any.

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(c)****   ****Basisof consolidation**

 

Theconsolidated financial statements comprise the financial statements of GeneticTechnologies Limited and its subsidiaries (collectively the “Group”).  The financial statements of subsidiaries areprepared for the same reporting period as the parent, using consistentaccounting policies.  Adjustments aremade to bring into line any dissimilar accounting policies that may exist.  All intercompany balances and transactions,including unrealized profits arising from intra-group transactions, have beeneliminated in full.  Unrealized lossesare eliminated unless costs cannot be recovered.

 

Subsidiaries are consolidated from the date on whichcontrol is transferred to the Group and cease to be consolidated from the dateon which control is transferred out of the Group.  Where there is loss of control of asubsidiary, the consolidated financial statements include the results for thepart of the reporting period during which Genetic Technologies Limited hascontrol.  Minority interests representthe interests not held by the Group in Gtech International Resources Limited,ImmunAid Pty. Ltd. and AgGenomics Pty. Ltd.

 

**(d)****   ****Foreigncurrency translation**

 

Both the functional and presentation currency ofGenetic Technologies Limited and its Australian subsidiaries is the Australiandollar (AUD).  Transactions in foreigncurrencies are initially recorded in the functional currency at the exchangerates ruling at the date of the transaction. Monetary assets and liabilities which are denominated in foreigncurrencies are retranslated at the rate of exchange ruling at the balance sheetdate.  All differences are taken to theincome statement.

 

Non-monetary items that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rateruling at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency aretranslated using the exchange rates ruling at the date when the fair value wasdetermined.

 

The functional currencies of the Company’s fouroverseas subsidiaries are as follows:

 

Gtech International Resources Limited — Canadiandollars (CAD)

Genetic Technologies (Beijing) Limited — Chineseyuan (CNY)

GeneType AG — Swiss francs(CHF)

GeneType Corporation — United States dollars (USD)

 

As at the reporting date, the assets and liabilitiesof these overseas subsidiaries are translated into the presentation currency ofGenetic Technologies Limited at the rate of exchange ruling at the balancesheet date and the income statements are translated at the weighted averageexchange rates for the period.  Theexchange differences arising on the retranslation are taken directly to aseparate component of equity.  On disposalof a foreign entity, the deferred cumulative amount recognized in equityrelating to that particular foreign operation is recognized in the incomestatement.

 

**(e)****   ****Fairvalue estimation**

 

The fair value of financialinstruments that are not traded in an active market (for example, non-listedequity securities classified as available-for-sale investments) is determinedusing valuation techniques, including the last price at which shares wereissued to third parties, where amounts are reliably measured.  The Group uses various methods and makesassumptions that are based on market conditions existing at each balancedate.  Information including quotedmarket prices and details of recent capital raisings is used to determine fairvalue for these remaining financial instruments.  Available-for-sale investments are measuredat approximate market value, where fair value cannot be reliably determined.

 

The carrying values lessimpairment provisions of trade receivables are assumed to approximate theirfair values due to their short-term nature.

 

**(f)****    ****Segment reporting**

 

An *operatingsegment* is a component of the Group:

 

·    thatengages in business activities from which it may earn revenues and incurexpenses (including revenues and expenses relating to transactions with othercomponents of the Group);

·    whoseoperating results are regularly reviewed by the Group’s chief operatingdecision maker to make decisions about resources to be allocated to the segmentand assess its performance; and

·    forwhich discrete financial information is available.

 

**(g)****   ****Earningsper share**

 

Basic EPS is calculated as the net loss attributableto members divided by the weighted average number of ordinary shares.

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(h)****   ****Change in Income Statementpresentation**

 

As aresult of the Group’s increased focus on genetic testing services, theclassification of revenues within the consolidated statement of income changedin fiscal 2009.  “License fees received”and “Royalties and annuities received” have been reclassified from “Operatingrevenue” to “Other revenue” for all years presented to reflect this change inManagement’s operational focus.  Inaddition, a standard costing system was implemented effective July 1, 2008which has allowed the Group to estimate “Costs of sales” and measure “Grossprofit from operations” by calculating the direct labour and materials used ineach of the genetic tests sold.  Althoughsuch a change in expense classification requires reclassification of prior yearinformation, cost of sales information was not collected in prior periods in away that allows the reclassification of prior year expenses.  Furthermore, changes in the Group’s overallcost structure in fiscal 2009 do not allow the use of 2009 cost of salesinformation as a basis for estimating fiscal 2008 and 2007 cost of salesinformation.  Therefore the Group hasdetermined it is not practicable to recreate the information for use inpresenting cost of sales and gross profit from operations for fiscal 2008 and2007.  In the event that costs of saleswere reclassified in prior years, “Gross profit from operations”, “Employeebenefits expense” and “Genetic testing expenses” would be lower than currentlyreported.  Cost of sales information hasalso not been captured in respect of Frozen Puppies Dot Com Pty. Ltd., as thebusiness was acquired during fiscal 2009, however, such information will beprovided as from July 1, 2009.

 

**(i)****    ****Revenuerecognition**

 

Revenues are recognized to the extent that it isprobable that the economic benefits will flow to the entity and the revenuescan be reliably measured.  Revenues arerecognized at the fair value of the consideration received or receivable net ofthe amounts of goods and services tax (GST). The following specific recognition criteria must also be met beforerevenue is recognized:

 

*Rendering of testing services*

 

Revenues from the rendering of services are recognized when the services are provided and the fee for the services provided is recoverable.  Service arrangements are of short duration (in most cases less than three months).

 

*License fees received*

 

License fee income is recorded on the execution of abinding agreement where the Group has no future obligations, income is fixedand determinable, and collection is reasonably assured.  The Group does not grant refunds to itscustomers.  Refer also to Note 2(z).

 

*Royalties and annuities received*

 

The Group licenses the use of its patented genetictechnologies.  Royalties and annuitiesarising from these licenses are recognized when earned in accordance with thesubstance of the agreement, in cases where no future performance is required bythe Group and collection is reasonably assured.

 

*Interest received*

 

Revenue is recognized as the interest accrues using the effective interest method.  Interest charged on loans to related parties is charged on commercial and arm’s-length terms and conditions.

 

*Research and development grants received*

 

The Group receives non-refundable non-Government grants that assistit to fund specific research and development projects.  These grants generally provide for thereimbursement of approved costs incurred as defined in the various agreements.

 

**(j)****    ****Share-basedpayment transactions**

 

The Group provides benefits to Group employees inthe form of share-based payment transactions, whereby employees render servicesand receive rights over shares (“equity-settled transactions”).  There is currently a Staff Share Plan inplace to provide these benefits to executives and employees and the cost ofthese transactions is measured by reference to the fair value at the date theyare granted.  The fair value is determinedby an external valuer using a Black-Scholes option pricing model.

 

In valuing equity-settled transactions, no accountis taken of any non-market performance conditions.  The cost of equity-settled transactions isrecognized, together with a corresponding increase in equity, over the periodin which the relevant vesting conditions are fulfilled, ending on the date thatthe relevant employees become fully entitled to the award (“vesting date”).  The cumulative expense recognized forequity-settled transactions at each reporting date until vesting date reflects (i) theextent to which the vesting period has expired; and (ii) the number ofawards that, in the opinion of the Directors of the Group, will ultimatelyvest.  This opinion is formed based onthe best information available at balance date.

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(j)****    ****Share-basedpayment transactions (cont.)**

 

No expense is recognized for any awards that do notultimately vest.  Where the terms of anequity-settled award are modified, as a minimum an expense is recognized as ifthe terms had not been modified.  Inaddition, an expense is recognized for any increase in the value of thetransaction as a result of the modification, as measured at the date ofmodification.  Where an equity-settledaward is cancelled, it is treated as if it had vested on the date ofcancellation, and any expense not yet recognized for the award is recognizedimmediately.  However, if a new award issubstituted for the cancelled award, and designated as a replacement award onthe date that it is granted, the cancelled and new award are treated as if theywere a modification of the original award, as described in the previousparagraph.  Where appropriate, thedilutive effect of outstanding options is reflected as additional sharedilution in the computation of diluted earnings per share.

 

The Group’s policy is to treat the share options ofterminated employees as forfeitures.

 

**(k)****   ****Income tax**

 

The income tax expense orrevenue for the period is the tax payable on the current period’s taxableincome based on the national income tax rate for each jurisdiction adjusted bychanges in deferred tax assets and liabilities attributable to temporarydifferences and unused tax losses.

 

Deferred income tax is providedin full, using the liability method, on temporary differences arising betweenthe tax bases of assets and liabilities and their carrying amounts in theconsolidated financial statements. However, the deferred income tax is not accounted for if it arises frominitial recognition of an asset or liability in a transaction other than abusiness combination that, at the time of the transaction, affects neitheraccounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that havebeen enacted or substantially enacted by the balance sheet date and areexpected to apply when the related deferred income tax asset is realized or thedeferred income tax liability is settled. Deferred tax assets are recognized for deductible temporary differencesand unused tax losses only if it is probable that future taxable amounts will beavailable to utilize those temporary differences and losses.

 

Deferred tax liabilities andassets are not recognized for temporary differences between the carrying amountand tax bases of investments in controlled entities where the parent entity isable to control the timing of the reversal of the temporary differences and itis probable that the differences will not reverse in the foreseeablefuture.  Deferred tax assets andliabilities are offset when there is a legally enforceable right to offset currenttax assets and liabilities and when the deferred tax balances relate to thesame taxation authority.  Current taxassets and tax liabilities are offset where the entity has a legallyenforceable right to offset and intends either to settle on a net basis, or torealize the asset and settle the liability simultaneously.  Current and deferred tax balancesattributable to amounts recognized directly in equity are also recognizeddirectly in equity.

 

*Tax consolidation legislation*

* *

Genetic Technologies Limitedand its wholly-owned Australian-resident subsidiaries have implemented the taxconsolidation legislation.  The headentity, Genetic Technologies Limited, and the subsidiaries in the taxconsolidated group account for their own current and deferred tax amounts.  These tax amounts are measured as if eachentity in the tax consolidated group continues to be a stand alone taxpayer inits own right.

 

In addition to its own currentand deferred tax amounts, Genetic Technologies Limited also recognizes the currenttax liabilities (or assets) and the deferred tax assets arising from unused taxlosses and unused tax credits assumed from subsidiaries in the tax consolidatedgroup.

 

Assets or liabilities arisingunder tax funding agreements with the tax consolidated entities are recognizedas amounts receivable from or payable to other entities in the Group.  Details about the tax funding agreement aredisclosed in Note 7.  Any difference betweenthe amounts assumed and amounts receivable or payable under the tax fundingagreements are recognized as a contribution to (or distribution from)wholly-owned tax subsidiaries.

 

**(l)****    ****Withholdingtax**

 

The Group generates revenues from the granting oflicenses to parties resident in overseas countries.  Such revenues may be subject to the deductionof local withholding tax.  In certaincases, these revenues are paid to the Group without appropriate withholding taxhaving been deducted.  Accordingly, theGroup recognizes a provision in respect of the Directors’ best estimate of theamounts which may be payable.

 

**(m)****  ****Financecosts**

 

Financecosts are recognized as an expense when incurred.

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(n)****   ****Other taxes**

 

Revenues, expenses and assets are recognized net ofthe amount of Goods and Services Tax (GST) except where the GST incurred on apurchase of goods and services is not recoverable from the taxation authority,in which case the GST is recognized as part of the cost of acquisition of theasset or as part of the expense item as applicable; and receivables andpayables are stated with the amount of GST included.  The net amount of GST recoverable from, orpayable to, the taxation authority is included as part of receivables orpayables in the balance sheet.

 

Cash flows are included in the cash flow statementon a gross basis and the GST component of cash flows arising from investing andfinancing activities, which is recoverable from, or payable to, the taxationauthority are classified as operating cash flows.  Commitments and contingencies are disclosednet of the amount of GST recoverable from, or payable to, the taxationauthority.

 

**(o)****   ****Cashand cash equivalents**

 

Cash and short-term deposits in the balance sheetcomprise cash at bank and in hand and short-term deposits with an originalmaturity of three months or less.  Forthe purposes of the cash flow statement, cash and cash equivalents consist ofcash and cash equivalents as defined above. Cash at bank earns interest at floating rates based on daily bankdeposit rates.  Short-term deposits aremade for varying periods of between one day and three months, depending on theimmediate cash requirements of the Group, and earn interest at the respectiveshort-term deposit rates.

 

**(p)****   ****Tradeand other receivables**

 

Tradereceivables, which are non-interest bearing and generally have terms of between30 to 90 days, are recognized and carried at original invoice amount less anallowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidencethat a receivable is impaired.  Suchevidence includes an assessment of the debtor’s ability and willingness to paythe amount due.  The amount of theallowance/impairment loss is measured as the difference between the carryingamount of the trade receivables and the estimated future cash flows expected tobe received from the relevant debtors. Details regarding interest rate and credit risk of current receivablesare disclosed in Note 36.

 

**(q)****   ****Consumables**

 

Consumablesprincipally comprise laboratory and other supplies and are valued at the lowerof cost and net realizable value. Consumable costs are recognized as the purchase price of items fromsuppliers plus freight inwards and any applicable landing charges.  Costs are assigned on the basis of weightedaverage costs.

 

**(r)****    ****Restrictedsecurity deposits**

 

Restricted security deposits include cash depositsheld as security for the performance of certain contractual obligations.

 

**(s)****    ****Investmentsand other financial assets**

 

All investments are initially recognized at cost,being the fair value of the consideration given plus directly attributabletransaction costs.  Other investments,which are classified as available-for-sale, are measured at fair value if thiscan reliably be determined or at cost where fair value cannot be reliablydetermined.  Gains or losses onavailable-for-sale investments are recognized as a separate component of equityuntil the investment is sold, or otherwise disposed of, or until the investmentis determined to be impaired, at which time the cumulative gain or losspreviously reported in equity is included in the income statement.

 

*Available-for-sale investments*

 

Available-for-sale investments consist ofinvestments in ordinary shares which have no fixed maturity date or couponrate.  After initial recognition,available-for-sale securities are measured at fair value with gains or lossesbeing recognized as a separate component of equity until such time as theinvestment is either derecognized or is determined to be impaired, at whichtime the cumulative gain or loss previously recognized in equity is recognizedin profit or loss.  The fair values ofinvestments that are actively traded in organized financial markets aredetermined by reference to the quoted market bid prices applicable as at theclose of business on the balance sheet date.

 

The fair value of unlisted available-for-sale investmentshas been estimated using valuation techniques based on assumptions that are notsupported by observable market prices or rates. Management believes the estimated fair values (where reliably measured)resulting from the valuation techniques and recorded in the balance sheet arereasonable and the most appropriate at the balance sheet date.  Any related changes in fair values aredirectly recorded in equity. Available-for-sale investments are measured at approximate market value,where fair value cannot be reliably determined.

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(t)****    ****Property,plant and equipment**

 

Plant and equipment is stated at cost lessaccumulated depreciation and any impairment in value.  Depreciation is calculated on either astraight-line or diminishing value basis over the estimated useful life of the respectiveasset as follows:

 
| Laboratory/veterinary  equipment – 3 to 5 years | Equipment under hire purchase – 3 years                           |
|------------------------------------------------------|------------------------------------------------------------------------|
| Computer equipment – 2 to 5 years               | Leasehold improvements – lease term, being between 4 and 10 years |
| Office equipment – 2 to 5 years                 |                                                                   |

 

Costs relating to day-to-day servicing of any itemof property, plant and equipment, which may include the cost of small parts,are recognized in profit or loss as incurred. The cost of replacing larger parts of some items of property, plant andequipment are capitalized when incurred and depreciated over the period untiltheir next scheduled replacement.

 

**(u)****   ****Intangibleassets**

 

*Patents*

 

Patents held by the Group are used in the licensing,testing and research areas and are carried at cost and amortized on astraight-line basis over their useful lives, being from 5 to 10 years.  External costs incurred in filing andprotecting patent applications, for which no future benefit is reasonablyassured, are expensed as incurred.

 

*Research and development costs*

 

Costs relating to research and developmentactivities are expensed as incurred.  Anintangible asset arising from development expenditure on an internal project isrecognized only when the Group can demonstrate the technical feasibility ofcompleting the intangible asset so that it will be available for use or sale,its intention to complete and its ability to use or sell the asset, how theasset will generate future economic benefits, the availability of resources tocomplete the development and the ability to measure reliably the expenditureattributable to the intangible asset during its development.  To date, all development costs have beenexpensed as incurred as their recoverability cannot be regarded as assured.

 

**(v)****    ****Goodwill**

 

Goodwill on acquisition is initially measured atcost, being the excess of the cost of the business combination over theacquirer’s interest in the net fair value of the identifiable assets,liabilities and contingent liabilities. Following its initial recognition, goodwill is measured at cost less anyaccumulated impairment losses.  Goodwillis not amortized.

 

Goodwill is reviewed for impairment at eachreporting date, or more frequently if events or changes in circumstancesindicate that the carrying value may be impaired.  Impairment is determined by assessing therecoverable amount of the cash-generating unit to which the goodwillrelates.  Where the recoverable amount ofthe cash-generating unit is less than the carrying amount,  an impairment loss is recognized.

 

Where goodwill forms part of a cash-generating unitand part of the operation within that unit is disposed of, the goodwillassociated with the operation disposed of is included in the carrying amount ofthe operation when determining the gain or loss on disposal of the operation.  Goodwill disposed of in this circumstance ismeasured on the basis of the relative values of the operation disposed of andthe portion of the cash-generating unit retained.

 

For the purpose of impairment testing, goodwillacquired in a business combination is, from the acquisition date, allocated toeach of the Group’s cash-generating units, or groups of cash-generating units,that are expected to benefit from the synergies of the combination,irrespective of whether other assets or liabilities of the Group are assignedto those units or groups of units.  Eachunit or group of units to which the goodwill is so allocated represents thelowest level within the Group at which the goodwill is monitored for internalmanagement purposes and is not larger than an operating segment in accordancewith *IFRS 8 Operating Segments*.

 

**(w)****   ****Impairmentof assets (other than goodwill)**

 

The Group assesses at each reporting date whetherthere is an indication that an asset may be impaired.  If any such indication exists, the Groupmakes an estimate of the asset’s recoverable amount.  An asset’s recoverable amount is the higherof its fair value less costs to sell and its value in use and is determined foran individual asset, unless the asset does not generate cash inflows that arelargely independent of those from other assets or groups of assets and theasset’s value-in-use cannot be estimated to be close to its fair value.  In such cases, the asset is tested forimpairment as part of the cash-generating unit to which it belongs.  When the carrying amount of an asset orcash-generating unit exceeds its recoverable amount, the asset orcash-generating unit is considered impaired and is written down to itsrecoverable amount.

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(w)****   ****Impairmentof assets (other than goodwill) (cont.)**

 

In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risksspecific to the asset.  Impairment lossesrelating to operations are recognized in those expense categories consistent withthe function of the impaired asset unless the asset is carried at its revaluedamount (in which case the impairment loss is treated as a revaluationdecrease).

 

An assessment is made at each reporting date as towhether there is any indication that previously recognized impairment lossesmay no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated.  A previously recognized impairment loss isreversed only if there has been a change in the estimates used to determine theasset’s recoverable amount since the last impairment loss was recognized.  If so, the carrying amount of the asset isincreased to its recoverable amount.  Theincreased amount cannot exceed the carrying amount that would have beendetermined, net of depreciation, had no impairment loss been recognized for theasset in prior years.  Such reversal isrecognized in profit or loss unless it reverses a decrement previously chargedto equity, in which case the reversal is treated as a revaluation increase.  After such a reversal, the depreciationcharge is adjusted in future periods to allocate the asset’s revised carryingamount, less any residual value, on a systematic basis over its remaininguseful life.

 

**(x)****   ****Tradeand other payables**

 

Trade payables and other payables are carried atamortized cost and represent future liabilities for goods and services providedto the Group prior to the end of the financial year that are unpaid and arisewhen the Group becomes obliged to make future payments in respect of thepurchase of these goods and services. Trade payables and other payables generally have terms of between 30 and60 days.

 

**(y)****   ****Leasesand hire purchase agreements**

 

Finance leases and hire purchase agreements, whichtransfer to the Group substantially all the risks and benefits incidental toownership of the leased item, are capitalized at the inception of the lease atthe fair value of the leased property or, if lower, at the present value of theminimum lease payments.

 

Lease and hire purchase payments are apportionedbetween finance charges and a reduction of the associated liability so as toachieve a constant rate of interest on the remaining balance of theliability.  Finance charges arerecognized as an expense in profit or loss. Capitalized leased assets and assets under hire purchase are depreciatedover the shorter of the estimated useful life of the asset or the term of theagreement.  Leases where the lessorretains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognized as an expense in the incomestatement on a straight-line basis over the lease term.

 

**(z)****   ****Deferredrevenue**

 

*Genetic testing revenues*

 

The Group operates testinglaboratories which provide genetic testing services.  The Group recognizes revenue from theprovision of testing services when the testing services have beencompleted.  Fees received in advance of thetesting process are deferred until such time as the Group completes its performanceobligations.

 

*License revenues and annuities*

 

License revenues received inrespect of future accounting periods are deferred until the Group has fulfilledits obligations under the terms of the agreement.  Where deferred revenue relates to a licenseagreement with a specific term but the Group has no future performanceobligations, the revenue is recognized on a straight-line accruals basis overthe term in accordance with the substance of the agreements.  Where revenue has been deferred because theGroup has future performance obligations, revenue is recognized as the Group’sperformance obligations are satisfied. Any costs incurred relating to this future revenue are also deferred.

 

Where a licence agreement providesfor the payment of regular annuities to the Group and the licensee has theright to terminate the agreement prior to the payment of those annuities withno penalty, the Group does not recognize revenue until such time as theassociated cash payments are received, as it is not considered probable thatthe benefits of the transaction will flow to the Group until cash collection ismade.  Where such annuities are paid inadvance, the revenue is allocated on a pro-rata basis with the balance being reflectedin the balance sheet as a deferred revenue liability.

 

*Grant revenues*

 

Grants are recognized whenthere is reasonable assurance that the grant will be received and all attachingconditions will be complied with.  Whenthe grant relates to an expense item, it is recognized as income over theperiods necessary to match the grant on a systematic basis to the costs that itis intended to compensate.  When thegrant relates to an asset, the fair value is credited to a deferred incomeaccount and is released to the income statement over the expected useful lifeof the relevant asset by equal annual instalments. 

 

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**2.****     ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (cont.)**

 

**(aa)**** ****Provisions**

 

Provisions are recognized when the Group has apresent obligation (legal or constructive) as a result of a past event, it isprobable that an outflow of resources embodying economic benefits will berequired to settle the obligation and a reliable estimate can be made of theamount of the obligation.  Where theGroup expects some or all of a provision to be reimbursed, the reimbursement isrecognized as a separate asset but only when the reimbursement is virtuallycertain.  The expense relating to anyprovision is presented in the income statement net of any reimbursement.  If the effect of the time value of money ismaterial, provisions are determined by discounting the expected future cashflows at a pre-tax rate that reflects current market assessments of the timevalue of money and, where appropriate, the risks specific to theliability.  Where discounting is used,the increase in the provision due to the passage of time is recognized as afinance cost.

 

**(ab)**** ****Employeebenefits**

 

Provisionis made for employee benefits accumulated as a result of employees renderingservices up to the reporting date.  Thesebenefits include wages and salaries, annual leave and long service leave.  Liabilities arising in respect of wages andsalaries, annual leave and any other employee benefits expected to be settledwithin twelve months of the reporting date are measured at their nominalamounts based on remuneration rates which are expected to be paid when theliability is settled.  All other employeebenefit liabilities are measured at the present value of the estimated futurecash outflow to be made in respect of services provided by employees up to thereporting date using the projected unit credit method.  Any unused sick leave is forfeited and notaccumulated at year end.  Expenses fornon-accumulating sick leave are recognized when the leave is taken during theyear and are measured at rates paid or payable.

 

Indetermining the present value of future cash outflows, the market yield as atthe reporting date on national government bonds, which have terms to maturityapproximating the terms of the related liability, are used.  Employee benefits expenses and revenuesarising in respect of wages and salaries, non-monetary benefits, annual leave,long service leave and other leave benefits and other types of employeebenefits are recognized against profits on a net basis in their respectivecategories.

 

**(ac)**** ****Contributedequity**

 

Issuedand paid up capital is recognized at the fair value of the considerationreceived by the Group.  Any transactioncosts arising on the issue of ordinary shares are recognized directly in equityas a deduction, net of tax, of the share proceeds received.  The Group has a share-based payment optionscheme under which options to subscribe for the Group’s shares have beengranted to certain executives and other employees (refer Note 31).

 

**(ad)**** ****Interest injoint venture operation**

 

TheGroup’s interest in its joint venture operation is accounted for by recognizingthe Group’s assets and liabilities from the joint venture, as well as expensesincurred by the Group and the Group’s share of income earned from the jointventure, in the consolidated financial statements.

 

**3.****     ****SIGNIFICANTACCOUNTING ESTIMATES AND JUDGEMENTS**

 

Estimates and judgements are evaluated andare based on historical experience and other factors, including expectations offuture events that may have a financial impact on the Group and that arebelieved to be reasonable under the circumstances.

 

**(a)****   ****Significantaccounting estimates and assumptions**

 

The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events.  The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of certain assets and liabilities within the next annual reporting period are set out below.

 

*Impairment of intangible assets and goodwill*

 

TheGroup determines whether intangible assets with indefinite useful lives,including goodwill, are impaired on at least a bi-annual basis, in accordance with theaccounting policies stated in Notes 2(u) and2(v). This process requires an estimation to be made of the recoverable amountof the cash-generating units to which the respective assets are allocated.  These calculations require the use ofassumptions which are detailed in Note 15.

 

*Useful lives of assets*

* *

The estimation of the useful lives of assets hasbeen based on historical experience as well as lease terms (for leasedequipment) and patent terms (for patents). In addition, the condition of the assets is assessed at least annuallyand considered against the remaining useful life and adjustments to usefullives are made when considered necessary. Depreciation and amortization expenses are detailed in Note 6.

 

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**3.****     ****SIGNIFICANT ACCOUNTING ESTIMATESAND JUDGEMENTS (cont.)**

 

**(a)**     Significant accounting estimates andassumptions (cont.)

 

*Share-based payments transactions*

 

The Group measures the cost of equity-settledtransactions with employees by reference to the value of the equity instrumentsat the date on which they are granted. The fair value is determined by an external valuer using a Black-Scholesoptions pricing model, using the assumptions detailed in Note 31.

 

*Income and withholdingtaxes*

 

The Group is subject to incomeand withholding taxes in both Australia and jurisdictions where it has foreignoperations.  Significant judgement isrequired in determining the worldwide provision for income and withholdingtaxes.  There are many transactions andcalculations undertaken during the ordinary course of business for which theultimate tax determination is uncertain. Where the final outcome of these matters is different from the amountsthat were initially recorded, such differences will impact the current,deferred and withholding tax provisions in the period in which suchdetermination is made (refer Notes 2(k), 2(l) and 2(n)).  In addition, the Group has considered the recognitionof deferred tax assets relating to carried forward tax losses to the extentthere are sufficient taxable temporary differences (deferred tax liabilities)relating to the same taxation authority and the same subsidiary against whichthe unused tax losses can be utilized. However, utilization of the tax losses also depends on the ability ofthe entity to satisfy certain tests at the time the losses are recouped.

 

**(b)**     Significant judgements in applying theentity’s accounting policies

 

*Research and development costs*

 

An intangible asset arising from developmentexpenditure on an internal project is recognized only when the Group candemonstrate the feasibility of completing the intangible asset so that it willbe available for use or sale, its intention to complete and its ability to useor sell the asset, how the asset will generate future economic benefits, theresources available to complete the development and the ability to measurereliably the expenditure attributable to the intangible asset during itsdevelopment.  To date, development costshave been expensed as incurred as their recoverability cannot be regarded asassured.  In addition to the costsincurred by the Group’s research and development group, costs of clinicaltrials are also included.  The costs ofresearch and development are expensed in full in the period in which they areincurred.  The Group will only capitalizeits development expenses when the specific milestones are met and when theGroup is able to demonstrate that future economic benefits are probable.

 

**4.****     ****OTHERREVENUE**

 
| **(Australian dollars)**          | ** ** | **2009**  | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-----------------------------------|------------|-----------|------------|------------|------------|------------|------------|
| ** **                        | ** ** | **$**     | ** ** | **$**      | ** ** | **$**      | ** ** |
| License fees received (note)      |       | 3,693,866 |       | 9,817,710  |       | 8,475,703  |       |
| Royalties and annuities  received |       | 1,697,848 |       | 913,033    |       | 2,596,985  |       |
| Interest received                 |       | 589,594   |       | 920,299    |       | 488,980    |       |
| Rental recovery                   |       | 30,613    |       | 31,945     |       | 31,945     |       |
| Miscellaneous revenue             |       | 93        |       | 6,133      |       | 1,684      |       |
|                              |       |      |       |       |       |       |       |
| Total other revenue               |       | 6,012,014 |       | 11,689,120 |       | 11,595,297 |       |

 

Note:   License fees receivedincludes credits drawn down under the Supply Agreement with Applera Corporation(refer Note 27) of $2,047,207 (2008: $1,057,135; 2007: $1,142,086).

 

**5.****     ****OTHERINCOME**

 
| Grants received and  related income                |   | 338,724  |   | 178,998 |   | 315,486 |   |
|----------------------------------------------------|--------|----------|--------|---------|--------|---------|--------|
| Net gain on disposal of  joint venture interest    |   | 185,000  |   | —  |   | —  |   |
| Net gain on disposal of  plant and equipment       |   | 100,811  |   | 17,608  |   | —  |   |
| Reversal of provision for  rehabilitation expenses |   | 94,987   |   | —  |   | —  |   |
| Net foreign exchange gains                         |   | 68,007   |   | —  |   | —  |   |
| Write-back of provision  for diminution of loan    |   | —   |   | 80,000  |   | —  |   |
| Net gain on disposal of  business                  |   | —   |   | —  |   | 25,000  |   |
|                                               |   |     |   |    |   |    |   |
| Total other income                                 |   | 787,529  |   | 276,606 |   | 340,486 |   |
|                                               |   |     |   |    |   |    |   |
| Net gain on disposal of  plant and equipment       |   |     |   |    |   |    |   |
| Proceeds from sale                                 |   | 338,269  |   | 70,611  |   | —  |   |
| Less: carrying value at  date of sale              |   | (237,458 | )      | (53,003 | )      | —  |   |
|                                               |   |     |   |    |   |    |   |
| Net gain on disposal of  plant and equipment       |   | 100,811  |   | 17,608  |   | —  |   |

 

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**6.****     ****EXPENSES**

 
| **(Australian dollars)** | ** ** | **2009**  | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------|------------|-----------|------------|----------|------------|----------|------------|
| ** **               | ** ** | **$**     | ** ** | **$**    | ** ** | **$**    | ** ** |
| **Cost of sales**        |       |      |       |     |       |     |       |
| Consumables used         |       | 1,524,881 |       | —   |       | —   |       |
| Direct labour costs      |       | 501,785   |       | —   |       | —   |       |
| Consumables written off  |       | 177,173   |       | —   |       | —   |       |
|                     |       |      |       |     |       |     |       |
| Total cost of sales      |       | 2,203,839 |       | —   |       | —   |       |

 

Note:    Refer also Note 2(h) inrelation to information regarding the treatment of cost of sales.

 
| **Employee benefits expenses**                     |   |      |   |      |   |      |   |
|----------------------------------------------------|--------|-----------|--------|-----------|--------|-----------|--------|
| Wages and salaries                                 |   | 4,206,580 |   | 4,255,535 |   | 3,573,292 |   |
| Consulting fees                                    |   | 763,490   |   | 863,538   |   | 792,759   |   |
| Superannuation                                     |   | 382,666   |   | 368,978   |   | 312,730   |   |
| Termination benefits                               |   | 345,000   |   | 82,500    |   | 87,500    |   |
| Directors’ fees                               |   | 286,194   |   | 316,260   |   | 188,674   |   |
| Payroll tax                                        |   | 266,783   |   | 213,077   |   | 174,401   |   |
| Staff recruitment,  training and amenities         |   | 132,841   |   | 255,964   |   | 151,636   |   |
| Fringe benefits tax                                |   | 67,940    |   | 36,841    |   | —    |   |
| Workers’ compensation  costs                  |   | 31,552    |   | 11,740    |   | 17,746    |   |
| Share-based payments  (credit)/expense             |   | (43,497   | )      | 164,533   |   | 257,906   |   |
|                                               |   |      |   |      |   |      |   |
| Total employee benefits  expenses                  |   | 6,439,549 |   | 6,568,966 |   | 5,556,644 |   |
| ** **                                         |   |      |   |      |   |      |   |
| **Amortization and depreciation  expenses**        |   |      |   |      |   |      |   |
| Patents                                            |   | 2,947,337 |   | 3,544,000 |   | 3,412,482 |   |
| Laboratory/veterinary  equipment                   |   | 726,704   |   | 670,417   |   | 479,079   |   |
| Equipment under hire  purchase                     |   | 187,678   |   | 392,573   |   | 537,335   |   |
| Computer equipment                                 |   | 78,890    |   | 113,129   |   | 144,778   |   |
| Office equipment                                   |   | 24,449    |   | 19,750    |   | 14,576    |   |
| Leasehold improvements                             |   | 21,602    |   | 15,286    |   | 14,742    |   |
| Motor vehicles                                     |   | 1,336     |   | —    |   | —    |   |
|                                               |   |      |   |      |   |      |   |
| Total amortization and  depreciation expenses      |   | 3,987,996 |   | 4,755,155 |   | 4,602,992 |   |
| ** **                                         |   |      |   |      |   |      |   |
| **Impairment losses and other  write-downs**       |   |      |   |      |   |      |   |
| Impairment loss on  available-for-sale investments |   | 245,959   |   | —    |   | —    |   |
| Doubtful debts expense                             |   | 71,357    |   | —    |   | —    |   |
| Bad debts written off                              |   | 709       |   | —    |   | —    |   |
| Impairment loss on patents                         |   | —    |   | 2,378,000 |   | 1,150,000 |   |
| Write-down of loans to  other parties              |   | —    |   | —    |   | 80,000    |   |
| Write-down of plant and  equipment                 |   | —    |   | —    |   | 76,960    |   |
|                                               |   |      |   |      |   |      |   |
| Total impairment losses  and other write-downs     |   | 318,025   |   | 2,378,000 |   | 1,306,960 |   |
| ** **                                         |   |      |   |      |   |      |   |
| **Finance costs**                                  |   |      |   |      |   |      |   |
| Other finance costs                                |   | 50,232    |   | 34,725    |   | 24,540    |   |
| Interest paid                                      |   | 39,267    |   | 32,038    |   | 66,389    |   |
|                                               |   |      |   |      |   |      |   |
| Total finance costs                                |   | 89,499    |   | 66,763    |   | 90,929    |   |
| ** **                                         |   |      |   |      |   |      |   |
| **Other expenses**                                 |   |      |   |      |   |      |   |
| Operating lease payments                           |   | 428,102   |   | 453,933   |   | 445,384   |   |

 

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**7.****     ****INCOME TAX**

 
| **(Australian dollars)**                                                               | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|----------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                             | ** ** | **$**      | ** ** | **$**      | ** ** | **$**      | ** ** |
| **Income  tax expense**                                                                |       |       |       |       |       |       |       |
| Current tax                                                                            |       | —     |       | —     |       | —     |       |
| Deferred tax                                                                           |       | —     |       | —     |       | —     |       |
|                                                                                   |       |       |       |       |       |       |       |
| Aggregate income tax  expense                                                          |       | —     |       | —     |       | —     |       |
|                                                                                   |       |       |       |       |       |       |       |
| **Reconciliation  of income tax expense****to prima facie tax payable**                |       |       |       |       |       |       |       |
| Loss before income tax  expense                                                        |       | (7,858,321 | )          | (5,451,638 | )          | (4,345,702 | )          |
|                                                                                   |       |       |       |       |       |       |       |
| Tax  at the Australian tax rate of 30% (2008: 30%; 2007: 30%)                          |       | (2,357,496 | )          | (1,635,491 | )          | (1,303,711 | )          |
|                                                                                   |       |       |       |       |       |       |       |
| Tax effect amounts which  are not deductible / (taxable) in calculating taxable income |       |       |       |       |       |       |       |
|                                                                                   |       |       |       |       |       |       |       |
| Share-based payments  expense                                                          |       | (13,049    | )          | 49,360     |       | 77,372     |       |
| Research and development  expenses                                                     |       | (300,000   | )          | (300,000   | )          | (206,646   | )          |
| Withholding tax expense                                                                |       | 26,886     |       | 28,357     |       | 79,317     |       |
| Other non-deductible items                                                             |       | 3,559      |       | 8,704      |       | 26,690     |       |
|                                                                                   |       |       |       |       |       |       |       |
| ** **                                                                             |       | (2,640,100 | )          | (1,849,070 | )          | (1,326,978 | )          |
| ** **                                                                             |       |       |       |       |       |       |       |
| Tax effect of adjustments  relating to temporary differences                           |       |       |       |       |       |       |       |
|                                                                                   |       |       |       |       |       |       |       |
| Amortization, impairment  and depreciation expenses                                    |       | 1,196,399  |       | 1,894,372  |       | 1,622,603  |       |
| Net movements in  provisions                                                           |       | (7,579     | )          | 44,145     |       | (202,337   | )          |
| Settlement proceeds from  Applera Corporation                                          |       | (614,162   | )          | (317,141   | )          | (342,627   | )          |
| Other                                                                                  |       | (117,256   | )          | (5,964     | )          | 225,153    |       |
| Tax losses now utilized                                                                |       | —     |       | —     |       | —     |       |
| Tax losses not recognized                                                              |       | 2,182,698  |       | 233,658    |       | 24,186     |       |
|                                                                                   |       |       |       |       |       |       |       |
| Income tax expense                                                                     |       | —     |       | —     |       | —     |       |
|                                                                                   |       |       |       |       |       |       |       |
| **Deferred  tax assets**                                                               |       |       |       |       |       |       |       |
| Withholding tax                                                                        |       | 370,346    |       | 326,361    |       | 324,837    |       |
| Deferred revenue                                                                       |       | 68,702     |       | 41,682     |       | 96,395     |       |
| Applera settlement                                                                     |       | 922,847    |       | 1,537,010  |       | 1,910,790  |       |
| Intangible assets                                                                      |       | 562,004    |       | —     |       | —     |       |
| Doubtful debts                                                                         |       | 33,900     |       | —     |       | 24,000     |       |
| Amortization of hire  purchase assets                                                  |       | 187,678    |       | 392,573    |       | 537,335    |       |
| Provisions                                                                             |       | 220,299    |       | 227,878    |       | 183,733    |       |
| Other                                                                                  |       | —     |       | —     |       | 34,567     |       |
|                                                                                   |       |       |       |       |       |       |       |
| Total deferred tax assets                                                              |       | 2,365,776  |       | 2,525,504  |       | 3,111,657  |       |
|                                                                                   |       |       |       |       |       |       |       |
| Set-off of deferred tax  liabilities pursuant to set-off provisions (refer below)      |       | —     |       | (223,898   | )          | (1,947,198 | )          |
|                                                                                   |       |       |       |       |       |       |       |
| Deferred tax assets on  temporary differences not brought to account                   |       | (2,365,776 | )          | (2,301,606 | )          | (1,164,459 | )          |
|                                                                                   |       |       |       |       |       |       |       |
| Total net deferred tax  assets                                                         |       | —     |       | —     |       | —     |       |

 

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**7.****     ****INCOME TAX (cont.)**

 
| **(Australian dollars)**                                               | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                             | ** ** | **$**      | ** ** | **$**      | ** ** | **$**      | ** ** |
| **Deferred  tax liabilities**                                          |       |       |       |       |       |       |       |
| Intangible assets                                                      |       | —     |       | (223,898   | )          | (1,947,198 | )          |
|                                                                   |       |       |       |       |       |       |       |
| Total deferred tax  liabilities                                        |       | —     |       | (223,898   | )          | (1,947,198 | )          |
| ** **                                                             |       |       |       |       |       |       |       |
| **Tax  losses**                                                        |       |       |       |       |       |       |       |
| Unused tax losses for  which no deferred tax asset has been recognized |       | 28,566,045 |       | 21,290,385 |       | 19,245,772 |       |
|                                                                   |       |       |       |       |       |       |       |
| Deferred tax asset @ 30%                                               |       | 8,569,813  |       | 6,387,116  |       | 5,773,732  |       |

 

Subjectto the Group continuing to meet relevant statutory tests, the tax losses areavailable for offset against future taxable income.

 

**Taxconsolidation legislation**

 

Genetic TechnologiesLimited and its wholly-owned Australian subsidiaries implemented the taxconsolidation legislation as from July 1, 2003. The accounting policy in relation to this legislation is set out in Note2(k).

 

The entities in the taxconsolidated group have entered into a Tax Sharing Agreement which, in theopinion of the Directors, limits the joint and several liabilities of thewholly-owned entities in the case of a default by the head entity, GeneticTechnologies Limited.

 

The entities have alsoentered into a Tax Funding Agreement under which the wholly-owned entitiesfully compensate Genetic Technologies Limited for any current tax payableassumed and are compensated by Genetic Technologies Limited for any current taxreceivable and deferred tax assets relating to unused tax losses or unused taxcredits that are transferred to Genetic Technologies Limited under the taxconsolidation legislation.  The fundingamounts are determined by reference to the amounts recognized in thesubsidiaries’ financial statements.

 

The amounts receivableor payable under the Tax Funding Agreement are due upon receipt of the fundingadvice from the head entity, which is issued as soon as practicable after theend of each financial year.  During theyear ended June 30, 2008, Genetic Technologies Limited assumed $1,344,005of losses from members of the tax consolidated group (2009: $nil; 2007:$nil).  Payment for these amounts hasbeen settled through the intercompany account in accordance with the TaxFunding Agreement.

 

As at June 30, 2009,there are no unrecognized temporary differences associated with the Group’sinvestments in subsidiaries or joint venture, as the Group has no liability foradditional taxation should unremitted earnings be remitted (2008: $nil).

 

**8.****     ****LOSS PER SHARE**

 

Thefollowing reflects the income and share data used in the calculations of basicand diluted loss per share:

 
| **(Australian dollars)**                                                       | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|--------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                                                                     | ** ** | **$**       | ** ** | **$**       | ** ** | **$**       | ** ** |
| Loss for the year                                                              |       | (7,858,321  | )          | (5,451,638  | )          | (4,345,702  | )          |
| Loss attributable to  minority interests                                       |       | 17,248      |       | 5,549       |       | 17,159      |       |
|                                                                           |       |        |       |        |       |        |       |
| Loss used in calculating  loss per share                                       |       | (7,841,073  | )          | (5,446,089  | )          | (4,328,543  | )          |
|                                                                           |       |        |       |        |       |        |       |
| Weighted average number of  ordinary shares used in calculating loss per share |       | 373,906,149 |       | 362,389,899 |       | 362,389,899 |       |

 

Therehave been no other transactions involving ordinary or potential ordinary sharesbetween the reporting date and the date of these financial statements.

 

Noneof the 4,400,000 (2008: 11,175,602; 2007: 12,577,500) options are considered tobe dilutive for the purposes of calculating diluted loss per share and havetherefore been excluded from the weighted average number of shares.

 

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**9.****     ****CASHAND CASH EQUIVALENTS**

 
| **(Australian dollars)**                         | ** ** | **2009**  | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|
| ** **                                       | ** ** | **$**     | ** ** | **$**      | ** ** | **$**      | ** ** |
| **Reconciliation of cash and cash  equivalents** |       |      |       |       |       |       |       |
| Cash at bank and on hand                         |       | 3,076,902 |       | 5,490,846  |       | 11,303,764 |       |
| Short-term deposits                              |       | 4,750,000 |       | 7,429,926  |       | 2,029,986  |       |
|                                             |       |      |       |       |       |       |       |
| Current cash and cash  equivalents               |       | 7,826,902 |       | 12,920,772 |       | 13,333,750 |       |
| Current cash deposits (refer note)               |       | —    |       | 450,000    |       | 450,000    |       |
|                                             |       |      |       |       |       |       |       |
| Total cash and cash  equivalents                 |       | 7,826,902 |       | 13,370,772 |       | 13,783,750 |       |

 

Note:   As at June 30, 2008 and 2007,cash amounting to $450,000 was held on deposit as security for a bank guarantee(refer Note 12).  As at June 30, 2009,cash amounting to $301,432 was held on deposit as security for the Company’shire purchase obligations (refer Notes 17 and 20).

 

**Reconciliationof operating loss**

Reconciliation of operating loss after income tax tonet cash flows used in or provided by operating activities is as follows:

 
| Operating loss after  income tax                    |   | (7,858,321 | )      | (5,451,638 | )      | (4,345,702 | )      |
|-----------------------------------------------------|--------|------------|--------|------------|--------|------------|--------|
| * *                                            |   |       |   |       |   |       |   |
| *Adjust for non-cash items*                         |   |       |   |       |   |       |   |
| Amortization and depreciation  expenses             |   | 3,987,996  |   | 4,755,155  |   | 4,602,992  |   |
| Share-based payments  (credit)/expense              |   | (43,497    | )      | 164,533    |   | 257,906    |   |
| Impairment losses and  other write-downs            |   | 318,025    |   | 2,378,000  |   | 1,306,960  |   |
| Net draw-downs under  Applera settlement (Note 27)  |   | (1,801,628 | )      | (602,395   | )      | (747,533   | )      |
| Net foreign exchange  (gains)/losses                |   | (68,007    | )      | 254,954    |   | 317,497    |   |
| Net gain on disposal of  plant and equipment        |   | (100,811   | )      | (17,608    | )      | 33,307     |   |
| Fair value of listed  shares acquired               |   | (85,000    | )      | —     |   | —     |   |
| * *                                            |   |       |   |       |   |       |   |
| *Adjust for changes in assets  and liabilities*     |   |       |   |       |   |       |   |
| (Increase)/decrease in  trade and other receivables |   | (232,501   | )      | (949,792   | )      | 753,678    |   |
| (Increase)/decrease in  prepayments/other assets    |   | 410,400    |   | (305,275   | )      | 79,485     |   |
| (Increase)/decrease in  other financial assets      |   | 68,917     |   | 7,781      |   | 9,065      |   |
| Increase/(decrease) in  trade and other payables    |   | 372,145    |   | 222,760    |   | 153,274    |   |
| Increase/(decrease) in  deferred revenue            |   | 90,067     |   | (182,376   | )      | 287,638    |   |
| Increase/(decrease) in  withholding tax payable     |   | 43,985     |   | 1,524      |   | (275,629   | )      |
| Increase/(decrease) in provisions                   |   | (25,261    | )      | 147,147    |   | 164,308    |   |
|                                                |   |       |   |       |   |       |   |
| Net cash flows (used in)/from  operating activities |   | (4,923,491 | )      | 422,770    |   | 2,597,246  |   |

 

**Financingfacilities available**

Asat June 30, 2009, the following financing facilities had been negotiated andwere available:

 
| *Total facilities*                        |   |      |   |      |   |      |   |
|-------------------------------------------|--------|-----------|--------|-----------|--------|-----------|--------|
| Hire purchase facility                    |   | 2,500,000 |   | 2,500,000 |   | 2,500,000 |   |
| Credit cards                              |   | 147,000   |   | 145,000   |   | 110,000   |   |
| * *                                  |   |      |   |      |   |      |   |
| *Facilities used as at reporting  date*   |   |      |   |      |   |      |   |
| Hire purchase facility (Note 29)          |   | (373,444  | )      | (298,199  | )      | (523,967  | )      |
| Credit cards                              |   | (22,958   | )      | (32,272   | )      | (19,797   | )      |
| * *                                  |   |      |   |      |   |      |   |
| *Facilities unused as at  reporting date* |   |      |   |      |   |      |   |
| Hire purchase facility                    |   | 2,126,556 |   | 2,201,801 |   | 1,976,033 |   |
| Credit cards                              |   | 124,042   |   | 112,728   |   | 90,203    |   |

 

**Non-cashactivities**

During the financial year, the Group acquired plantand equipment with an aggregate fair value of $269,420 (2008: $333,444) bymeans of hire purchase agreements (refer Note 29).  The Group also acquired laboratory equipmentwith an aggregate fair value of $1,801,628 (2008: $602,345) from draw downsmade under the Supply Agreement with Applera Corporation (refer Note 27).

 

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**10.****          ****TRADEAND OTHER RECEIVABLES****(CURRENT)**

 
| **(Australian dollars)**                   | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|--------------------------------------------|------------|-----------|------------|-----------|------------|
| ** **                                 | ** ** | **$**     | ** ** | **$**     | ** ** |
| Trade receivables                          |       | 1,892,766 |       | 1,499,428 |       |
| Less: provision for  doubtful debts        |       | (113,000  | )          | —    |       |
| Net trade receivables                      |       | 1,779,766 |       | 1,499,428 |       |
| Other receivables                          |       | 44,355    |       | 96,010    |       |
| Accrued interest                           |       | 5,118     |       | 1,300     |       |
| Total current trade and  other receivables |       | 1,829,239 |       | 1,596,738 |       |

 

Note:         Tradereceivables and other receivables include amounts due in European Euros of EUR90,000 (2008: EUR 90,000), US dollars of USD 82,744 (2008: USD 68,100), Chineseyuan of CNY 4,835 (2008: nil) and Swiss francs of CHF 1,226 (2008: nil).

 

ReferNote 36 for details of aging, interest rate and credit risks applicable totrade and other receivables for which, due to their short-term nature, theircarrying value approximates their fair value.

 

**11.****          ****PREPAYMENTSAND OTHER ASSETS****(CURRENT)**

 
| Prepayments                                                |   | 144,438 |   | 595,558 |   |
|------------------------------------------------------------|--------|---------|--------|---------|--------|
| Consumables at the lower  of cost and net realizable value |   | 320,387 |   | 261,667 |   |
| Total current prepayments  and other assets                |   | 446,825 |   | 857,225 |   |

 

**12.****          ****PERFORMANCEBOND AND DEPOSITS****(CURRENT)**

 
| Other deposits                               |   | 200    |   | 200     |   |
|----------------------------------------------|--------|--------|--------|---------|--------|
| Deposit for bank guarantee  (note)           |   | — |   | 450,000 |   |
| Performance bond                             |   | — |   | 68,917  |   |
| Total current performance  bond and deposits |   | 200    |   | 519,117 |   |

 

Note:         As at 30 June 2008, cashamounting to $450,000 was held on deposit as security for a bank guarantee ofless than 12 month’s duration. Refer Note 36 for details pertaining to theperformance bond and other deposits.

 

**13.****          ****AVAILABLE-FOR-SALEINVESTMENTS****(NON-CURRENT)**

 
| Listed shares, at fair  value                     |   | 255,000  |   | —  |   |
|---------------------------------------------------|--------|----------|--------|---------|--------|
| Unlisted shares, at fair  value                   |   | 245,959  |   | 207,195 |   |
| Less: accumulated  impairment losses              |   | (245,959 | )      | —  |   |
| Total non-current  available-for-sale investments |   | 255,000  |   | 207,195 |   |

 

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**14.****          ****PROPERTY,PLANT AND EQUIPMENT**

 
| **(Australian dollars)**                             | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                           | ** ** | **$**      | ** ** | **$**      | ** ** |
| Laboratory/veterinary  equipment, at cost            |       | 5,706,939  |       | 3,853,103  |       |
| Less: accumulated  depreciation                      |       | (3,266,741 | )          | (2,630,340 | )          |
| Net laboratory/veterinary  equipment                 |       | 2,440,198  |       | 1,222,763  |       |
| Computer equipment, at  cost                         |       | 799,595    |       | 726,020    |       |
| Less: accumulated  depreciation                      |       | (706,404   | )          | (631,150   | )          |
| Net computer equipment                               |       | 93,191     |       | 94,870     |       |
| Office equipment, at cost                            |       | 208,201    |       | 162,912    |       |
| Less: accumulated  depreciation                      |       | (139,192   | )          | (111,865   | )          |
| Net office equipment                                 |       | 69,009     |       | 51,047     |       |
| Equipment under hire  purchase, at cost              |       | 1,803,996  |       | 1,895,669  |       |
| Less: accumulated  depreciation                      |       | (1,456,175 | )          | (1,605,097 | )          |
| Net equipment under hire  purchase                   |       | 347,821    |       | 290,572    |       |
| Leasehold improvements, at  cost                     |       | 129,142    |       | 92,209     |       |
| Less: accumulated  depreciation                      |       | (69,336    | )          | (47,704    | )          |
| Net leasehold improvements                           |       | 59,806     |       | 44,505     |       |
| Total net property, plant  and equipment             |       | 3,010,025  |       | 1,703,757  |       |
| **Reconciliation of property,  plant and equipment** |       |       |       |       |       |
| Opening gross carrying  amount                       |       | 6,729,913  |       | 5,897,162  |       |
| Add: additions purchased  during the year            |       | 2,282,764  |       | 1,023,536  |       |
| Add: additions from  acquisition of subsidiary       |       | 301,621    |       | —     |       |
| Less: disposals made  during the year                |       | (666,425   | )          | (190,785   | )          |
| Closing gross carrying  amount                       |       | 8,647,873  |       | 6,729,913  |       |
| Opening accumulated  depreciation                    |       | (5,026,156 | )          | (3,952,783 | )          |
| Add: depreciation expense  charged                   |       | (1,040,659 | )          | (1,211,155 | )          |
| Less: disposals made  during the year                |       | 428,967    |       | 137,782    |       |
| Closing accumulated  depreciation                    |       | (5,637,848 | )          | (5,026,156 | )          |
| Total net property, plant  and equipment             |       | 3,010,025  |       | 1,703,757  |       |

 
| ** **                       | ** ** | **Opening**      | ** ** | ** **      | ** ** | **Additions**     | ** ** | ** **        | ** ** | ** **       | ** ** | **Closing**      | ** ** |
|----------------------------------|------------|------------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                       | ** ** | **net carrying** | ** ** | **Additions**   | ** ** | **from acq.**     | ** ** | **Net disposals** | ** ** | **Depreciation** | ** ** | **net carrying** | ** ** |
| **Asset category**               | ** ** | **amount**       | ** ** | **during year** | ** ** | **of subsidiary** | ** ** | **during year**   | ** ** | **expense**      | ** ** | **amount**       | ** ** |
| ** **                       | ** ** | **$**            | ** ** | **$**           | ** ** | **$**             | ** ** | **$**             | ** ** | **$**            | ** ** | **$**            | ** ** |
| Laboratory/veterinary  equipment |       | 1,222,763        |       | 1,893,851       |       | 58,655            |       | (8,367            | )          | (726,704         | )          | 2,440,198        |       |
| Computer equipment               |       | 94,870           |       | 77,211          |       | —            |       | —            |       | (78,890          | )          | 93,191           |       |
| Office equipment                 |       | 51,047           |       | 32,806          |       | 9,605             |       | —            |       | (24,449          | )          | 69,009           |       |
| Equipment under hire  purchase   |       | 290,572          |       | 244,927         |       | —            |       | —            |       | (187,678         | )          | 347,821          |       |
| Leasehold improvements           |       | 44,505           |       | 33,969          |       | 2,934             |       | —            |       | (21,602          | )          | 59,806           |       |
| Motor vehicles                   |       | —           |       | —          |       | 230,427           |       | (229,091          | )          | (1,336           | )          | —           |       |
| Totals                           |       | 1,703,757        |       | 2,282,764       |       | 301,621           |       | (237,458          | )          | (1,040,659       | )          | 3,010,025        |       |

 

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**15.****          ****INTANGIBLEASSETS AND GOODWILL**

 
| **(Australian dollars)**                                | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|---------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ** **                                              | ** ** | **$**       | ** ** | **$**       | ** ** |
| **Patents**(refer notes  below)                         |       |        |       |        |       |
| Patents, at cost                                        |       | 36,319,304  |       | 36,059,673  |       |
| Less: accumulated  amortization and impairment losses   |       | (33,292,255 | )          | (30,085,287 | )          |
| Net patents                                             |       | 3,027,049   |       | 5,974,386   |       |
| **Goodwill**(refer notes  below)                        |       |        |       |        |       |
| Goodwill, at cost                                       |       | 1,582,491   |       | 315,388     |       |
| Total net intangible  assets and goodwill               |       | 4,609,540   |       | 6,289,774   |       |
| **Reconciliation of patents**                           |       |        |       |        |       |
| Opening gross carrying  amount                          |       | 36,059,673  |       | 35,929,621  |       |
| Adjust for exchange rate  movements                     |       | 259,631     |       | 130,052     |       |
| Closing gross carrying  amount                          |       | 36,319,304  |       | 36,059,673  |       |
| Opening accumulated  amortization and impairment losses |       | (30,085,287 | )          | (24,033,235 | )          |
| Add: amortization expense  charged                      |       | (2,947,337  | )          | (3,544,000  | )          |
| Less: impairment loss (refer notes  below)              |       | —      |       | (2,378,000  | )          |
| Adjust for exchange rate  movements                     |       | (259,631    | )          | (130,052    | )          |
| Closing accumulated  amortization and impairment losses |       | (33,292,255 | )          | (30,085,287 | )          |
| Total net patents                                       |       | 3,027,049   |       | 5,974,386   |       |
| **Reconciliation of goodwill**                          |       |        |       |        |       |
| Opening gross carrying  amount                          |       | 315,388     |       | 315,388     |       |
| Add: acquisition of  goodwill (refer notes below)       |       | 1,267,103   |       | —      |       |
| Total net goodwill                                      |       | 1,582,491   |       | 315,388     |       |

 

**Impairment notes**

 

*Business combination*

 

The opening net book amount of patents and goodwillwere purchased as part of various business combinations completed in previousyears.  Goodwill was acquired during theyear ended June 30, 2009 from the purchase of Frozen Puppies Dot Com Pty.Ltd. (refer Note 34).

 

*Goodwill*

 

Goodwillis allocated to the Group’s cash-generating units (CGUs) on the basis of theappropriate operating segment.  The Group’sgoodwill has been allocated to the canine reproductive services business withinthe operations segment and is carried at cost. There is no carrying amount of intangible assets with indefinite usefullives allocated to this segment.  Intesting goodwill for impairment, the recoverable amount of a CGU is determinedbased on fair value less costs to sell. With regard to the assessment of the value in use of the caninereproductive services business, Management believes that no reasonably possiblechange in any of the following key assumptions would cause the carrying valueof the CGU to materially exceed its recoverable amount.  The Directors have used the following keyassumptions in determining the value in use calculations:

 

·                  *Businessmodel* - the existing canine reproductive services business model is expectedto increase margins based on expenditure forecasts and expected efficiencyimprovements.  In addition, theacquisition of the business was made less than 12 months ago and has recorded aprofit in the 2009 financial year.

 

·                  *Marketshare* - Management expects that growth in the Group’s share of the caninereproductive services market is achievable due to the expansion of facilitiesand the introduction of new products during the next three years and thebenefit of being the major provider of these services in Australia and thesurrounding region.

 

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**15.****          ****INTANGIBLEASSETS AND GOODWILL (cont.)**

 

**Impairment notes (cont.)**

 

*Aggregated impairments*

 

Impairmentlosses have arisen in prior years in respect of patents held within theresearch segment that resulted from a lack of progress with the researchrelated to the commercialization of certain applications of the technologycovered by these patents.  Managementdoes not consider any other reasonably possible change in assumptions wouldcause the carrying amount of the CGU to exceed the recoverable amount.  No class of intangible asset or goodwill wasimpaired during the year ended June 30, 2009.  Further, no change in the useful economiclife of these patents was noted.  Theremaining amortization period of the patents carried forward ranges between oneto three years.

 

**16.****          ****TRADEAND OTHER PAYABLES****(CURRENT)**

 
| **(Australian dollars)**                | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|-----------------------------------------|------------|-----------|------------|-----------|------------|
| ** **                              | ** ** | **$**     | ** ** | **$**     | ** ** |
| Trade payables                          |       | 1,624,290 |       | 1,292,009 |       |
| Other payables                          |       | 194,022   |       | 228,464   |       |
| Accrued expenses                        |       | 340,245   |       | 265,939   |       |
| Total current trade and  other payables |       | 2,158,557 |       | 1,786,412 |       |

 

Note:         Trade payablesand other payables include amounts due in US dollars of USD 193,342 (2008: USD134,166), Canadian dollars of CAD 10,520 (2008: CAD 5,211), Japanese yen of JPY51,951 (2008: nil), Chinese yuan of CNY 7,791 (2008: nil), Swiss francs of CHF4,190 (2008: CHF 2,870), New Zealand dollars of NZD 1,318 (2008: nil) andEuropean euros of EUR nil (2008: EUR 22,531).

 

ReferNote 36 for details of contractual maturity and management of interest rate,foreign exchange and liquidity risks applicable to trade and other payables forwhich, due to their short-term nature, their carrying value approximates theirfair value.

 

**17.****          ****INTEREST-BEARINGLIABILITIES****(CURRENT)**

 
| Hire purchase liability (Notes 29 and  36)  |   | 373,444 |   | 111,117 |   |
|---------------------------------------------|--------|---------|--------|---------|--------|
| Total current  interest-bearing liabilities |   | 373,444 |   | 111,117 |   |

 

Note:         The carryingvalues of the hire purchase liabilities approximate their fair values.  As at June 30, 2009, the Group hadbreached one of the covenants of the Master Asset Finance Facility whichgoverns the hire purchase agreements. Subsequent to balance date, National Australia Bank Limited provided theGroup with a letter waiving its right to take any further action in respect ofthe breach.  As a result of the breach,however, all liabilities in respect of the hire purchase agreements as at June 30,2009 have been classified as current liabilities in the balance sheet.  There were no breaches of the Facility duringthe year ended June 30, 2008.

 

**18.****          ****DEFERREDREVENUE****(CURRENT)**

 
| Genetic testing fees  received in advance      |   | 152,392 |   | 138,941 |   |
|------------------------------------------------|--------|---------|--------|---------|--------|
| Reproductive service fees  received in advance |   | 76,616  |   | —  |   |
| Total current deferred  revenue                |   | 229,008 |   | 138,941 |   |

 

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**19.****          ****PROVISIONS****(CURRENT AND NON-CURRENT)**

 
| **(Australian dollars)**                                  | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                | ** ** | **$**      | ** ** | **$**      | ** ** |
| **Current provisions**                                    |       |       |       |       |       |
| Annual leave                                              |       | 396,198    |       | 368,492    |       |
| Long service leave                                        |       | 251,832    |       | 220,692    |       |
| Rehabilitation costs                                      |       | —     |       | 94,987     |       |
| Total current provisions                                  |       | 648,030    |       | 684,171    |       |
| **Non-current provisions**                                |       |       |       |       |       |
| Long service leave                                        |       | 86,301     |       | 75,421     |       |
| Total non-current  provisions                             |       | 86,301     |       | 75,421     |       |
| Total provisions                                          |       | 734,331    |       | 759,592    |       |
| **Reconciliation of annual leave  provision**             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at the beginning  of the financial year           |       | 368,492    |       | 294,419    |       |
| Add: obligation accrued  during the year                  |       | 392,647    |       | 272,763    |       |
| Less: utilized during the  year                           |       | (364,941   | )          | (198,690   | )          |
| Balance at the end of the  financial year                 |       | 396,198    |       | 368,492    |       |
| **Reconciliation of long service  leave provision**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at the beginning  of the financial year           |       | 296,113    |       | 239,528    |       |
| Add: obligation accrued  during the year                  |       | 45,656     |       | 56,585     |       |
| Less: utilized during the  year                           |       | (3,636     | )          | —     |       |
| Balance at the end of the  financial year                 |       | 338,133    |       | 296,113    |       |
| **Reconciliation of provision for  rehabilitation costs** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at the beginning  of the financial year           |       | 94,987     |       | 78,498     |       |
| Add: costs accrued during  the year                       |       | —     |       | 16,489     |       |
| Less: obligations sold  during the year                   |       | (94,987    | )          | —     |       |
| Balance at the end of the  financial year                 |       | —     |       | 94,987     |       |

 

**20.****          ****INTEREST-BEARINGLIABILITIES****(NON-CURRENT)**

 
| Hire purchase liability (Notes 29 and  36)      |   | — |   | 187,082 |   |
|-------------------------------------------------|--------|--------|--------|---------|--------|
| Total non-current  interest-bearing liabilities |   | — |   | 187,082 |   |

 

Note:         The carryingvalues of the hire purchase liabilities approximate their fair values.  As at June 30, 2009, the Group hadbreached one of the covenants of the Master Asset Finance Facility whichgoverns the hire purchase agreements. Subsequent to balance date, National Australia Bank Limited provided theGroup with a letter waiving its right to take any further action in respect ofthe breach.  As a result of the breach,however, all liabilities in respect of the hire purchase agreements as at June 30,2009 have been classified as current liabilities in the balance sheet.  There were no breaches of the Facility duringthe year ended June 30, 2008.

 

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**21.****          ****CONTRIBUTEDEQUITY**

 
| **(Australian dollars)**       | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **$**      | ** ** | **$**      | ** ** |
| **Issued and paid-up capital** |       |       |       |       |       |
| Fully paid ordinary shares     |       | 71,285,663 |       | 70,243,996 |       |
| Total contributed equity       |       | 71,285,663 |       | 70,243,996 |       |

 
| ** **                                      | ** ** | **2009**    | ** ** | **2008**   | ** ** |
|-------------------------------------------------|------------|-------------|------------|------------|------------|
| **Movements  in shares on issue**               | ** ** | **Shares**  | ** ** | **$**      | ** ** | **Shares** | ** ** | **$** | ** ** |
| Balance at the beginning  of the financial year |       | 362,389,899 |       | 70,243,996 |       | 362,389,899 |   | 70,243,996 |   |
| Add: shares issued during  the year (Note 34)   |       | 12,254,902  |       | 1,041,667  |       | — |   | — |   |
| Balance at the end of the  financial year       |       | 374,644,801 |       | 71,285,663 |       | 362,389,899 |   | 70,243,996 |   |

 

**Terms and conditions of contributed equity**

 

Ordinary shares have theright to receive dividends as declared and, in the event of winding up theCompany, to participate in the proceeds from the sale of all surplus assets inproportion to the number of and amounts paid up on shares held.  Ordinary shares entitle their holder to onevote, either in person or by proxy, at a meeting of the Company.

 

**Capital management**

 

When managing capital,Management’s objective is to ensure that the Group continues as a going concernas well as to maintain optimal returns for shareholders and benefits for otherstakeholders.  Management also aims tomaintain a capital structure that ensures the lowest cost of capital availableto the entity.  The Group is not subjectto any externally imposed capital requirements.

 

**22.****          ****RESERVES**

 
| **(Australian dollars)**                                    | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                  | ** ** | **$**      | ** ** | **$**      | ** ** |
| Foreign currency  translation                               |       | (61,338    | )          | (47,930    | )          |
| Share-based payments                                        |       | 1,593,237  |       | 1,636,734  |       |
| Net unrealized gains  reserve                               |       | 170,000    |       | —     |       |
| Total reserves                                              |       | 1,701,899  |       | 1,588,804  |       |
| **Reconciliation of foreign  currency translation reserve** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at the beginning  of the financial year             |       | (47,930    | )          | (15,306    | )          |
| Add: net currency  translation loss                         |       | (13,408    | )          | (32,624    | )          |
| Balance at the end of the  financial year                   |       | (61,338    | )          | (47,930    | )          |
| **Reconciliation of share-based  payments reserve**         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at the beginning  of the financial year             |       | 1,636,734  |       | 1,472,201  |       |
| Add: share-based payments                                   |       | (43,497    | )          | 164,533    |       |
| Balance at the end of the  financial year                   |       | 1,593,237  |       | 1,636,734  |       |
| **Reconciliation of net  unrealized gains reserve**         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at the beginning  of the financial year             |       | —     |       | —     |       |
| Add: net unrealized gains                                   |       | 170,000    |       | —     |       |
| Balance at the end of the  financial year                   |       | 170,000    |       | —     |       |

 

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**22.****          ****RESERVES(cont.)**

 

**Nature and purpose of reserves**

 

*Foreign currency translation reserve*

 

This reserve is used torecord exchange differences arising from the translation of the financialstatements of foreign subsidiaries.

 

*Share-based payments reserve*

 

This reserve is used torecord the value of share-based payments provided to employees and othersproviding similar services as part of their remuneration.

 

*Net unrealized gains reserve*

 

This reserve is used torecord movements in the fair value of available-for-sale investments.

 

**23.****          ****ACCUMULATEDLOSSES**

 
| **(Australian dollars)**                                               | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ** **                                                             | ** ** | **$**       | ** ** | **$**       | ** ** |
| Balance at the beginning  of the financial year                        |       | (51,189,189 | )          | (45,743,100 | )          |
| Add: net loss attributable  to members of Genetic Technologies Limited |       | (7,841,073  | )          | (5,446,089  | )          |
| Balance at the end of the  financial year                              |       | (59,030,262 | )          | (51,189,189 | )          |

 

**24.****          ****MINORITYINTERESTS**

 
| **Reconciliation of minority  interests in subsidiaries** |   |    |   |    |   |
|-----------------------------------------------------------|--------|---------|--------|---------|--------|
| Balance at the beginning  of the financial year           |   | 141,462 |   | 145,018 |   |
| Add: movements during the  year                           |   |    |   |    |   |
| Less: share of operating  losses                          |   | (17,248 | )      | (5,549  | )      |
| Less: share of movement in  reserves                      |   | 6,133   |   | (9,161  | )      |
| Net loss attributable to  minority interests              |   | (11,115 | )      | (14,710 | )      |
| Add: share of issued  capital                             |   | 24,398  |   | 11,154  |   |
| Balance at the end of the  financial year                 |   | 154,745 |   | 141,462 |   |

 

**25.    OPTIONS**

 

**Options summary**

 

Asat June 30, 2009, the following options over ordinary shares in theCompany were outstanding.

 
| ** **                              | ** ** | **2009**  | ** ** | **Weighted  average  exercise  price** | ** ** | **2008** | ** ** | **Weighted  average  exercise  price** | ** ** | **2007** | ** ** | **Weighted  average  exercise  price** | ** ** |
|-----------------------------------------|------------|-----------|------------|----------------------------------------|------------|----------|------------|----------------------------------------|------------|----------|------------|----------------------------------------|------------|
| Unlisted employee options (refer below) |       | 4,400,000 |       | $                                      | 0.34       |     | 11,175,602 |                                   | $          | 0.27     |       | 11,977,500                             |       | $ | 0.52 |   |
| Total number of options  outstanding    |       | 4,400,000 |       | $                                      | 0.34       |     | 11,175,602 |                                   | $          | 0.27     |       | 11,977,500                             |       | $ | 0.52 |   |

 

**Unlisted employee options**

 

OnNovember 30, 2001, the Directors of the Company established a Staff SharePlan.  On November 19, 2008, theshareholders of the Company approved the introduction of a new Employee OptionPlan.  Under the terms of the respectivePlans, the Directors of the Company may grant options over ordinary shares inGenetic Technologies Limited to executives, consultants and employees of theGroup.  The options, which are granted atnil cost, are typically granted for a term of 5 years and have various vesting periods.  The options are not transferable and are notquoted on ASX.  The options typicallylapse at the earlier of employment termination or 5 years.  As at June 30, 2009, there were 2executives and 12 employees who held options that had been granted under thePlans.  Options granted under the Planscarry no rights to dividends and no voting rights.

 

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**25.    OPTIONS (cont.)**

 

**Unlisted employee options (cont.)**

 

Themovements in the number of options that have been granted under the Plans areas follows:

 
| ** **                                  | ** ** | **2009**   | ** ** | **Weighted  average  exercise  price** | ** ** | **2008**  | ** ** | **Weighted  average  exercise  price** | ** ** | **2007** | ** ** | **Weighted  average  exercise  price** | ** ** |
|---------------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------|------------|----------------------------------------|------------|----------|------------|----------------------------------------|------------|
| Balance at beginning of  the financial year |       | 11,175,602 |       | $                                      | 0.27       |      | 11,977,500 |                                   | $          | 0.52     |       | 14,677,500                             |       | $ | 0.52 |   |
| Add: options granted  during the year       |       | —     |       | —                                 |       | 8,150,602 |       | $                                      | 0.19       |     | —     |                                   | —     |   |
| Less: options forfeited  during the year    |       | (5,700,602 | )          | $                                      | 0.19       |      | (2,900,000 | )                                      | $          | 0.41     |       | (1,175,000                             | )          | $ | 0.37 |   |
| Less: options expired  during the year      |       | (1,075,000 | )          | $                                      | 0.43       |      | (6,052,500 | )                                      | $          | 0.57     |       | (1,525,000                             | )          | $ | 0.39 |   |
| Balance at end of the  financial year       |       | 4,400,000  |       | $                                      | 0.34       |      | 11,175,602 |                                   | $          | 0.27     |       | 11,977,500                             |       | $ | 0.52 |   |
| Exercisable at end of the  financial year   |       | 1,812,500  |       | $                                      | 0.48       |      | 2,837,500  |                                   | $          | 0.46     |       | 8,577,500                              |       | $ | 0.54 |   |

 

No funds were raised fromthe exercise of options granted under the Staff Share Plan during the yearended June 30, 2009 (2008: $nil). The numbers of Staff Share Plan options outstanding as at June 30,2009 by ASX code, including the respective dates of expiry and exercise prices,are tabled below.  Refer Note 31 forfurther information.  The options listedbelow are not listed on ASX.

 
| **Option description**                    | ** ** | **2009**  | ** ** | **Weighted  average  exercise  price** | ** ** | **2008**  | ** ** | **Weighted  average  exercise  price** | ** ** | **2007**  | ** ** | **Weighted  average  exercise  price** | ** ** |
|-------------------------------------------|------------|-----------|------------|----------------------------------------|------------|-----------|------------|----------------------------------------|------------|-----------|------------|----------------------------------------|------------|
| GTGAA (expiring  September 6, 2010)  |       | 750,000   |       | $                                      | 0.48       |      | 750,000    |                                   | $          | 0.48      |       | 750,000                                |       | $ | 0.48 |   |
| GTGAD (expiring  August 12, 2011)    |       | 350,000   |       | $                                      | 0.43       |      | 700,000    |                                   | $          | 0.43      |       | 850,000                                |       | $ | 0.43 |   |
| GTGAE (expiring  August 12, 2011)    |       | 250,000   |       | $                                      | 0.53       |      | 250,000    |                                   | $          | 0.53      |       | 1,000,000                              |       | $ | 0.53 |   |
| GTGAF (expiring  November 23, 2011)  |       | —    |       | —                                 |       | —    |       | —                                 |       | 1,000,000 |       | $                                      | 0.56       |   |
| GTGAG (expiring  February 1, 2012)   |       | —    |       | —                                 |       | —    |       | —                                 |       | 750,000   |       | $                                      | 0.46       |   |
| GTGAH (expiring  May 31, 2012)       |       | 150,000   |       | $                                      | 0.40       |      | 450,000    |                                   | $          | 0.40      |       | 700,000                                |       | $ | 0.40 |   |
| GTGAI (expiring  June 30, 2013)      |       | —    |       | —                                 |       | 1,000,000 |       | $                                      | 0.13       |      | —     |                                   | —     |   |
| GTGAI (expiring  November 30, 2007)  |       | —    |       | —                                 |       | —    |       | —                                 |       | 1,750,000 |       | $                                      | 0.56       |   |
| GTGAK (expiring  June 11, 2009)      |       | —    |       | —                                 |       | 200,000   |       | $                                      | 0.45       |      | 200,000    |                                   | $          | 0.45 |   |
| GTGAM (expiring  November 30, 2007)  |       | —    |       | —                                 |       | —    |       | —                                 |       | 2,500,000 |       | $                                      | 0.61       |   |
| GTGAO (expiring  November 30, 2007)  |       | —    |       | —                                 |       | —    |       | —                                 |       | 802,500   |       | $                                      | 0.49       |   |
| GTGAQ (expiring  May 20, 2009)       |       | —    |       | —                                 |       | 700,000   |       | $                                      | 0.44       |      | 700,000    |                                   | $          | 0.44 |   |
| GTGAS (expiring  May 20, 2009)       |       | —    |       | —                                 |       | 175,000   |       | $                                      | 0.38       |      | 175,000    |                                   | $          | 0.38 |   |
| GTGAU (expiring  January 17, 2012)   |       | —    |       | —                                 |       | —    |       | —                                 |       | 200,000   |       | $                                      | 0.45       |   |
| GTGAW (expiring  September 24, 2012) |       | —    |       | —                                 |       | 3,650,602 |       | $                                      | 0.17       |      | —     |                                   | —     |   |
| GTGAY (expiring  October 23, 2012)   |       | 2,400,000 |       | $                                      | 0.22       |      | 2,800,000  |                                   | $          | 0.22      |       | —                                 |       | — |   |
| GTGAZ (expiring  February 27, 2010)  |       | 200,000   |       | $                                      | 0.56       |      | 200,000    |                                   | $          | 0.56      |       | 200,000                                |       | $ | 0.56 |   |
| GTGAZ (expiring  February 27, 2010)  |       | 300,000   |       | $                                      | 0.49       |      | 300,000    |                                   | $          | 0.49      |       | 400,000                                |       | $ | 0.49 |   |
| Balance at the end of the  financial year |       | 4,400,000 |       | $                                      | 0.34       |      | 11,175,602 |                                   | $          | 0.27      |       | 11,977,500                             |       | $ | 0.52 |   |

 

Details of the optionsissued under the Staff Share Plan that are outstanding as at June 30, 2009are as follows:

 

| **Option description**                  | **Vesting details**                      | ** ** |
|-----------------------------------------|------------------------------------------|------------|
| GTGAA (expiring September 6, 2010) | Vesting fully on  September 6, 2008 |       |
| GTGAD (expiring August 12, 2011)   | Vesting fully on  August 12, 2009   |       |
| GTGAE (expiring August 12, 2011)   | Vesting fully on  August 12, 2009   |       |
| GTGAH (expiring May 31, 2012)      | Vesting fully on  May 31, 2010      |       |
| GTGAY (expiring October 23, 2012)  | Vesting fully on  October 23, 2010  |       |
| GTGAZ (expiring February 27, 2010) | Options are fully vested                 |       |

 

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**26.****          ****SEGMENTINFORMATION**

 

**Identification of reportable segments**

 

TheGroup has identified its four reportable operating segments based on thesimilarity of the products produced and sold and/or the services provided, asthese represent the sources of the Group’s major risks and have the greatesteffect on the rates of return.  Theseparate groups of similar products and services are then divided intooperating businesses, the performances of which are reported to the ChiefExecutive Officer, the Management team and the Board of Directors on a monthlybasis.

 

TheGroup’s four reportable operating segments are as follows:

 

*Operations* — involves theprovision of a range of genetic testing and canine reproductive services.

*Licensing* — involves theout-licensing of the Group’s “non-coding” technology.

*Research* — involves theundertaking of a range of research and development projects in the field ofgenetics and related areas.

*Corporate* — involves themanagement of the Group’s corporate activities.

 

**Business segments**

 
| ** **  | ** ** | ** ** | ** ** | **Revenues and income** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | **Amortization** | ** ** |
|-------------|------------|------------|------------|-------------------------|------------|------------|------------|------------|------------|-------------|------------|------------------|------------|
| **Segment** | ** ** | ** ** | ** ** | **Sales**               | ** ** | **Other**  | ** ** | **Totals** | ** ** | **Results** | ** ** | **Assets**       | ** ** | **Liabilities** | ** ** | **/depreciation** | ** ** |
| ** **  | ** ** | ** ** | ** ** | **$**                   | ** ** | **$**      | ** ** | **$**      | ** ** | **$**       | ** ** | **$**            | ** ** | **$** | ** ** | **$** | ** ** |
| Operations  | ** ** | **2009**   |       | 5,382,089               |       | 98,867     |       | 5,480,956  |       | (2,923,258  | )          | 5,711,113        |       | (1,453,352 | ) | (872,897 | ) |
|        |       | 2008       |       | 3,918,692               |       | 17,608     |       | 3,936,300  |       | (2,251,040  | )          | 2,892,870        |       | (1,186,880 | ) | (1,019,958 | ) |
|        |       | 2007       |       | 3,119,131               |       | 25,000     |       | 3,144,131  |       | (3,323,326  | )          | 2,246,571        |       | (964,401 | ) | (946,689 | ) |
|        | ** ** | ** ** |       |                    |       |       |       |       |       |        |       |             |       |   |   |   |   |
| Licensing   | ** ** | **2009**   |       | —                  |       | 5,391,714  |       | 5,391,714  |       | 1,373,993   |       | 3,035,475        |       | (309,312 | ) | (2,899,432 | ) |
|        |       | 2008       |       | —                  |       | 10,730,743 |       | 10,730,743 |       | 6,000,724   |       | 5,975,788        |       | (229,445 | ) | (2,900,722 | ) |
|        |       | 2007       |       | —                  |       | 11,072,688 |       | 11,072,688 |       | 7,229,326   |       | 8,846,395        |       | (1,194,853 | ) | (2,770,911 | ) |
|        |       |       |       |                    |       |       |       |       |       |        |       |             |       |   |   |   |   |
| Research    | ** ** | **2009**   |       | —                  |       | 369,337    |       | 369,337    |       | (2,645,438  | )          | 861,838          |       | (866,214 | ) | (157,796 | ) |
|        |       | 2008       |       | —                  |       | 210,943    |       | 210,943    |       | (6,000,122  | )          | 1,289,373        |       | (740,256 | ) | (761,593 | ) |
|        |       | 2007       |       | —                  |       | 347,431    |       | 347,431    |       | (3,483,985  | )          | 4,012,800        |       | (268,185 | ) | (813,760 | ) |
|        | ** ** | ** ** |       |                    |       |       |       |       |       |        |       |             |       |   |   |   |   |
| Corporate   | ** ** | **2009**   |       | —                  |       | 939,625    |       | 939,625    |       | (3,663,618  | )          | 8,369,305        |       | (1,236,808 | ) | (57,871 | ) |
| (note)      |       | 2008       |       | —                  |       | 1,006,432  |       | 1,006,432  |       | (3,201,200  | )          | 13,936,547       |       | (1,152,924 | ) | (72,882 | ) |
|        |       | 2007       |       | —                  |       | 490,664    |       | 490,664    |       | (4,767,717  | )          | 14,343,261       |       | (918,779 | ) | (71,632 | ) |
|        |       |       |       |                    |       |       |       |       |       |        |       |             |       |   |   |   |   |
| Totals      | ** ** | **2009**   |       | 5,382,089               |       | 6,799,543  |       | 12,181,632 |       | (7,858,321  | )          | 17,977,731       |       | (3,865,686 | ) | (3,987,996 | ) |
|        |       | 2008       |       | 3,918,692               |       | 11,965,726 |       | 15,884,418 |       | (5,451,638  | )          | 24,094,578       |       | (3,309,505 | ) | (4,755,155 | ) |
|        |       | 2007       |       | 3,119,131               |       | 11,935,783 |       | 15,054,914 |       | (4,345,702  | )          | 29,449,027       |       | (3,346,218 | ) | (4,602,992 | ) |

 
| ** **  | ** ** | ** ** | ** ** | **Impairment**         | ** ** | **Purchases of** | ** ** | **Net cash flows (used in)********/********from** | ** ** |
|-------------|------------|------------|------------|------------------------|------------|------------------|------------|---------------------------------------------------|------------|
| **Segment** | ** ** | ** ** | ** ** | **losses/write downs** | ** ** | **equipment**    | ** ** | **operating activities**                          | ** ** | **investing activities** | ** ** | **financing activities** | ** ** |
|        |       | ** ** |       | **$**                  |       | **$**            |       | **$**                                             |       | **$** |   | **$** |   |
| Operations  | ** ** | **2009**   |       | (72,066                | )          | 2,453,760        |       | (1,246,503                                        | )          | (224,511 | ) | (156,692 | ) |
|        |       | 2008       |       | —                 |       | 962,904          |       | (1,778,767                                        | )          | (21,996 | ) | (385,350 | ) |
|        |       | 2007       |       | (76,960                | )          | 864,938          |       | (671,312                                          | )          | (81,853 | ) | (357,275 | ) |
|        |       |       |       |                   |       |             |       |                                              |       |   |   |   |   |
| Licensing   | ** ** | **2009**   |       | —                 |       | —           |       | 2,658,848                                         |       | — |   | — |   |
|        |       | 2008       |       | —                 |       | 6,030            |       | 7,641,118                                         |       | (6,030 | ) | — |   |
|        |       | 2007       |       | —                 |       | 294              |       | 9,633,894                                         |       | (801 | ) | — |   |
|        |       |       |       |                   |       |             |       |                                              |       |   |   |   |   |
| Research    | ** ** | **2009**   |       | —                 |       | —           |       | (2,882,972                                        | )          | — |   | (26,400 | ) |
|        |       | 2008       |       | (2,378,000             | )          | 5,675            |       | (2,679,753                                        | )          | (5,675 | ) | (106,169 | ) |
|        |       | 2007       |       | (1,150,000             | )          | 57,030           |       | (3,407,060                                        | )          | (20,759 | ) | (128,468 | ) |
|        |       |       |       |                   |       |             |       |                                              |       |   |   |   |   |
| Corporate   | ** ** | **2009**   |       | (245,959               | )          | 130,625          |       | (3,452,864                                        | )          | (128,680 | ) | (9,499 | ) |
|        |       | 2008       |       | —                 |       | 48,978           |       | (2,759,828                                        | )          | (13,698 | ) | (37,380 | ) |
|        |       | 2007       |       | (80,000                | )          | 23,800           |       | (2,958,276                                        | )          | 197,423 |   | (16,762 | ) |
|        | ** ** | ** ** |       |                   |       |             |       |                                              |       |   |   |   |   |
| Totals      | ** ** | **2009**   |       | (318,025               | )          | 2,584,385        |       | (4,923,491                                        | )          | (353,191 | ) | (192,591 | ) |
|        |       | 2008       |       | (2,378,000             | )          | 1,023,587        |       | 422,770                                           |       | (47,399 | ) | (528,899 | ) |
|        |       | 2007       |       | (1,306,960             | )          | 946,062          |       | 2,597,246                                         |       | 94,010 |   | (502,505 | ) |

 

Note:         Other revenue-corporateincludes interest received of $589,594 (2008: $920,299) (refer Note 4).

There were no intersegmentsales.

 

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**26.****          ****SEGMENTINFORMATION (cont.)**

 

**Geographicinformation**

 

*Australia* — is the homecountry of the parent entity and the location of the Group’s operations andlicensing activities.

*China*— is the homeof Genetic Technologies (Beijing) Limited.

*Canada* — is the homeof Gtech International Resources Limited.

*Switzerland*— is the home of GeneType AG.

 

Revenuesare allocated on the basis of the geographical location of the entities whichearn them.  The following table presentssales and other income and revenue on the basis of geographical locations forthe years ended June 30, 2009 and June 30, 2008.

 
| **Segment** | ** ** | ** ** | ** ** | **Sales revenue** | ** ** | **Other**  | ** ** | **Totals** | ** ** |
|-------------|------------|------------|------------|-------------------|------------|------------|------------|------------|------------|
| ** **  | ** ** | ** ** | ** ** | **$**             | ** ** | **$**      | ** ** | **$**      | ** ** |
| Australia   | ** ** | **2009**   |       | 5,331,248         |       | 6,798,412  |       | 12,129,660 |       |
|        |       | 2008       |       | 3,918,692         |       | 11,954,576 |       | 15,873,268 |       |
|        |       | 2007       |       | 3,119,131         |       | 11,922,515 |       | 15,041,646 |       |
|        |       |       |       |              |       |       |       |       |       |
| China       | ** ** | **2009**   |       | 50,841            |       | 41         |       | 50,882     |       |
|        |       | 2008       |       | —            |       | —     |       | —     |       |
|        |       | 2007       |       | —            |       | —     |       | —     |       |
|        |       |       |       |              |       |       |       |       |       |
| Canada      | ** ** | **2009**   |       | —            |       | 1,083      |       | 1,083      |       |
|        |       | 2008       |       | —            |       | 11,133     |       | 11,133     |       |
|        |       | 2007       |       | —            |       | 13,261     |       | 13,261     |       |
|        |       |       |       |              |       |       |       |       |       |
| Switzerland | ** ** | **2009**   |       | —            |       | 7          |       | 7          |       |
|        |       | 2008       |       | —            |       | 17         |       | 17         |       |
|        |       | 2007       |       | —            |       | 7          |       | 7          |       |
|        | ** ** | ** ** |       |              |       |       |       |       |       |
| Totals      | ** ** | **2009**   |       | 5,382,089         |       | 6,799,543  |       | 12,181,632 |       |
|        |       | 2008       |       | 3,918,692         |       | 11,965,726 |       | 15,884,418 |       |
|        |       | 2007       |       | 3,119,131         |       | 11,935,783 |       | 15,054,914 |       |

 

**Segment products and locations**

 

Thefour principal business segments of the Group are operations, licensing,research and corporate.  The principalgeographic segment is Australia, with the Company’s headquarters being locatedin Melbourne in the State of Victoria.

 

**Segment accounting policies**

 

Segmentinformation is prepared in conformity with the accounting policies of theentity as disclosed in Note 2(f) and Accounting Standard *IFRS 8 Operating Segments*. As a result, the primary reporting segments now reflect the informationthat Management uses to make decisions about operating matters.  Specifically, segment information isdisclosed for the licensing, genetic testing and research operations which werepreviously disclosed within the biotechnology segment.  Interest received (Note 4), finance costs (Note6) and income tax expense (Note 7) are allocated to the corporate segment asthey are not part of the core operations of any other segment.

 

**Major customers**

 

TheGroup has a number of major customers to which it provides both products andservices.  During the year ended June 30,2009, there were no customers from whom the Group generated revenuesrepresenting more than 10% of the consolidated revenue from operations.

 

**27.****          ****CONTINGENTASSETS**

 

OnDecember 12, 2005, the Group announced it had reached a final settlementof its patent dispute with Applera Corporation (“Applera”).  As part of the settlement, the partiesexecuted a number of binding agreements, including a supply agreement, pursuantto which Applera agreed to supply the Group with certain equipment and reagentswhich the Group uses in its genetic testing business.  The total value of these credits was$8,547,500, comprising equipment credits to the value of $4,602,500 and reagentcredits to the value of $3,945,000.  Asat June 30, 2008, the Group had drawn down equipment and reagents underthe supply agreement with a total value of $3,765,823.  During the 2009 financial year, the Groupdrew down the remainder of the equipment credits, being $2,020,177 (comprisingequipment credits of $1,801,628 and service contract credits of $218,549), andfurther reagent credits of $117,706 under the supply agreement.  Of these amounts, a total of $2,047,207(comprising equipment credits of $1,929,501 and reagent credits of $117,706)was recognized as income during the year ended June 30, 2009 and disclosedin Note 4 as part of license fees received. The difference in the balances of the equipment credits of $27,030represented the balance of certain prepaid service contracts which are beingreflected as income as the services are progressively provided to the Group byApplera.  Accordingly, as at June 30,2009, the Group had a contingent asset representing the remaining reagentcredits available to it with a total value of $2,643,794.

 

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**28.****          ****CONTINGENTLIABILITIES**

 

TheGroup had no contingent liabilities as at June 30, 2009.

 

**29.****          ****COMMITMENTSAND CONTINGENCIES**

 
| **(Australian dollars)**                             | ** ** | **2009**   | ** ** | **2008** | ** ** |
|------------------------------------------------------|------------|------------|------------|----------|------------|
| ** **                                           | ** ** | **$**      | ** ** | **$**    | ** ** |
| **Hire purchase expenditure  commitments**           | ** ** | ** ** |       |     |       |
| Minimum hire purchase  payments                      |       |       |       |     |       |
| - not later than one year                            |       | 192,442    |       | 134,027  |       |
| - later than one year but  not later than five years |       | 221,057    |       | 204,532  |       |
| - later than five years                              |       | —     |       | —   |       |
| Total minimum hire  purchase payments                |       | 413,499    |       | 338,559  |       |
| Less: future finance  charges                        |       | (40,055    | )          | (40,360  | )          |
| Present value of hire  purchase payments             |       | 373,444    |       | 298,199  |       |
| Aggregate expenditure  commitments comprise:         |       |       |       |     |       |
| Current liability (Note 17)                          |       | 373,444    |       | 111,117  |       |
| Non-current liability (Note 20)                      |       | —     |       | 187,082  |       |
| Total hire purchase  expenditure commitments         |       | 373,444    |       | 298,199  |       |

 

On January 14, 2005, the Group executed aMaster Asset Finance Agreement with National Australia Bank Limited in respectof a $2,500,000 asset finance facility (the “Facility”).  Since inception, the Group has financed theacquisition of laboratory and office equipment under the Facility with a totalvalue of $2,235,732.  Each of the Group’sAustralian-resident subsidiaries has provided a guarantee to the Group inrespect of the Facility.  Refer Note 17in respect of a breach of the Facility’s terms.

 
| **Operating lease expenditure  commitments**         |   |   |   |    |   |      |   |
|------------------------------------------------------|--------|--------|--------|---------|--------|-----------|--------|
| Minimum operating lease  payments                    |   |   |   |    |   |      |   |
| - not later than one year                            |   |   |   | 467,238 |   | 466,412   |   |
| - later than one year but  not later than five years |   |   |   | 478,120 |   | 965,825   |   |
| - later than five years                              |   |   |   | —  |   | —    |   |
| Total minimum operating  lease payments              |   |   |   | 945,358 |   | 1,432,237 |   |

 

Operatingleases relates to office, laboratory and veterinary premises located inFitzroy, Victoria and Beijing, China that were occupied by the Group during the2009 financial year.  The Fitzroy lease,which is in the name of GeneType Pty. Ltd. (a subsidiary), expires on June 30,2011.  GeneType Pty. Ltd. has an optionto extend the lease at its expiration for a further ten year period.  The premises are owned by Bankberg Pty. Ltd.,a company associated with a former Director of the Company, Dr. MervynJacobson (refer Note 32).  GeneType Pty.Ltd. does not have an option to purchase the leased premises at the expiry ofthe lease period.

 

TheBeijing lease, which is in the name of Genetic Technologies (Beijing) Limited,expires on August 31, 2011 and relates to office and veterinary premiseslocated in Beijing, China, that were occupied by the Group since September 2008.  The premises are owned by Beijing JiangrunPet Resorts.  Any extension of the leaseat the end of the lease period will require the agreement of both parties.  Genetic Technologies (Beijing) Limited doesnot have an option to purchase the leased premises at the expiry of the leaseperiod.

 
| **Research and development  expenditure commitments** |   |   | ** ** | ** ** |   |      |   |
|-------------------------------------------------------|--------|--------|------------|------------|--------|-----------|--------|
| Minimum research and  development payments            |   |   | ** ** | ** ** |   |      |   |
| - not later than one year                             |   |   |       | 237,500    |   | 762,500   |   |
| - later than one year but  not later than five years  |   |   |       | 140,750    |   | 490,000   |   |
| - later than five years                               |   |   |       | —     |   | —    |   |
| Total minimum research and  development payments      |   |   |       | 378,250    |   | 1,252,500 |   |

 

OnApril 1, 2008, the Group entered into an Australian Research CouncilLinkage Agreement with the University of Newcastle.  The Agreement relates to the synthesis ofnovel compounds and complements an existing Linkage Agreement that the Grouphas with the University of Melbourne. The Group will contribute $90,000 per annum in cash over a period ofthree years from 2008 to 2010.  As of June 30,2009, $378,250 remained payable under the Agreement, which included a non-cashin-kind contribution of $243,250.

 

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**29.****          ****COMMITMENTSAND CONTINGENCIES (cont.)**

 

**Other capital expenditure commitments**

 

As at June 30, 2009, the Group did nothave any other significant contracted capital expenditure commitments.

 

**Other expenditure commitments**

 

As at June 30, 2008, the Group held adirect equity interest in the North Laverton Joint Venture with Regis ResourcesLimited (“Regis”) which had continuing minimal expenditure requirements asprescribed by the Western Australian Mines Department in respect of its prospectingand exploration licenses and mining leases owned by the joint venture.  On August 27, 2008, the Group sold itsentire interest in the joint venture to Regis (refer Note 34).

 

**30.****          ****JOINTVENTURES**

 

Asat June 30, 2008, the Group held a 14.66% direct equity interest in theNorth Laverton Joint Venture with Regis Resources Limited (“Regis”) in WesternAustralia.  On August 27, 2008, theGroup sold its entire interest in the joint venture to Regis (refer Note 34).

 

**31.****          ****EMPLOYEEBENEFITS**

 

**Employee options**

 

On November 30, 2001,the Directors of the Group established a Staff Share Plan.  On November 19, 2008, the shareholdersof the Company approved the introduction of a new Employee Option Plan.  Under the terms of the respective Plans, theDirectors may, at their discretion, grant options over the ordinary shares inthe Genetic Technologies Limited to executives, consultants, employees, andformerly Non-Executive Directors, of the Group (refer Note 25).  As at June 30, 2009, there were 2executives and 12 employees who held options that had been granted under thePlans.  Information regarding themovements in the number of options granted under the Plans is set out in Note25.

 

The fair value of eachoption granted under the Staff Share Plan is estimated by an external valuerusing a Black-Scholes option-pricing model with the following assumptions usedfor grants made during the years ended June 30, 2009, 2008 and 2007:

 
| ** **                                  | ** ** | **2009****(note)** | ** ** | **2008**          | ** ** | **2007****(note)** |
|---------------------------------------------|------------|--------------------|------------|-------------------|------------|--------------------|
| Dividend yield                              |       | —             |       | —            |       | —             |
| Historic volatility and expected volatility |       | N/A                |       | 75%               |       | N/A                |
| Option exercises prices                     |       | N/A                |       | $0.17 to $0.22    |       | N/A                |
| Weighted average exercise price             |       | N/A                |       | $0.19             |       | N/A                |
| Risk-free interest rate                     |       | N/A                |       | 5.99% - 6.50%     |       | N/A                |
| Expected life of an option                  |       | N/A                |       | 3 years - 5 years |       | N/A                |

 

Note:         No options weregranted during the years ended June 30, 2009 and June 30, 2007.

 

Theexpected volatility reflects the assumption that the historical volatility isindicative of future trends, which may not necessarily be the actual outcome.

 

**Superannuation commitments**

 

TheGroup does not have any defined benefit funds. The Group makes statutory contributions to various superannuation fundson behalf of all employees at a rate of 9% per annum, in addition to makingother superannuation contributions as part of salary packaging arrangementswith staff.  All contributions areexpensed when incurred.  Contributionsmade by the Group of up to 9% per annum of employees’ wages and salaries arelegally enforceable in Australia.

 

**32.    RELATED PARTY DISCLOSURES**

 

**Ultimate parent**

 

Genetic Technologies Limitedis the ultimate Australian parent company. As at the date of these financial statements, no shareholder controlsmore than 50% of the issued capital of the Company.

 

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**32.    RELATED PARTY DISCLOSURES (cont.)**

 

**Transactions within the Group**

 

Duringthe year ended June 30, 2009, various transactions within the Group aslisted below occurred.  All amounts werecharged on commercial, arm’s-length terms and at commercial rates.

 

·                  As at June 30,2009, $30,089,249 (2008: $26,320,008) was receivable by the Company from itsvarious subsidiaries.  As at the samedate, an amount of $3,061,931 (2008: $1,189,053) was payable by the Company toits wholly-owned subsidiaries.  All suchloans are unsecured, generally interest free and there are no fixed terms ofrepayment.

 

·                  AgGenomics Pty.Ltd., a subsidiary, paid interest to the Company amounting to $20,720 (2008:$31,434) in respect of an outstanding loan between the parties.

 

·                  ImmunAid Pty.Ltd., a subsidiary, paid management fees to the Company amounting to $45,000(2008: $20,000).

 

·                  GeneticTechnologies Corporation Pty. Ltd. (“GTC”), a subsidiary,  paid management fees to the Company amountingto $308 (2008: N/A).

 

·                  GeneticTechnologies (Beijing) Limited (“GTBL”), a subsidiary, paid management fees toGTC amounting to $64 (2008: N/A).  GTBLalso purchased testing services from GTC at a total cost of $1,484.

 

**Other related party transactions**

 

Duringthe year ended June 30, 2009, GeneType Pty. Ltd., a subsidiary, paid atotal of $529,234 (2008: $501,239) to Bankberg Pty. Ltd., a company associatedwith a former Director and majority shareholder of the Company, Dr. MervynJacobson, for rent and its share of body corporate expenses in respect of theoffice and laboratory premises in Fitzroy, Victoria that are leased by theGroup.  As of June 30, 2009, adispute existed between the Company and Bankberg Pty. Ltd. in relation toamounts receivable from the landlord in respect of the premises leased by theCompany in Fitzroy.  On July 28,2009, a Letter of Intent was signed by the parties which established theparameters for calculating the amount to be paid as at June 30, 2009.  On August 20, 2009, the parties reachedagreement as to the amount of this payment which has been reflected in theGroup’s balance sheet as of June 30, 2009.

 

Alsoduring the year, Genetic Technologies Limited paid a total of $131,851 (2008:$420,219) to Transmedia Inc., another company associated with Dr. Jacobson,in respect of commissions paid in relation to licensing services provided tothe Group of $72,401 (2008: $414,133) and reimbursement of associated travelexpenses of $59,450 (2008: $6,086).

 

Finally,during the year ended June 30, 2009, Genetic Technologies Limited paid atotal of $99,458 (2008: $79,936) to Government Relations Australia AdvisoryPty. Ltd., a company associated with Mr. John Dawkins AO, a formerDirector of the Company, in respect of consulting services provided to theGroup.

 

Alltransactions with Key Management Personnel (“KMP”) have been entered into underterms and conditions no more favourable than those which the entity would haveadopted if dealing at arm’s length. Refer to Note 33 for a description of transactions with KMP.

 

**33.    KEY MANAGEMENT PERSONNEL DISCLOSURES**

 

**Details of Key Management Personnel**

 

| *Directors*                                       | * * | *Executives*                                                          |
|---------------------------------------------------|----------|-----------------------------------------------------------------------|
| * *                                          | * * | * *                                                              |
| Fred Bart *(Non-Executive Chairman)*              |     | Dr. Paul D.R. MacLeman *(Chief Executive Officer)*               |
| Sidney C. Hack *(Non-Executive)*                  |     | Thomas G. Howitt *(Chief Financial Officer and Company  Secretary**)* |
| Huw D. Jones *(Non-Executive)*                    |     | M. Luisa Ashdown***(interim  Chief Operating Officer)*                |
| Henry Bosch AO *(former Non-Executive Chairman)*  |     | Michael B. Ohanessian *(former Chief Executive  Officer)*             |
| David Carruthers *(former Non-Executive)*         |     | Ross Barrow *(former Chief Operating Officer)*                        |
| John S. Dawkins AO*(former Non-Executive)*        |     |                                                                  |
| Dr. Mervyn Jacobson *(former Non-Executive)* |     |                                                                  |
| Dr. Leanne Rowe AM *(former Non-Executive)*  |     |                                                                  |

 

| Notes: | Messrs. Bosch, Carruthers, Dawkins, Ohanessian and Dr. Rowe  were removed as Directors on November 19, 2008.   |
|--------|-------------------------------------------------------------------------------------------------------------------------------|
|   | Messrs. Hack and Jones were appointed as Non-Executive Directors  on November 19, 2008.                             |
|   | Dr. Jacobson resigned as a Director on December 12, 2008.                                                           |
|   | Dr. MacLeman was appointed as Chief Executive Officer on  May 4, 2009.                                              |
|   | Mr. Howitt served as Interim Chief Executive Officer of the  Company from December 17, 2008 until May 3, 2009. |
|   | Ms. Ashdown was appointed as Interim Chief Operating Officer on  January 7, 2009.                                   |
|   | Mr. Ohanessian was removed as a Director and as Chief Executive  Officer of the Company on November 19, 2008.       |
|   | Mr. Barrow resigned as Chief Operating Officer on  December 31, 2008.                                               |

 

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**33.    KEY MANAGEMENT PERSONNEL DISCLOSURES (cont.)**

 

**Remunerationof Key Management Personnel**

 
| **(Australian dollars)**                        | ** ** | **2009**  | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|-------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| ** **                                      | ** ** | **$**     | ** ** | **$**     | ** ** | **$**     | ** ** |
| Short-term employee  benefits                   |       | 963,191   |       | 994,176   |       | 974,346   |       |
| Post-employment benefits                        |       | 157,926   |       | 144,861   |       | 141,390   |       |
| Termination benefits                            |       | 345,000   |       | 82,500    |       | 87,500    |       |
| Long-term benefits                              |       | 12,135    |       | 4,759     |       | 4,758     |       |
| Share-based payments                            |       | (34,212   | )          | 124,776   |       | 233,612   |       |
| Total remuneration of Key  Management Personnel |       | 1,444,040 |       | 1,351,072 |       | 1,441,606 |       |

 

**Optionholdings of Key Management Personnel**

 

**June 30, 2009**

 
| ** **                  | ** ** | **Opening** | ** ** | **Number of options** | ** ** | **Closing**   | ** ** | **Vested and non-vested as at year end** | ** ** |
|-----------------------------|------------|-------------|------------|-----------------------|------------|---------------|------------|------------------------------------------|------------|
| **Name of  optionholder**   | ** ** | **balance** | ** ** | **Granted**           | ** ** | **Exercised** | ** ** | **Lapsed**                               | ** ** | **balance** | ** ** | **Total** | ** ** | **Not exercisable** | ** ** | **Exercisable** | ** ** |
| **Executive**               |       |        |       |                  |       |          |       |                                     |       |   |   |   |   |   |   |   |   |
| Dr. Paul D.R. MacLeman |       | —      |       | —                |       | —        |       | —                                   |       | — |   | — |   | — |   | — |   |
| Thomas G. Howitt            |       | 2,000,000   |       | —                |       | —        |       | —                                   |       | 2,000,000 |   | 2,000,000 |   | 1,062,500 |   | 937,500 |   |
| M. Luisa Ashdown            |       | 300,000     |       | —                |       | —        |       | —                                   |       | 300,000 |   | 300,000 |   | 300,000 |   | — |   |
| Michael B. Ohanessian       |       | 3,650,602   |       | —                |       | —        |       | (3,650,602                               | )          | — |   | — |   | — |   | — |   |
| Ross Barrow                 |       | 1,000,000   |       | —                |       | —        |       | (1,000,000                               | )          | — |   | — |   | — |   | — |   |
| Totals                      |       | 6,950,602   |       | —                |       | —        |       | (4,650,602                               | )          | 2,300,000 |   | 2,300,000 |   | 1,362,500 |   | 937,500 |   |

 
| Notes: | Dr. MacLeman and Ms. Ashdown became members of Key  Management Personnel during the year ended June 30, 2009.        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|   | Mr. Ohanessian and Mr. Barrow ceased to be members of Key  Management Personnel during the year ended June 30, 2009. |
|   | During the year ended June 30, 2008, a decision was made not to  grant further options to Directors of the Company.            |
|   | The heading “Lapsed” includes options which were forfeited.                                                               |

 

**June 30, 2008**

 
| ** **                | ** ** | **Opening** | ** ** | **Number of options** | ** ** | **Closing**   | ** ** | **Vested and non-vested as at year end** | ** ** |
|---------------------------|------------|-------------|------------|-----------------------|------------|---------------|------------|------------------------------------------|------------|
| **Name of  optionholder** | ** ** | **balance** | ** ** | **Granted**           | ** ** | **Exercised** | ** ** | **Lapsed**                               | ** ** | **balance** | ** ** | **Total** | ** ** | **Not exercisable** | ** ** | **Exercisable** | ** ** |
| **Director**              |       |        |       |                  | ** ** | ** **    |       |                                     |       |   |   |   |   |   |   |   |   |
| Henry Bosch AO            |       | 500,000     |       | —                |       | —        |       | (500,000                                 | )          | — |   | — |   | — |   | — |   |
| Fred Bart                 |       | 500,000     |       | —                |       | —        |       | (500,000                                 | )          | — |   | — |   | — |   | — |   |
| John S. Dawkins AO        |       | 500,000     |       | —                |       | —        |       | (500,000                                 | )          | — |   | — |   | — |   | — |   |
| Dr. Mervyn Jacobson  |       | 2,000,000   |       | —                |       | —        |       | (2,000,000                               | )          | — |   | — |   | — |   | — |   |
|                      |       |        |       |                  |       |          |       |                                     |       |   |   |   |   |   |   |   |   |
| **Executive**             |       |        |       |                  |       |          |       |                                     |       |   |   |   |   |   |   |   |   |
| Michael B. Ohanessian     |       | —      |       | 3,650,602             |       | —        |       | —                                   |       | 3,650,602 |   | 3,650,602 |   | 3,650,602 |   | — |   |
| Thomas G. Howitt          |       | 1,000,000   |       | 1,000,000             |       | —        |       | —                                   |       | 2,000,000 |   | 2,000,000 |   | 1,312,500 |   | 687,500 |   |
| Ross Barrow               |       | —      |       | 1,000,000             |       | —        |       | —                                   |       | 1,000,000 |   | 1,000,000 |   | 1,000,000 |   | — |   |
| Dr. Gary Cobon       |       | 750,000     |       | 500,000               |       | —        |       | (1,250,000                               | )          | — |   | — |   | — |   | — |   |
| Totals                    |       | 5,250,000   |       | 6,150,602             |       | —        |       | (4,750,000                               | )          | 6,650,602 |   | 6,650,602 |   | 5,963,102 |   | 687,500 |   |

 

| Notes: | Mr. Ohanessian and Mr. Barrow became members of Key  Management Personnel during the year ended June 30, 2008. |
|--------|-------------------------------------------------------------------------------------------------------------------------------|
|   | Dr. Cobon ceased to be a member of Key Management Personnel  during the year ended June 30, 2008.                   |
|   | The heading “Lapsed” includes options which were forfeited.                                                         |

 

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**33.    KEY MANAGEMENT PERSONNEL DISCLOSURES (cont.)**

 

**Shareholdings of Key Management Personnel**

 

**June 30, 2009**

 

| **Shares held in Genetic**   | ** ** | **Opening** | ** ** | **Number of shares** | ** ** | **Acquired on** | ** ** | **Closing**             | ** ** |
|------------------------------|------------|-------------|------------|----------------------|------------|-----------------|------------|-------------------------|------------|
| **Technologies Limited**     | ** ** | **balance** | ** ** | **Bought**           | ** ** | **Sold**        | ** ** | **exercise of options** | ** ** | **balance** | ** ** |
| **Director**                 |       |        |       |                 |       |            |       |                    |       |   |   |
| Fred Bart                    |       | 25,918,214  |       | —               |       | —          |       | —                  |       | 25,918,214 |   |
| Sidney C. Hack               |       | —      |       | —               |       | —          |       | —                  |       | — |   |
| Huw D. Jones                 |       | —      |       | —               |       | —          |       | —                  |       | — |   |
|                         |       |        |       |                 |       |            |       |                    |       |   |   |
| **Executive**                |       |        |       |                 |       |            |       |                    |       |   |   |
| Dr. Paul  D.R. MacLeman |       | —      |       | —               |       | —          |       | —                  |       | — |   |
| Thomas G. Howitt             |       | —      |       | —               |       | —          |       | —                  |       | — |   |
| M. Luisa Ashdown             |       | 622,045     |       | —               |       | —          |       | —                  |       | 622,045 |   |
| Totals                       |       | 26,540,259  |       | —               |       | —          |       | —                  |       | 26,540,259 |   |

 

| Notes: | Dr. MacLeman and Ms. Ashdown became members of Key  Management Personnel during the year ended June 30, 2009.                                                                                                       |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Mr. Bosch, Mr. Carruthers, Mr. Dawkins,  Dr. Jacobson, Dr. Rowe, Mr. Ohanessian and Mr. Barrow all  ceased to be members of Key Management Personnel during the year ended  June 30, 2009. |

 

**June 30, 2008**

 

| **Shares held in Genetic** | ** ** | **Opening** | ** ** | **Number of shares** | ** ** | **Acquired on** | ** ** | **Closing**             | ** ** |
|----------------------------|------------|-------------|------------|----------------------|------------|-----------------|------------|-------------------------|------------|
| **Technologies Limited**   | ** ** | **balance** | ** ** | **Bought**           | ** ** | **Sold**        | ** ** | **exercise of options** | ** ** | **balance** | ** ** |
| **Director**               |       |        |       |                 |       |            |       |                    |       |   |   |
| Henry Bosch AO             |       | 185,000     |       | 60,406               |       | —          |       | —                  |       | 245,406 |   |
| Fred Bart                  |       | 25,918,214  |       | —               |       | —          |       | —                  |       | 25,918,214 |   |
| David Carruthers           |       | —      |       | 150,000              |       | —          |       | —                  |       | 150,000 |   |
| John S. Dawkins AO         |       | —      |       | —               |       | —          |       | —                  |       | — |   |
| Dr. Mervyn Jacobson   |       | 150,931,900 |       | —               |       | —          |       | —                  |       | 150,931,900 |   |
| Dr. Leanne Rowe AM    |       | —      |       | —               |       | —          |       | —                  |       | — |   |
|                       |       |        |       |                 |       |            |       |                    |       |   |   |
| **Executive**              |       |        |       |                 |       |            |       |                    |       |   |   |
| Michael B. Ohanessian      |       | —      |       | 70,000               |       | —          |       | —                  |       | 70,000 |   |
| Thomas G. Howitt           |       | —      |       | —               |       | —          |       | —                  |       | — |   |
| Ross Barrow                |       | —      |       | —               |       | —          |       | —                  |       | — |   |
| Dr. Gary Cobon        |       | —      |       | —               |       | —          |       | —                  |       | — |   |
| Totals                     |       | 177,035,114 |       | 280,406              |       | —          |       | —                  |       | 177,315,520 |   |

 

| Notes: | Dr. Rowe, Mr. Ohanessian and Mr. Barrow became members  of Key Management Personnel during the year ended June 30, 2008. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|
|   | Dr. Cobon ceased to be a member of Key Management Personnel  during the year ended June 30, 2008.                                  |

 

Allequity transactions with Key Management Personnel, other than those arisingfrom the exercise of options, have been entered into under terms and conditionsno more favourable than those which the entity would have adopted if dealing atarm’s length.

 

**34.****          ****CHANGESIN THE COMPOSITION OF THE ENTITY**

 

**Acquisition of subsidiary**

 

OnJuly 22, 2008, the Group acquired 100% of the issued capital of FrozenPuppies Dot Com Pty. Ltd. (“FPDC”), Australia’s foremost provider of caninereproductive services.  Under the termsof the Agreement between the Company and FPDC, Genetic Technologies Limitedacquired 100% of the issued share capital of FPDC in return for the issue to theFPDC shareholders of 12,254,902 ordinary shares in Genetic Technologies Limitedand the payment of $500,000 in cash.  Theordinary shares had a fair value of $0.085 each, based on the quoted price ofthe Company’s shares at the date on which the shares were issued.

 

Detailsof the fair values of the identifiable net assets acquired in respect of theFPDC acquisition, together with the carrying amounts of the respective assetsand liabilities of that company immediately prior to acquisition, are detailedbelow.  As at the date of these financialstatements, the Group believes that the fair values of the identifiable netassets acquired are the same as the carrying values.

 

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**34.****          ****CHANGESIN THE COMPOSITION OF THE ENTITY (cont.)**

 

**Acquisition of subsidiary (cont.)**

 
| ** **                                               | ** ** | **Carrying and fair values** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|
| ** **                                               | ** ** | **$**                        | ** ** | **$** | ** ** |
| **Net assets acquired**                                  | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Assets                                                   |       |                         |       |   |   |
| Cash and cash equivalents                                |       |                         |       | 30,270 |   |
| Trade and other  receivables                             |       | 115,360                      |       |   |   |
| Less: provision for  doubtful debts                      |       | (41,643                      | )          | 73,717 |   |
| Plant and equipment (net  of accumulated depreciation)   |       |                         |       | 301,621 |   |
| Consumables, prepayments  and other assets               |       |                         |       | 9,918 |   |
| Total assets acquired                                    |       |                         |       | 415,526 |   |
| Liabilities                                              |       |                         |       |   |   |
| Trade and other payables                                 |       |                         |       | (132,532 | ) |
| **Net assets acquired**                                  |       |                         |       | 282,994 |   |
| **Goodwill arising on acquisition**                      |       |                         |       |   |   |
| Consideration                                            |       |                         |       |   |   |
| Issue of 12,254,902  ordinary shares @ $0.085            |       |                         |       | 1,041,667 |   |
| Cash paid                                                |       |                         |       | 500,000 |   |
| Costs of purchase (stamp  duty)                          |       |                         |       | 8,430 |   |
| Total consideration                                      |       |                         |       | 1,550,097 |   |
| Less: net assets acquired  (as above)                    |       |                         |       | (282,994 | ) |
| **Goodwill arising on acquisition**                      |       |                         |       | 1,267,103 |   |
| **Reconciliation of goodwill  arising on acquisition**   |       |                         |       |   |   |
| Investment in Frozen  Puppies Dot Com Pty. Ltd.          |       |                         |       |   |   |
| Value of ordinary shares  issued (as above)              |       | 1,041,667                    |       |   |   |
| Add: cash paid                                           |       | 500,000                      |       |   |   |
| Add: stamp duty paid                                     |       | 8,430                        |       | 1,550,097 |   |
| Less: share capital of  Frozen Puppies Dot Com Pty. Ltd. |       |                         |       | (160,002 | ) |
| Less: retained earnings at  date of acquisition          |       |                         |       | (122,992 | ) |
| **Goodwill arising on acquisition**                      | ** ** | ** **                   | ** ** | 1,267,103 |   |

 

Thegoodwill arising on acquisition relates to the future earning potential of theFPDC business.  During the period from July 22,2008 (being the date of acquisition) to June 30, 2009, FPDC contributedtotal revenues of $738,959 and net profit of $113,580 to the Group.  If the acquisition had occurred on July 1,2008, the beginning of the Group’s financial year, Management estimates thatthe Group’s results would not have been materially impacted.

 

**Disposal of joint ventureinterest**

 

As at June 30, 2008, the Group held a14.66% direct equity interest in the North Laverton Joint Venture with RegisResources Limited (“Regis”) that had been equity accounted to a nil balance.  By agreement with the joint venture partner,the Group did not contribute any funding towards the project, as these costswere met by its joint venture partner. As at June 30, 2008, the Group had recorded a provision for $94,987(refer Note 19) in respect of its share of the estimated rehabilitation costsassociated with the North Laverton project. The amount of the provision was based on calculations provided to theGroup by Regis as project manager.

 

On August 27, 2008, the Group sold itsentire interest in the North Laverton Joint Venture to Regis for $185,000comprising $100,000 in cash and 500,000 fully paid ordinary shares in Regiswhich had a fair value of $0.17 each on the date of issue.  As at June 30, 2009, the shares had afair value of $0.51 each.  Subsequent to June 30,2009, the Group disposed of 250,000 of the Regis shares generating net proceedsof $133,410.  As part of the sale, theGroup also had returned to it a performance bond which had a face value of$68,917 as at June 30, 2008. Further, the Group was fully indemnified by Regis against any futurerehabilitation liabilities which may arise from the exploration activities ofthe Joint Venture undertaken up until the date of sale.  This indemnification subsequently enabled theGroup, during the year ended June 30, 2009, to fully reverse the provisionof $94,987 in respect of such liabilities which had been recorded in the Group’sbalance sheet as at June 30, 2008.

 

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**35.****          ****SUBSIDIARIES**

 

Thefollowing diagram is a depiction of the Group structure as at June 30,2009.

 

 
| ** **                                                  | ** ** | ** **                                          | ** ** | **Group interest (%)** | ** ** | **Net carrying value ($)** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| **Name of Group company**                                   | ** ** | **Incorporation details**                           | ** ** | **2009**               | ** ** | **2008**                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| *Entities held directly by  parent*                         |       |                                                |       |                   |       |                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| * *                                                    |       |                                                |       |                   |       |                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| GeneType  Pty. Ltd.                                         |       | September 5, 1990  Victoria, Australia         |       | 100                    | %          | 100                        | %          | 1 |   | 1 |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| Genetic  Technologies Corporation Pty. Ltd.                 |       | October 11, 1996  N.S.W., Australia            |       | 100                    | %          | 100                        | %          | 2 |   | 2 |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| RareCellect  Pty. Ltd.                                      |       | March 7, 2001  N.S.W., Australia               |       | 100                    | %          | 100                        | %          | 10 |   | 10 |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| GeneType  AG                                                |       | February 13, 1989  Zug, Switzerland            |       | 100                    | %          | 100                        | %          | 7,311 |   | 26,698 |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| GeneType  Corporation                                       |       | December 18, 1989  California, U.S.A.          |       | 100                    | %          | 100                        | %          | — |   | — |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| Gtech  International Resources Limited                      |       | November 29, 1968  Yukon Territory, Canada     |       | 75.8                   | %          | 75.8                       | %          | 398,169 |   | 424,535 |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| Frozen  Puppies Dot Com Pty. Ltd. (refer note 1  below)     |       | February 15, 2006  N.S.W., Australia           |       | 100                    | %          | N/A                        |       | 1,550,097 |   | — |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| ImmunAid  Pty. Ltd. (refer note 2 below)                    |       | March 21, 2001  Victoria, Australia            |       | 70.5                   | %          | 69.2                       | %          | — |   | — |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| Total carrying value                                        |       |                                                |       |                   |       |                       |       | 1,955,590 |   | 451,246 |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| *Entities held by other  subsidiaries*                      |       |                                                |       |                   |       |                       |       |   |   |   |   |
| * *                                                    |       |                                                |       |                   |       |                       |       |   |   |   |   |
| AgGenomics  Pty. Ltd.                                       |       | February 15, 2002  Victoria, Australia         |       | 50.1                   | %          | 50.1                       | %          | 50 |   | 50 |   |
|                                                        |       |                                                |       |                   |       |                       |       |   |   |   |   |
| Genetic  Technologies (Beijing) Limited(refer note 3 below) |       | December 25, 2008  Beijing Municipality, China |       | 100                    | %          | N/A                        |       | — |   | — |   |

 

----

Notes: 1.          FrozenPuppies Dot Com Pty. Ltd. was acquired by Genetic Technologies Limited on July 22,2008 (refer Note 34).

 

2.          During the year ended June 30,2009, outstanding loans between the Company and ImmunAid Pty. Ltd. were convertedinto additional equity in that company. The total amount of the loans at the time of the conversions was$346,155.  As a result, the Companyincreased its interest in ImmunAid Pty. Ltd. by approximately 1.3% to 70.5%.

 

3.   GeneticTechnologies (Beijing) Limited was incorporated by the Group during the yearended June 30, 2009.

 

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**36.****          ****FINANCIALRISK MANAGEMENT**

 

TheGroup’s activities expose it to a variety of financial risks such as marketrisk (including currency risk and interest rate risk), credit risk andliquidity risk.  The Group’s overall riskmanagement program focuses on the unpredictability of financial markets andseeks to minimise potential adverse effects on the financial performance of theGroup.  The Group uses different methodsto measure different types of risk to which it is exposed.  These methods include sensitivity analysis inthe case of foreign exchange, interest rate and aging analysis for credit risk.

 

Riskmanagement is managed by the Group’s Risk Management Committee under guidanceprovided by the Board of Directors.  TheCommittee identifies and evaluates financial risks in close cooperation withthe Group’s operating units.  The Board,via its Audit Committee, provides guidance for overall risk management, as wellas policies covering specific areas, such as foreign exchange risk, interestrate risk and credit risk.

 

The Group’s principalfinancial instruments comprise cash at bank and on hand, short-term depositsand hire purchase liabilities.  The Grouphas other financial assets and liabilities, such as trade receivables andpayables, which arise directly from its operations.

 

The Group does not typicallyenter into derivative transactions, such as interest rate swaps or forwardcurrency contracts.  It is, and has beenthroughout the period under review, the Group’s policy that no trading infinancial instruments shall be undertaken.  The main risks arising from the Group’sfinancial instruments are credit risk exposures, liquidity risk, interest raterisk and foreign currency risk.  Thepolicies for managing each of these risks are summarized below.

 

Details of the significantaccounting policies and methods adopted, including the criteria forrecognition, the basis of measurement and the basis on which income andexpenses are recognized, in respect of each class of financial asset, financialliability and equity instrument are disclosed in Note 2.

 

The Group holds thefollowing financial instruments:

 
| **(Australian dollars)**        | ** ** | **2009**  | ** ** | **2008**   | ** ** |
|---------------------------------|------------|-----------|------------|------------|------------|
| ** **                      | ** ** | **$**     | ** ** | **$**      | ** ** |
| **Financial assets**            |       |      |       | ** ** | ** ** |
| Cash at bank / on hand          |       | 3,076,902 |       | 5,490,846  |       |
| Short-term deposits             |       | 4,750,000 |       | 7,429,926  |       |
| Trade and other  receivables    |       | 1,829,239 |       | 1,596,738  |       |
| Performance bond and  deposits  |       | 200       |       | 519,117    |       |
| Available-for-sale  investments |       | 255,000   |       | 207,195    |       |
| Total financial assets          |       | 9,911,341 |       | 15,243,822 |       |
| **Financial liabilities**       |       |      |       |       |       |
| Trade and other payables        |       | 2,158,557 |       | 1,786,412  |       |
| Hire purchase liabilities       |       | 373,444   |       | 298,199    |       |
| Total financial  liabilities    |       | 2,532,001 |       | 2,084,611  |       |

 

**Credit risk**

 

The Group’s credit risk is managed on a Groupbasis.  Credit risk arises from cash andcash equivalents and deposits with banks and financial institutions, as well ascredit exposures to customers, including outstanding receivables and committedtransactions.  If there is no independentrating, the Group assesses the credit quality of the customer, taking intoaccount its financial position, past experience and other factors.  Individual risk limits are set based oninternal or external ratings.  Thecompliance with credit limits by customers is regularly monitored byManagement.  Sales to retail customersare required to be settled in cash or using major credit cards, mitigatingcredit risk.  The maximum exposures tocredit risk as at June 30, 2009 in relation to each class of recognizedfinancial assets is the carrying amount of those assets, as indicated in thebalance sheet.

 

Financial assets included onthe balance sheet that potentially subject the Group to concentration of creditrisk consist principally of cash and cash equivalents and tradereceivables.  In accordance with theguidelines included in the Group’s Short Term Investment Policy, the Group minimizesthis concentration of risk by placing its cash and cash equivalents withfinancial institutions that maintain superior credit ratings in order to limitthe degree of credit exposure.  For banksand financial institutions, only independently-rated parties with a minimumrating of “A-1” are accepted.  The Grouphas also established guidelines relative to credit ratings, diversification andmaturities that seek to maintain safety and liquidity.  The Group does not require collateral toprovide credit to its customers, however, the majority of the Group’s customersare large, reputable organizations and, as such, the risk of credit exposure islimited.  The Group has not entered intoany transactions that qualify as a financial derivative instrument.

 

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**36.****          ****FINANCIALRISK MANAGEMENT (cont.)**

 

**Credit risk (cont.)**

 

In addition, receivablebalances are monitored on an ongoing basis with the result that the Group’sexposure to bad debts is not significant. As at June 30, 2009, the balance of the Group’s provision fordoubtful debts was $113,000, out of a total receivables balance as at that dateof $1,829,239.  For some tradereceivables, the Group may also obtain security in the form of guarantees,deeds of undertaking or letters of credit which can be called upon if thecounterparty is in default under the terms of the agreement.

 

Credit risk further arisesin relation to financial guarantees given by the Group to certain parties inrespect of obligations of its subsidiaries. Such guarantees are only provided in exceptional circumstances.

 

In assessing therecoverability of intercompany receivables, Genetic Technologies Limited, theparent entity, raises a provision for diminution to ensure that the carryingamount of these receivables does not exceed the net tangible assets of thesubsidiaries.

 

An analysis of the aging of trade and otherreceivables and trade and other payables is provided below:

 
| **(Australian dollars)**                     | ** ** | **2009**  | ** ** | **2008**   | ** ** |
|----------------------------------------------|------------|-----------|------------|------------|------------|
| ** **                                   | ** ** | **$**     | ** ** | **$**      | ** ** |
| **Trade and other receivables**              |       |      |       | ** ** | ** ** |
| Current (less than 30  days)                 |       | 1,597,055 |       | 1,442,167  |       |
| 31 days to 60 days                           |       | 133,385   |       | 23,897     |       |
| 61 days to 90 days (note)                    |       | 25,885    |       | 17,035     |       |
| Greater than 90 days (note)                  |       | 72,914    |       | 113,639    |       |
| Total trade and other  receivables (Note 10) |       | 1,829,239 |       | 1,596,738  |       |
| **Trade and other payables**                 |       |      |       |       |       |
| Current (less than 30  days)                 |       | 2,158,557 |       | 1,655,450  |       |
| 31 days to 60 days                           |       | —    |       | 7,738      |       |
| 61 days to 90 days                           |       | —    |       | 1,814      |       |
| Greater than 90 days (note)                  |       | —    |       | 121,410    |       |
| Total trade and other  payables (Note 16)    |       | 2,158,557 |       | 1,786,412  |       |

 

Note:         Trade and other receivablesfor Genetic Technologies Limited that are greater than 90 days include netamounts receivable from wholly-owned subsidiaries of $5,692,928 (2008:$5,066,558).  Trade and other payablesfor Genetic Technologies Limited that are greater than 90 days include amountspayable to wholly-owned subsidiaries of $3,061,931 (2008: $1,189,053) (referNote 16).  The loans to and from thesesubsidiaries are interest free and there are no fixed terms of repayment.

 

A total of $98,799 in nettrade and other receivables greater than 60 days is past due, of which a totalof $78,716 had been received prior to the date of this Financial Report.  The Group considers that the remaining $20,083is recoverable and not impaired.

 

**Market risk**

 

*Foreign currency risk*

 

The Group operatesinternationally and is exposed to foreign currency exchange risk, primarilywith respect to the US dollar and Canadian dollar, through financial assets andliabilities.  It is the Group’s policynot to hedge these transactions as the exposure is considered to be minimalfrom a consolidated operations perspective. Further, as the Group incurs expenses payable in US dollars, thefinancial assets that are held in US dollars provide a natural hedge for theGroup.

 

Foreign exchange risk arises from planned futurecommercial transactions and recognized assets and liabilities denominated in acurrency that is not the entity’s functional currency and net investments inforeign operations.  The risk is measuredusing sensitivity analysis and cash flow forecasting.

 

The Group has a Foreign Exchange Management Policywhich was developed to establish a formal framework and procedures for theefficient management of the financial risks that impact on Genetic TechnologiesLimited through its activities outside of Australia, predominantly in theUnited States.  The policy governs theway in which the financial assets and liabilities of the Group that aredenominated in foreign currencies are managed and any risks associated withthat management are identified and addressed. Under the policy, which is to be updated on a regular basis ascircumstances dictate, the Group generally retains in foreign currency onlysufficient funds to meet the expected expenditures in that currency.  Surplus funds, if any, are converted intoAustralian dollars as soon as practicable after receipt.

 

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**36.****          ****FINANCIALRISK MANAGEMENT (cont.)**

 

**Market risk (cont.)**

 

As at June 30, 2009, the Group held thefollowing financial assets and liabilities that were denominated in foreigncurrencies:

 
| ** **                      | ** ** | **Year** | ** ** | **USD** | ** ** | **CAD**    | ** ** | **EUR**    | ** ** | **JPY**    | ** ** | **GBP**    | ** ** | **CNY**    | ** ** | **NZD**    | ** ** | **CHF**    | ** ** |
|---------------------------------|------------|----------|------------|---------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **Financial assets**            |       |     |       |    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash at bank / on hand          | ** ** | **2009** |       | 4,047   |       | 380,971    |       | —     |       | —     |       | 206        |       | 470,904    |       | 6,034      |       | 9,079      |       |
|                            |       | 2008     |       | 63,212  |       | 437,032    |       | —     |       | 47,350     |       | —     |       | —     |       | —     |       | 7,848      |       |
| Trade and other receivables     | ** ** | **2009** |       | 82,744  |       | —     |       | 90,000     |       | —     |       | —     |       | 4,835      |       | —     |       | 1,226      |       |
|                            |       | 2008     |       | 68,100  |       | —     |       | 90,000     |       | —     |       | —     |       | —     |       | —     |       | —     |       |
| Available-for-sale  investments | ** ** | **2009** |       | —  |       | —     |       | —     |       | —     |       | —     |       | —     |       | —     |       | —     |       |
|                            |       | 2008     |       | 198,120 |       | —     |       | —     |       | —     |       | —     |       | —     |       | —     |       | —     |       |
| Total financial assets          | ** ** | **2009** |       | 86,791  |       | 380,971    |       | 90,000     |       | —     |       | 206        |       | 475,739    |       | 6,034      |       | 10,305     |       |
| ** **                      |       | 2008     |       | 329,432 |       | 437,032    |       | 90,000     |       | 47,350     |       | —     |       | —     |       | —     |       | 7,848      |       |
| **Financial liabilities**       |       |     |       |    |       |       |       |       |       |       |       |       |       |       |       |       |       |       |       |
| Trade and other payables        | ** ** | **2009** |       | 193,342 |       | 10,520     |       | —     |       | 51,951     |       | —     |       | 7,791      |       | 1,318      |       | 4,190      |       |
|                            |       | 2008     |       | 134,166 |       | 5,211      |       | 22,531     |       | —     |       | —     |       | —     |       | —     |       | 2,870      |       |
| Total financial  liabilities    | ** ** | **2009** |       | 193,342 |       | 10,520     |       | —     |       | 51,951     |       | —     |       | 7,791      |       | 1,318      |       | 4,190      |       |
|                            |       | 2008     |       | 134,166 |       | 5,211      |       | 22,531     |       | —     |       | —     |       | —     |       | —     |       | 2,870      |       |

 
| Notes: | **USD** — United  States dollars | **CAD** — Canadian  dollars | **EUR** — European  euros      | **JPY** — Japanese  yen |
|--------|---------------------------------------|----------------------------------|-------------------------------------|------------------------------|
|   | **GBP** — Great  Britain pounds  | **CNY** — Chinese  yuan     | **NZD** — New Zealand  dollars | **CHF** — Swiss  francs |

 

During the year ended June 30, 2009, theAustralian dollar / US dollar exchange rate decreased by 15.8%, from 0.9562 atthe beginning of the year to 0.8055 at the end of the year.  During the same period, Australian dollar /Canadian dollar exchange rate decreased by 4.3%, from 0.9722 at the beginningof the year to 0.9303 at the end of the year.

 

Based on the financial instruments held at June 30,2009, had the Australian dollar weakened / strengthened by 10% against the USdollar with all other variables held constant, the Group’s loss for the yearwould have been $15,000 lower / $12,000 higher (2008: $23,000 lower / $19,000higher), mainly as a result of changes in the values of cash and cashequivalents which are denominated in US dollars, as detailed in the abovetables.

 

Based on the financial instruments held at June 30,2009, had the Australian dollar weakened / strengthened by 10% against theCanadian dollar with all other variables held constant, the Group’s loss forthe year would have been $44,000 lower / $36,000 higher (2008: $49,000 lower /$40,000 higher), due to changes in the values of cash and cash equivalentswhich are denominated in Canadian dollars, as detailed in the above tables.

 

*Interest rate risk*

 

The Group’s main interest rate risk arises inrelation to its short-term deposits with various financial institutions.  If rates were to decrease, the Group maygenerate less interest revenue from such deposits.  However, given the relatively short durationof such deposits, the associate risk is relatively minimal.  The Group also has various hire purchaseliabilities with fixed interest rates. While these rates do not vary once the contract has been executed, theGroup may be subject to interest rate movements if it were to acquireadditional assets via similar contracts in the future.

 

TheGroup has a Short Term Investment Policy which was developed to manage theGroup’s surplus cash and cash equivalents. In this context, the Group adopts a prudent approach that is tailored tocash forecasts rather than seeking high returns that may compromise access tofunds as and when they are required. Under the policy, the Group seeks to deposit its surplus cash in a rangeof deposits / securities over different time frames and with differentinstitutions in an effort to diversify its portfolio and minimise risk.

 

On a monthly basis, Management provides the Boardwith a detailed list of all cash and cash equivalents, showing the periods overwhich the cash has been deposited, the name and credit rating of theinstitution holding the deposit and the interest rate at which has beendeposited.  A comparison of interest ratemovements from month to month and a variance to an 11am deposit rate is alsoprovided.

 

At June 30, 2009, if interest rates had changedby +/- 50 basis points from the year-end rates, with all other variables heldconstant, the Group’s loss for the year would have been $39,000 lower / higher(2008: $67,000 lower / higher), mainly as a result of higher / lower interestincome from cash and cash equivalents. Consolidated equity for the Group would have been $39,000 higher / lower(2008: $67,000 higher / lower) mainly as a result of an increase / decrease inthe fair value of cash and cash equivalents.

 

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**36.****          ****FINANCIALRISK MANAGEMENT (cont.)**

 

**Market risk (cont.)**

 

The exposure to interest rate risks and theeffective interest rates of financial assets and liabilities, both recognizedand unrealized, for the Group are as follows:

 
| ** **                    | ** ** | ** ** | ** ** | ** **             | ** ** | ** **          | ** ** | **Carrying** | ** ** | **Weighted ave.**       | ** ** | **Ave. maturity  period** | ** ** |
|-------------------------------|------------|------------|------------|------------------------|------------|---------------------|------------|--------------|------------|-------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **Year**   | ** ** | **Floating rate** | ** ** | **Fixed rate** | ** ** | **amount**   | ** ** | **effective rate** | ** ** | **days**                       | ** ** |
| ** **                    | ** ** | ** ** | ** ** | **$**                  | ** ** | **$**               | ** ** | **$**        | ** ** | **%**                   | ** ** | ** **                     | ** ** |
| **Financial assets**          | ** ** | ** ** | ** ** | ** **             | ** ** | ** **          | ** ** | ** **   | ** ** | ** **              | ** ** | ** **                     | ** ** |
| Cash at bank / on hand (note) | ** ** | **2009**   |       | 3,076,902              |       | —              |       | 3,076,902    |       | 2.47                    | %          | At call                        |       |
|                          |       | 2008       |       | 5,490,846              |       | —              |       | 5,490,846    |       | 6.33                    | %          | At call                        |       |
| Short-term deposits           | ** ** | **2009**   |       | —                 |       | 4,750,000           |       | 4,750,000    |       | 4.37                    | %          | 89                             |       |
|                          |       | 2008       |       | —                 |       | 7,429,926           |       | 7,429,926    |       | 7.71                    | %          | 73                             |       |
| Performance bond /  deposits  | ** ** | **2009**   |       | —                 |       | 200                 |       | 200          |       | —                  |       | At call                        |       |
|                          |       | 2008       |       | —                 |       | 519,117             |       | 519,117      |       | 7.86                    | %          | 93                             |       |
| Totals                        | ** ** | **2009**   |       | 3,076,902              |       | 4,750,200           |       | 7,827,102    |       |                    |       |                           |       |
|                          |       | 2008       |       | 5,490,846              |       | 7,949,043           |       | 13,439,889   |       |                    |       |                           |       |
| **Financial liabilities**     | ** ** | ** ** |       |                   |       |                |       |         |       |                    |       |                           |       |
| Hire purchase liabilities     | ** ** | **2009**   |       | —                 |       | 373,444             |       | 373,444      |       | 9.45                    | %          | 714                            |       |
|                          |       | 2008       |       | —                 |       | 298,199             |       | 298,199      |       | 9.26                    | %          | 914                            |       |
| Totals                        | ** ** | **2009**   |       | —                 |       | 373,444             |       | 373,444      |       |                    |       |                           |       |
|                          |       | 2008       |       | —                 |       | 298,199             |       | 298,199      |       |                    |       |                           |       |

 

Notes:   All periods in respect offinancial assets are for less than one year.

 

In respect of the hirepurchase liabilities attributable to the Group, the interest rates are fixedfor the terms of the facility, which is less than one year ($164,128) andbetween one and five years ($209,316).

 

**Liquidity risk**

 

Prudent liquidity risk management impliesmaintaining sufficient cash and cash equivalents and the availability offunding through an adequate amount of committed credit facilities, such as itshire purchase and credit card facilities. The Group manages liquidity risk by continuously monitoring forecast andactual cash flows and, wherever possible, matching the maturity profiles offinancial assets and liabilities.  Due tothe dynamic nature of the underlying businesses, Management aims to maintainflexibility in funding by keeping committed credit lines available.  Surplus funds are generally only invested ininstruments that are tradeable in highly liquid markets.

 

A balanced view of cash inflows and outflowsaffecting the Group is summarised in the table below:

 
| ** **                      | ** ** | ** ** | ** ** | ** **        | ** ** | ** **                        | ** ** | **1 to 5** | ** ** | ** **       | ** ** | ** ** | ** ** |
|---------------------------------|------------|------------|------------|-------------------|------------|-----------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                      | ** ** | **Year**   | ** ** | **< 6 months** | ** ** | **6 to 12 months** | ** ** | **years**  | ** ** | **> 5 years** | ** ** | **Totals** | ** ** |
| ** **                      | ** ** | ** ** | ** ** | **$**             | ** ** | **$**                             | ** ** | **$**      | ** ** | **$**            | ** ** | **$**      | ** ** |
| **Financial assets**            |       |       |       |              |       |                              |       |       |       |             | ** ** | ** ** |       |
| Cash at bank / on hand          | ** ** | **2009**   |       | 3,076,902         |       | —                            |       | —     |       | —           |       | 3,076,902  |       |
|                            |       | 2008       |       | 5,490,846         |       | —                            |       | —     |       | —           |       | 5,490,846  |       |
| Short-term deposits             | ** ** | **2009**   |       | 4,750,000         |       | —                            |       | —     |       | —           |       | 4,750,000  |       |
|                            |       | 2008       |       | 7,429,926         |       | —                            |       | —     |       | —           |       | 7,429,926  |       |
| Trade and other  receivables    | ** ** | **2009**   |       | 1,829,239         |       | —                            |       | —     |       | —           |       | 1,829,239  |       |
|                            |       | 2008       |       | 1,596,738         |       | —                            |       | —     |       | —           |       | 1,596,738  |       |
| Performance bond and  deposits  | ** ** | **2009**   |       | 200               |       | —                            |       | —     |       | —           |       | 200        |       |
|                            |       | 2008       |       | 69,117            |       | 450,000                           |       | —     |       | —           |       | 519,117    |       |
| Available-for-sale  investments | ** ** | **2009**   |       | —            |       | —                            |       | 255,000    |       | —           |       | 255,000    |       |
|                            |       | 2008       |       | —            |       | —                            |       | 207,195    |       | —           |       | 207,195    |       |
| Total financial assets          | ** ** | **2009**   |       | 9,656,341         |       | —                            |       | 255,000    |       | —           |       | 9,911,341  |       |
|                            |       | 2008       |       | 14,586,627        |       | 450,000                           |       | 207,195    |       | —           |       | 15,243,822 |       |

 

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**36.****          ****FINANCIALRISK MANAGEMENT (cont.)**

 

**Liquidity risk (cont.)**

 
| ** **                  | ** ** | **Year**   | ** ** | **< 6 months** | ** ** | **6 to 12 months** | ** ** | **1 to 5 years** | ** ** | **> 5 years** | ** ** | **Totals** | ** ** |
|-----------------------------|------------|------------|------------|-------------------|------------|--------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                  | ** ** | ** ** | ** ** | **$**             | ** ** | **$**              | ** ** | **$**            | ** ** | **$**            | ** ** | **$**      | ** ** |
| **Financial liabilities**   | ** ** | ** ** | ** ** | ** **        |       |               | ** ** | ** **       |       |             |       | ** ** | ** ** |
| Trade and other payables    | ** ** | **2009**   |       | 2,158,557         |       | —             |       | —           |       | —           |       | 2,158,557  |       |
|                        |       | 2008       |       | 1,786,412         |       | —             |       | —           |       | —           |       | 1,786,412  |       |
| Hire purchase liabilities   | ** ** | **2009**   |       | 80,131            |       | 83,997             |       | 209,316          |       | —           |       | 373,444    |       |
|                        |       | 2008       |       | 54,425            |       | 56,692             |       | 187,082          |       | —           |       | 298,199    |       |
| Total financial liabilities | ** ** | **2009**   |       | 2,238,688         |       | 83,997             |       | 209,316          |       | —           |       | 2,532,001  |       |
|                        |       | 2008       |       | 1,840,837         |       | 56,692             |       | 187,082          |       | —           |       | 2,084,611  |       |
| Net maturity                | ** ** | **2009**   |       | 7,417,653         |       | (83,997            | )          | 45,684           |       | —           |       | 7,379,340  |       |
|                        |       | 2008       |       | 12,745,790        |       | 393,308            |       | 20,113           |       | —           |       | 13,159,211 |       |

 

The Group had access to the following undrawnborrowing facilities as at June 30, 2009:

 
| ** **                     | ** ** | **Facility limit** | ** ** | **Amount used** | ** ** | **Amount available** | ** ** |
|--------------------------------|------------|--------------------|------------|-----------------|------------|---------------------------|------------|
| ** **                     | ** ** | **$**              | ** ** | **$**           | ** ** | **$**                     | ** ** |
| *Nature of facility*           | ** ** | ** **         | ** ** | ** **      | ** ** | ** **                | ** ** |
| Master Asset Finance  Facility |       | 2,500,000          |       | (373,443        | )          | 2,126,557                 |       |
| Credit card facilities         |       | 147,000            |       | (22,958         | )          | 124,042                   |       |

 

Note:         The Master Asset FinanceFacility may be drawn at any time, subject to compliance with applicablebanking covenants, and is subject to annual review (refer Note 17 in respect ofa breach of the terms of the Facility).

 

The remaining contractual maturities of thefinancial liabilities of the Group are:

 
| **(Australian dollars)**     | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|
| ** **                   | ** ** | **$**     | ** ** | **$**     | ** ** |
| **Financial liabilities**    |       |      |       |      |       |
| < 6 months                |       | 2,238,688 |       | 1,840,837 |       |
| 6 months to 12 months        |       | 83,997    |       | 56,692    |       |
| 1 year to 5 years            |       | 209,316   |       | 187,082   |       |
| > 5 years                 |       | —    |       | —    |       |
| Total financial  liabilities |       | 2,532,001 |       | 2,084,611 |       |

 

**Fair value estimation**

 

As at June 30, 2009,the Group’s available-for-sale investments have been recognized at their fairvalues.  The following methods andassumptions are used to determine the fair values of financial assets andliabilities:

 

*Cash and cash equivalents*: the carryingamount approximates fair value due to their short term to maturity.

*Trade and other receivables*: the carryingamount approximates fair value.

*Consumables*: the carryingamount approximates fair value.

*Performance bond and deposits*: the carryingamount approximates fair value due to its short term to maturity.

*Unlisted shares*: the carryingamount has been written down to recoverable amount which approximates fair value.

*Trade and other payables*: the carryingamount approximates fair value.

*Accrued expenses*: the carryingamount approximates fair value.

*Hire purchase liabilities*: the carryingamount approximates fair value.

 

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**37.    AUDITORS’ REMUNERATION**

 
| **(Australian dollars)**                           | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                                         | ** ** | **$**      | ** ** | **$**    | ** ** | **$**    | ** ** |
| **Audit services**                                 | ** ** | ** ** |       |     |       |     |       |
| Ernst & Young  Australia in respect of:   | ** ** | ** ** |       |     |       |     |       |
| Audit  of the Group’s Financial Report        |       | 541,532    |       | 177,500  |       | 410,274  |       |
| Other audit firms in  respect of:                  |       |       |       |     |       |     |       |
| Audit of the Financial  Reports of subsidiaries    |       | 10,826     |       | 8,241    |       | 9,158    |       |
| Total remuneration in  respect of audit services   |       | 552,358    |       | 185,741  |       | 419,432  |       |
| **Non-audit services**                             |       |       |       |     |       |     |       |
| Ernst & Young  Australia in respect of:   |       |       |       |     |       |     |       |
| Tax advice and compliance  services                |       | 99,480     |       | 38,350   |       | 55,095   |       |
| Ernst & Young  South Korea in respect of: |       |       |       |     |       |     |       |
| Due diligence and advisory  services               |       | 20,618     |       | —   |       | —   |       |
| Total auditors’ remuneration                  |       | 672,456    |       | 224,091  |       | 474,527  |       |

 

Note:                  Audit fees paid during theyear ended June 30, 2009 include the fees paid by the Group to Ernst &Young in respect of its US reporting requirements for the year ended June 30,2008.

 

**38.    SUBSEQUENT EVENTS**

 

Asat June 30, 2009, a dispute existed between the Group and its landlord,Bankberg Pty. Ltd. (a company associated with former Director Dr. MervynJacobson) in relation to amounts receivable from the landlord in respect of thepremises leased by the Group in Fitzroy, Victoria.  On July 28, 2009, a Letter of Intent wassigned by the parties which established the parameters for calculating theamount to be paid as at June 30, 2009. On August 20, 2009, the parties reached agreement as to the amountof this payment which has been reflected in the Group’s balance sheet as at June 30,2009.

 

OnOctober 5, 2009, Dr. Malcolm Roy Brandon was appointed as a Directorof the Company.

 

BetweenOctober 30, 2009 and December 4, 2009, the Company sold all of its500,000 shares in Regis Resources Limited generating net proceeds of $295,195,and a net profit of $210,195.

 

OnNovember 24, 2009, Mr. Fred Bart resigned as a Director of theCompany.

 

OnNovember 25, 2009, PricewaterhouseCoopers was appointed as the Group’sauditor in respect of financial periods ending on, or after, December 31,2009.

 

OnNovember 25, 2009, Mr. Tommaso Bonvino was appointed as a Director ofthe Company.

 

Apartfrom the above, there have been no other significant events which have occurredafter balance date.

 

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