** **

**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 20-F**

** **

**REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR12(g)**

**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 30,2007**

 

**OR**

 

**TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**OR**

 

**SHELL COMPANY REPORT PURSUANT TO SECTION 13OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**Date of event requiringthis shell company report.....**

 

**Commission file number 0-51504**

 

**GENETIC TECHNOLOGIES LIMITED**

(Exact Name of Registrant as Specified in its Charter)

 

**Australia**(Jurisdiction of Incorporation or Organization)

 

**N/A**(Translation of Registrant’s name into English)

 

**60-66 Hanover Street, Fitzroy, Victoria, 3065, Australia**

Telephone: **011 61 3 9415 1135**;  Facsimile: **011 61 39417 2987**(Address of principal executive offices)

 

Securities registered or to be registered pursuant to Section 12(b) ofthe Act

** **

**None**

 

Securities registered pursuant to Section 12(g) of the Act:

** **

**Title of each class**

 

**American Depositary Shares each representing 30 Ordinary Shares**

**and evidenced by American Depositary Receipts**

** **

Securities for which there is a reporting obligation pursuant to Section 15(d) ofthe Act:

** **

**None**

 

The total number of issued shares of each class of stock of GeneticTechnologies Limited as of June 30, 2007 was:

** **

**362,389,899 Ordinary Shares**

** **

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

 

Yes o                    No           x

 

If this reportis an annual or transition report, indicate by check mark if the registrant isnot required to file reports pursuant to Section 13 or Section 15(d) ofthe Securities Exchange Act of 1934.

 

Yes o                    No           o

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes                         x           No           o

 

Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer.

 

Largeaccelerated filer  o                   Accelerated filer    o           Non-accelerated filer  x

 

Indicate bycheck mark which financial statement item the registrant has elected to follow.

 

Item 17 o              Item 18   x

 

If this is anannual report, indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).

 

Yes o                    No           x

 

Please send copies of notices andcommunications from the Securities and Exchange Commission to:

 

**Ross Kaufman**

**Greenberg Traurig, LLP**

**200 Park Avenue**

**New York, New York 10166**

 

 

----

 

**TABLE OF CONTENTS**

** **
| INTRODUCTION                                       |     |
|----------------------------------------------------|----------|
|                                               |     |
| FORWARD-LOOKING  STATEMENTS                        |     |
|                                               |     |
| ENFORCEMENT  OF LIABILITIES AND SERVICE OF PROCESS |     |
|                                               |     |
|                                               | ITEM 1.  | IDENTITY OF  DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |   |
|                                               |     |
|                                               | ITEM 1.A | DIRECTORS AND SENIOR  MANAGEMENT |   |
|                                               |     |   |   |
|                                               | ITEM 1.B | ADVISERS |   |
|                                               |     |
|                                               | ITEM 1.C | AUDITORS |   |
|                                               |     |
|                                               | ITEM 2.  | OFFER STATISTICS AND  EXPECTED TIMETABLE |   |
|                                               |     |
|                                               | ITEM 3.  | KEY INFORMATION |   |
|                                               |     |
|                                               | ITEM 3.A | SELECTED FINANCIAL DATA |   |
|                                               |     |   |   |
|                                               | ITEM 3.B | CAPITALIZATION AND INDEBTEDNESS |   |
|                                               |     |
|                                               | ITEM 3.C | REASONS FOR THE OFFER AND  USE OF PROCEEDS |   |
|                                               |     |
|                                               | ITEM 3.D | RISK FACTORS |   |
|                                               |     |
|                                               | ITEM 4.  | INFORMATION ON THE COMPANY |   |
|                                               |     |   |   |
|                                               | ITEM 4.A | HISTORY AND DEVELOPMENT OF  THE COMPANY |   |
|                                               |     |   |   |
|                                               | ITEM 4.B | BUSINESS OVERVIEW |   |
|                                               |     |   |   |
|                                               | ITEM 4.C | CORPORATE STRUCTURE |   |
|                                               |     |
|                                               | ITEM 4.D | PROPERTY, PLANT  AND EQUIPMENT |   |
|                                               |     |
|                                               | ITEM 5.  | OPERATING AND  FINANCIAL REVIEW AND PROSPECTS |   |
|                                               |     |
|                                               | ITEM 5.A | OPERATING RESULTS |   |
|                                               |     |
|                                               | ITEM 5.B | LIQUIDITY AND  CAPITAL RESOURCES |   |
|                                               |     |   |   |
|                                               | ITEM 5.C | RESEARCH AND  DEVELOPMENT, PATENTS AND LICENSES, ETC. |   |
|                                               |     |   |   |
|                                               | ITEM 5.D | TREND INFORMATION |   |
|                                               |     |   |   |
|                                               | ITEM 5.E | OFF-BALANCE  SHEET ARRANGEMENTS |   |
|                                               |     |   |   |
|                                               | ITEM 5.F | INFORMATION  ABOUT CONTRACTUAL OBLIGATIONS |   |
|                                               |     |   |   |
|                                               | ITEM 6.  | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES |   |
|                                               |     |
|                                               | ITEM 6.A | DIRECTORS AND  SENIOR MANAGEMENT |   |
|                                               |     |   |   |
|                                               | ITEM 6.B | COMPENSATION |   |
|                                               |     |
|                                               | ITEM 6.C | BOARD PRACTICES |   |
|                                               |     |
|                                               | ITEM 6.D | EMPLOYEES |   |
|                                               |     |
|                                               | ITEM 6.E | SHARE OWNERSHIP |   |

 

i

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|   | ITEM 7.   | MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                  |   |
|--------|-----------|---------------------------------------------------------------------|--------|
|   |      |                                                                |   |
|   | ITEM 7.A  | MAJOR  SHAREHOLDERS                                                 |   |
|   |      |
|   | ITEM 7.B  | RELATED PARTY  TRANSACTIONS                                         |   |
|   |      |                                                                |   |
|   | ITEM 7.C  | INTERESTS OF  EXPERTS AND COUNSEL                                   |   |
|   |      |
|   | ITEM 8.   | FINANCIAL INFORMATION                                               |   |
|   |      |
|   | ITEM 8.A  | CONSOLIDATED  STATEMENTS AND OTHER FINANCIAL INFORMATION            |   |
|   |      |
|   | ITEM 8.B  | LITIGATION AND  OTHER LEGAL PROCEEDINGS                             |   |
|   |      |
|   | ITEM 8.C  | DIVIDENDS                                                           |   |
|   |      |
|   | ITEM 8.D  | SIGNIFICANT CHANGES                                                 |   |
|   |      |                                                                |   |
|   | ITEM 9.   | THE OFFER AND LISTING                                               |   |
|   |      |
|   | ITEM 9.A  | OFFER AND LISTING  DETAILS                                          |   |
|   |      |
|   | ITEM 9.B  | PLAN OF DISTRIBUTION                                                |   |
|   |      |
|   | ITEM 9.C  | MARKETS                                                             |   |
|   |      |
|   | ITEM 9.D  | SELLING SHAREHOLDERS                                                |   |
|   |      |
|   | ITEM 9.E  | DILUTION                                                            |   |
|   |      |
|   | ITEM 9.F  | EXPENSES OF THE ISSUE                                               |   |
|   |      |
|   | ITEM 10.  | ADDITIONAL  INFORMATION                                             |   |
|   |      |
|   | ITEM 10.A | SHARE CAPITAL                                                       |   |
|   |      |
|   | ITEM 10.B | OUR CONSTITUTION                                                    |   |
|   |      |
|   | ITEM 10.C | MATERIAL CONTRACTS                                                  |   |
|   |      |
|   | ITEM 10.D | EXCHANGE  CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS |   |
|   |      |
|   | ITEM 10.E | TAXATION                                                            |   |
|   |      |
|   | ITEM 10.f | DIVIDENDS AND  PAYING AGENTS                                        |   |
|   |      |                                                                |   |
|   | ITEM 10.G | STATEMENT BY EXPERTS                                                |   |
|   |      |
|   | ITEM 10.H | DOCUMENTS ON DISPLAY                                                |   |
|   |      |
|   | ITEM 10.I | SUBSIDIARY  INFORMATION                                             |   |
|   |      |
|   | ITEM 11.  | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK         |   |
|   |      |
|   | ITEM 12.  | DESCRIPTION OF  SECURITIES OTHER THAN EQUITY SECURITIES             |   |
|   |      |
|   | ITEM 12.A | DEBT SECURITIES                                                     |   |
|   |      |
|   | ITEM 12.B | WARRANTS AND RIGHTS                                                 |   |
|   |      |
|   | ITEM 12.C | OTHER SECURITIES                                                    |   |

 

ii

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|                                        | ITEM 12.D | AMERICAN  DEPOSITARY SHARES                                                   |   |
|---------------------------------------------|-----------|-------------------------------------------------------------------------------|--------|
|                                        |      |
|                                        | ITEM 13.  | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES                              |   |
|                                        |      |
|                                        | ITEM 14.  | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |   |
|                                        |      |
| ** **                                  | ITEM 15.  | CONTROLS AND  PROCEDURES                                                      |   |
| ** **                                  |      |                                                                          |   |
| ** **                                  | ITEM 15.A | CONTROLS AND  PROCEDURES                                                      |   |
| ** **                                  |      |                                                                          |   |
| ** **                                  | ITEM 15.B | MANAGEMENT’S  ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING |   |
| ** **                                  |      |                                                                          |   |
| ** **                                  | ITEM 15.C | ATTESTATION  REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM                  |   |
| ** **                                  |      |                                                                          |   |
| ** **                                  | ITEM 15.D | CHANGES IN  INTERNAL CONTROL OVER FINANCIAL REPORTING                         |   |
| ** **                                  |      |                                                                          |   |
| ** **                                  | ITEM 15.E | LIMITATIONS ON  THE EFFECTIVENESS OF CONTROLS                                 |   |
| ** **                                  |      |                                                                          |   |
| ** **                                  | ITEM 16.A | AUDIT  COMMITTEE FINANCIAL EXPERT                                             |   |
| ** **                                  |      |                                                                          |   |
| ** **                                  | ITEM 16.B | CODE OF ETHICS                                                                |   |
|                                        |      |
|                                        | ITEM 16c. | principal  accountant fees and services                                       |   |
|                                        |      |                                                                          |   |
|                                        | ITEM 16D. | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |   |
|                                        |      |
|                                        | ITEM 16E. | PURCHASES OF  EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |   |
|                                        |      |
|                                        | ITEM 17.  | FINANCIAL STATEMENTS                                                          |   |
|                                        |      |
|                                        | ITEM 18.  | FINANCIAL STATEMENTS                                                          |   |
|                                        |      |
| GENETIC  TECHNOLOGIES LIMITED               |      |
|                                        |      |
| INDEX TO  CONSOLIDATED FINANCIAL STATEMENTS |      |
|                                        |      |
|                                        | ITEM 19.  | EXHIBITS                                                                      |   |
|                                        |      |
| SIGNATURES                                  |      |

 

iii

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**INTRODUCTION**

** **

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

 

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

 

Except as otherwise stated, all monetaryamounts in this Annual Report are presented in U.S. dollars.  Unless otherwise indicated, amounts inAustralian dollars have been translated into U.S. dollars.  These translations are provided  for convenience only, and they are notrepresentations that the Australian dollar could be converted into U.S. dollarsat the rate indicated.  Historic data hasbeen converted at the applicable rate at the date indicated.  In this Annual Report, references to “AUD”are to Australian dollars and references to “$” and “U.S. dollars” are toUnited States dollars.  The noon buying ratefor cable transfers in Australian dollars on June 30, 2006 was AUD1.00 =$0.7423 and on June 30, 2007 was AUD1.00 = $0.8491.

 

Our fiscal year ends on June 30,and references in this Annual Report to any specific fiscal year are to thetwelve month period ended on June 30 of such year.

 

**FORWARD-LOOKING STATEMENTS**

** **

This Annual Report containsforward-looking statements that involve risks and uncertainties.  We use words such an “anticipates”, “believes”,“plans”, “expects”, “future”, “intends” and similar expressions to identifysuch forward-looking statements.  ThisAnnual Report also contains forward-looking statements attributed to certainthird parties relating to their estimates regarding the growth of Genetic Technologiesand related service markets and spending. You should not place undue reliance on these forward-looking statements,which apply only as of the date of this Annual Report.  Our actual results could differ materiallyfrom those anticipated in these forward-looking statements for many reasons,including the risks faced by us described below under the caption “Risk Factors”and elsewhere in this Annual Report.

 

Although we believe that theexpectations reflected in such forward-looking statements are reasonable atthis time, we can give no assurance that such expectations will prove to becorrect.  Given these uncertainties,readers are cautioned not to place undue relianceon such forward-looking statements. Important factors that could cause actual results to differ materiallyfrom 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 oralforward-looking statements attributable to us are expressly qualified in theirentirety by reference to these cautionary statements.

 

**ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS**

** **

We are incorporated under the laws ofWestern Australia, in the Commonwealth of Australia.  All of our directors and executive officers,and any experts named in this Annual Report, reside outside the U.S.  Substantially all of our assets, ourdirectors’ and executive officers’ assets and such experts’ assets are locatedoutside the U.S.  As a result, it may notbe possible for investors to affect service of process within the U.S. upon usor our directors, executive officers or such experts, or to enforce againstthem or us in U.S. courts, judgments obtained in U.S. courts based upon thecivil liability provisions 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 will enforceagainst 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.

 

1

----

 

**PART I**

 

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

 

**Item 1.A         Directorsand Senior Management**

 

The Directors of the Company as of the date of this Annual Report are asfollows:

 
| **Name**                 | ** ** | **Position/Function**   | ** ** | **Business Address**                                                | ** ** |
|--------------------------|------------|-------------------------|------------|--------------------------------------------------------------------------|------------|
| Henry Bosch AO           |       | Chairman                |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia                   |       |
|                     |       |                    |       |                                                                     |       |
| Michael B. Ohanessian    |       | Chief Executive Officer |       | 60-66 Hanover Street   Fitzroy Victoria 3065  Australia                  |       |
|                     |       |                    |       |                                                                     |       |
| Fred Bart                |       | Non-Executive Director  |       | Suite 2, Level 12, 75  Elizabeth Street  Sydney NSW 2000  Australia |       |
|                     |       |                    |       |                                                                     |       |
| David Carruthers         |       | Non-Executive Director  |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia                   |       |
|                     |       |                    |       |                                                                     |       |
| John S. Dawkins AO       |       | Non-Executive Director  |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia                   |       |
|                     |       |                    |       |                                                                     |       |
| Dr. Mervyn Jacobson |       | Non-Executive Director  |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia                   |       |

 

The members ofSenior Management of the Company as of the date of this Annual Report are asfollows:

 
| **Name**               | ** ** | **Position/Function**                          | ** ** | **Business Address**                                   |
|------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------|
| Michael  B. Ohanessian |       | 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 |
|                   |       |                                           |       |                                                   |
| Dr. Gary S. Cobon |       | Chief Scientific Officer                       |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                   |       |                                           |       |                                                   |
| W. Ian Smith           |       | General Manager -DNA  Profiling                |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                   |       |                                           |       |                                                   |
| Jonathan S. Whitty     |       | General Manager -Medical  Diagnostics          |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                   |       |                                           |       |                                                   |
| M. Luisa Ashdown       |       | General Manager -Licensing                     |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                   |       |                                           |       |                                                   |
| Catherine M. Barclay   |       | General Manager -Human  Resources              |       | 60-66 Hanover Street  Fitzroy Victoria  3065 Australia |

 

2

----

 

**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         |       | 525 Collins Street  Melbourne Victoria 3000  Australia                   |
|                               |       |                    |       |                                                                     |
| Hamilton, DeSanctis & Cha |       | Licensing Attorneys     |       | 225  Union Boulevard, Suite 305Lakewood Colorado 80228  USA         |
|                               |       |                    |       |                                                                     |
| Sheridan Ross PC                   |       | Litigation Attorneys    |       | 1560 Broadway, Suite 1200  Denver Colorado 80202  USA                    |
|                               |       |                    |       |                                                                     |
| Faegre & Benson LLP       |       | Patent Attorneys        |       | 3200 Wells Fargo Center  1700 Lincoln Street  Denver Colorado 80203  USA |
|                               |       |                    |       |                                                                     |
| Greenberg Traurig, LLP             |       | U.S. Securities Counsel |       | 200 Park Avenue  New York New York 10166  USA                            |

 

**Item 1.C         Auditors**

** **

The auditors of the Company’s US GAAPaccounts for the years ended June 30, 2003, 2004, 2005, 2006 and 2007 wereErnst & Young, whose address is8 Exhibition Street, Melbourne, Victoria, 3000, Australia.  Ernst & Young is the Company’scurrent independent registered publicaccounting firm, an appointment ratified at the Annual General Meeting held on November 28,2003.

 

**Item 2.            Offer Statistics And Expected Timetable**

** **

Not applicable.

 

**Item 3.            Key Information**

** **

**Item 3.A         SelectedFinancial Data**

** **

The following selected financial datafor the five years ended June 30, 2007 is derived from the auditedconsolidated financial statements of Genetic Technologies Limited, prepared inaccordance with United States generally accepted accounting principles (“USGAAP”).  The balance sheet data as of June 30,2007 and 2006 and the statement of operations data for fiscal years 2007, 2006and 2005 are derived from our audited consolidated financial statements includedin this annual report.  Balance sheetdata as of June 30, 2005, 2004 and 2003 and statement of operations datafor fiscal years 2004 and 2003 are derived from our audited consolidatedfinancial statements which are not included in this annual report.  The data should be read in conjunction with theconsolidated financial statements, related notes and other financialinformation included herein.

 

The acquisition of GeneType AG by theCompany in 2000 was accounted for under US GAAP as a reverse acquisition forfinancial reporting purposes. Accordingly, the summary financial data set forth below is that ofGeneType (the legal acquiree), with the results of operations of GeneticTechnologies (the legal acquiror) included from the effective date of its acquisition(September 30, 2000).

 

All amounts are in U.S. dollars as of June 30as noted.

 

3

----

 

**GENETIC TECHNOLOGIES LIMITED**

** **

**CONSOLIDATED STATEMENTS OF OPERATIONSUS GAAP FOR 2007, 2006, 2005, 2004 AND 2003CONVERTED TO U.S. DOLLARS**

 
| ** **                                              | ** ** | **Year ended  30 June 2007** | ** ** | **Year ended  30 June 2006** | ** ** | **Year ended  30 June 2005** | ** ** | **Year ended  30 June 2004** | ** ** | **Year ended  30 June 2003** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                              | ** ** | **U.S. Dollars  (a)**                  | ** ** | **U.S. Dollars  (b)**                  | ** ** | **U.S. Dollars  (c)**                  | ** ** | **U.S. Dollars  (d)**                  | ** ** | **U.S. Dollars  (e)**                  | ** ** |
| REVENUES                                                |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| Licensing Revenue                                       |       | 8,955,467                                   |       | 4,997,223                                   |       | 4,970,007                                   |       | 507,910                                     |       | 2,615,544                                   |       |
| Service Testing Revenue                                 |       | 2,463,886                                   |       | 1,906,290                                   |       | 1,809,301                                   |       | 1,969,963                                   |       | 1,727,617                                   |       |
| Grant Income                                            |       | 249,211                                     |       | 426,574                                     |       | 437,278                                     |       | 154,702                                     |       | 50,244                                      |       |
| Other Revenue                                           |       | 1,330                                       |       | 14,915                                      |       | 3,469                                       |       | 12,427                                      |       | 10,722                                      |       |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| TOTAL REVENUES                                          |       | 11,669,894                                  |       | 7,345,002                                   |       | 7,220,055                                   |       | 2,645,002                                   |       | 4,404,127                                   |       |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| OPERATING EXPENSES                                      |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| Service Testing Expenses                                |       | 4,489,906                                   |       | 4,547,437                                   |       | 3,510,444                                   |       | 2,244,020                                   |       | 1,820,490                                   |       |
| Research and Development                                |       | 3,836,583                                   |       | 2,815,804                                   |       | 1,830,932                                   |       | 1,669,484                                   |       | 512,345                                     |       |
| Patent and License Fees                                 |       | 1,078,191                                   |       | 1,438,345                                   |       | 4,632,617                                   |       | 804,340                                     |       | 428,335                                     |       |
| Sales and Marketing                                     |       | 916,696                                     |       | 846,808                                     |       | 570,498                                     |       | 993,827                                     |       | 661,211                                     |       |
| General and Administrative                              |       | 2,667,843                                   |       | 2,273,946                                   |       | 2,597,642                                   |       | 2,285,787                                   |       | 1,182,856                                   |       |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| TOTAL OPERATING EXPENSES                                |       | 12,989,219                                  |       | 11,922,340                                  |       | 13,142,133                                  |       | 7,997,458                                   |       | 4,605,237                                   |       |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| LOSS FROM OPERATIONS                                    |       | (1,319,325                                  | )          | (4,577,338                                  | )          | (5,922,078                                  | )          | (5,352,456                                  | )          | (201,110                                    | )          |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| OTHER INCOME (EXPENSE)                                  |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| Interest Income                                         |       | 386,259                                     |       | 601,803                                     |       | 484,286                                     |       | 352,605                                     |       | 68,387                                      |       |
| Rental Recovery                                         |       | 25,234                                      |       | 0                                           |       | 0                                           |       | 0                                           |       | 0                                           |       |
| Net Profit (Loss) on Assets                             |       | (6,562                                      | )          | 1,735                                       |       | 97,809                                      |       | 406,224                                     |       | (100,191                                    | )          |
| Interest Expense                                        |       | (52,442                                     | )          | (63,316                                     | )          | (31,750                                     | )          | 0                                           |       | (5,979                                      | )          |
| Net Foreign Exchange Gains (Losses)                     |       | (250,657                                    | )          | 92,403                                      |       | (140,861                                    | )          | (171,960                                    | )          | (558,292                                    | )          |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| TOTAL OTHER INCOME (EXPENSES)                           |       | 101,832                                     |       | 632,625                                     |       | 409,484                                     |       | 586,869                                     |       | (596,075                                    | )          |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| NET LOSS BEFORE INCOME TAXES                            |       | (1,217,493                                  | )          | (3,944,713                                  | )          | (5,512,594                                  | )          | (4,765,587                                  | )          | (797,185                                    | )          |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| INCOME TAXES                                            |       | (208,850                                    | )          | (67,649                                     | )          | (195,339                                    | )          | (27,579                                     | )          | (167,412                                    | )          |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| NET LOSS BEFORE MINORITY INTEREST                       |       | (1,426,343                                  | )          | (4,012,362                                  | )          | (5,707,933                                  | )          | (4,793,166                                  | )          | (964,597                                    | )          |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| MINORITY INTEREST                                       |       | 13,554                                      |       | (7,961                                      | )          | (35,016                                     | )          | (23,560                                     | )          | 4,202                                       |       |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| NET LOSS                                                |       | (1,412,789                                  | )          | (4,020,323                                  | )          | (5,742,949                                  | )          | (4,816,726                                  | )          | (960,395                                    | )          |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| (BASIC AND DILUTED) NET LOSS PER ORDINARY SHARE         |       | (0.004                                      | )          | (0.01                                       | )          | (0.02                                       | )          | (0.02                                       | )          | (0.004                                      | )          |
|                                                    |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| WEIGHTED-AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) |       | 362,389,899                                 |       | 362,386,940                                 |       | 315,264,068                                 |       | 277,806,689                                 |       | 261,541,405                                 |       |

 

4

----

 

**GENETIC TECHNOLOGIES LIMITED**

** **

**SELECTED CONSOLIDATED BALANCE SHEET DATAUS GAAP FOR 2007, 2006, 2005, 2004 AND 2003CONVERTED TO U.S. DOLLARS**

 
| ** **                      | ** ** | **Year ended  30 June 2007** | ** ** | **Year ended  30 June 2006** | ** ** | **Year ended  30 June 2005** | ** ** | **Year ended  30 June 2004** | ** ** | **Year ended  30 June 2003** | ** ** |
|---------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                      | ** ** | **U.S. Dollars  (a)**                  | ** ** | **U.S. Dollars  (b)**                  | ** ** | **U.S. Dollars  (c)**                  | ** ** | **U.S. Dollars  (d)**                  | ** ** | **U.S. Dollars  (e)**                  | ** ** |
| ASSETS                          | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| Current                         |       | 11,578,682                                  |       | 9,343,170                                   |       | 14,029,515                                  |       | 8,751,008                                   |       | 4,274,514                                   |       |
| Non-Current                     |       | 6,192,186                                   |       | 7,309,930                                   |       | 8,284,286                                   |       | 6,902,365                                   |       | 1,807,634                                   |       |
|                            |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| TOTAL ASSETS                    |       | 17,770,868                                  |       | 16,653,100                                  |       | 22,313,801                                  |       | 15,653,373                                  |       | 6,082,148                                   |       |
| ** **                      | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| LIABILITIES                     | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| Current                         |       | 2,758,524                                   |       | 2,186,973                                   |       | 3,711,241                                   |       | 3,233,207                                   |       | 1,349,310                                   |       |
| Non-Current                     |       | 677,119                                     |       | 911,957                                     |       | 1,252,509                                   |       | 486,640                                     |       | 469,490                                     |       |
|                            |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| TOTAL LIABILITIES               |       | 3,435,643                                   |       | 3,098,930                                   |       | 4,963,750                                   |       | 3,719,847                                   |       | 1,818,800                                   |       |
| ** **                      | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| TOTAL SHAREHOLDERS’ EQUITY |       | 14,212,090                                  |       | 13,424,137                                  |       | 17,224,715                                  |       | 11,851,330                                  |       | 4,204,310                                   |       |
| ** **                      | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| DIVIDENDS DECLARED PER SHARE    |       | 0                                           |       | 0                                           |       | 0                                           |       | 0                                           |       | 0                                           |       |

 

----

(a)          Converted at AUD1.00 = $0.7899,except for assets and liabilities which were converted at AUD1.00 = $0.8491

(b)         Converted at AUD1.00 = $0.7475,except for assets and liabilities which were converted at AUD1.00 = $0.7423

(c)          Converted at AUD1.00 = $0.7564,except for assets and liabilities which were converted at AUD1.00 = $0.7618

(d)         Converted at AUD1.00 = $0.7132,except for assets and liabilities which were converted at AUD1.00 = $0.6952

(e)          Converted at AUD1.00 = $0.5847,except for assets and liabilities which were converted at AUD1.00 = $0.6713

 

**EXCHANGE RATES**

** **

Thefollowing table sets forth, for the periods and dates indicated, certain informationconcerning the noon buying rate in New York City for Australian dollarsexpressed in U.S. dollars per AUD1.00 as certified for customs purposes by theFederal Reserve Bank of New York.

 
| **Period ended** | ** ** | **At period end** | ** ** | **Average rate (a)** | ** ** | **High** | ** ** | **Low** | ** ** |
|-----------------------|------------|-----------------------------|------------|--------------------------------|------------|----------|------------|---------|------------|
| ** **            |       |                        |       |                           |       |     |       |    |       |
| **Yearly data**       |       |                        |       |                           |       |     |       |    |       |
| ** **            |       |                        |       |                           |       |     |       |    |       |
| June 2003        |       | 0.6713                      |       | 0.5847                         |       | 0.6735   |       | 0.5226  |       |
| June 2004        |       | 0.6952                      |       | 0.7132                         |       | 0.8005   |       | 0.6345  |       |
| 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  |       |
|                  |       |                        |       |                           |       |     |       |    |       |
| **Monthly data**      |       |                        |       |                           |       |     |       |    |       |
| ** **            |       |                        |       |                           |       |     |       |    |       |
| June 2007        |       | 0.8491                      |       | 0.8423                         |       | 0.8491   |       | 0.8313  |       |
| July 2007        |       | 0.8594                      |       | 0.8677                         |       | 0.8841   |       | 0.8509  |       |
| August 2007      |       | 0.8157                      |       | 0.8291                         |       | 0.8618   |       | 0.7860  |       |
| September 2007   |       | 0.8855                      |       | 0.8477                         |       | 0.8855   |       | 0.8238  |       |
| October 2007     |       | 0.9271                      |       | 0.8996                         |       | 0.9271   |       | 0.8785  |       |
| November 2007    |       | 0.8848                      |       | 0.8974                         |       | 0.9369   |       | 0.8698  |       |

 

----

(a)          The average of the exchange rates on the last dayof each month during the financial period.

 

5

----

 

**Item 3.B****                         ****Capitalizationand Indebtedness**

** **

Notapplicable.

 

**Item 3.C         Reasonsfor the Offer and Use of Proceeds**

** **

Notapplicable.

 

**Item 3.D         RiskFactors**

** **

Before you purchase our ADSs, you shouldbe aware that there 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.

 

**Risks Related to Us**

** **

**Our stock price is volatile and can fluctuatesignificantly based on events not in our control and general industryconditions.  As a result, the value ofyour investment may decline significantly.**

** **

The biotechnology sector can beparticularly vulnerable to abrupt changes in investor sentiment.  Stock prices  of companies in the biotechnology industry, including ours,can swing dramatically, with little relationship to operating performance.  Our stock price may be affected by a numberof factors including, but not limited to:

 

·                  product development events;

 

·                  the outcome of litigation;

 

·                  decisions relating to intellectual propertyrights;

 

·                  the entrance of competitive products/technologiesinto our market;

 

·                  new medical discoveries;

 

·                  the establishment of strategic partnerships andalliances;

 

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

 

·                  other industry and market changes or trends.

 

Since our listing on the Australian Securities Exchange in August 2000,the price of our Ordinary Shares has ranged from a low of AUD0.12 to a high ofAUD1.05 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 haveknowledge took place in August 2003 after a television report in Australiaon our company was broadcast.  Duringthat week, the price of our sharesincreased from AUD0.58 to AUD0.87 on a volume of 26,000,000 shares traded, whichwas exceptionally high for us.  The shareprice subsequently retreated.

 

In addition, low trading volume may increase the volatility of theprice of our ADSs.  Trading volume in ourOrdinary Shares on other markets has not been historically high, and thetrading volume of our ADSs on the NASDAQ Global Market has typicallyalso been low.  Further, because each ofour ADSs represents 30 of our Ordinary Shares, trading volume in our ADSs islower than that for our Ordinary Shares. A thin trading market could cause the price of our ADSs to fluctuatesignificantly more than the stock 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.

 

6

----

 

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

 

 

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

** **

We have never paid a cash dividend onour Ordinary Shares and we do not anticipate paying any cash dividend in theforeseeable future.  We intend to retainfuture cash earnings, if any, for reinvestment in the development and expansionof our business.  Whether we pay cashdividends in the future will be at the discretion of our Board of directors andmay be dependent 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 byshares, registered and operating under the Australian Corporations Act2001.  All of our directors and officersnamed in this Annual Report reside outside the U.S.  Substantially all, or a substantial portionof, the assets of those persons are also located outside the U.S.  As a result, it may not be possible to affectservice on such persons in the U.S. or to enforce, in foreign courts, judgmentsagainst such persons obtained in U.S. courts and predicated on the civilliability provisions of the federal securities laws of the U.S.  Furthermore, substantially all of ourdirectly-owned assets are located outside the U.S., and, as such, any judgmentobtained in the  U.S. against us may notbe collectible within the U.S.  There isdoubt as to the enforceability in the Commonwealth of Australia, in originalactions or in actions for enforcement of judgments of U.S. courts, of civilliabilities predicated solely upon federal or state securities laws of theU.S., especially in the case of enforcement of judgments of U.S. courts wherethe defendant has not been properly served in Australia.

 

**Because we are not necessarily required to provide youwith the same information as an issuer of securities based in the UnitedStates, you may not be afforded the same protection or information you wouldhave if you had invested in a public corporation based in the United States.**

** **

We are exempt from certain provisions ofthe Securities 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 file publicreports of their stock ownership and trading activities and liability forinsiders 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.

 

7

----

 

However, in line with the AustralianSecurities Exchange regulations, we will disclose our semi-annual results,which, in accordance with Australian auditing standards, are required to have alimited review 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 listedcompanies.  We will provide oursemi-annual results and other material information that we make public inAustralia in the U.S. under the cover of an SEC Form 6-K.  Nevertheless, you may not be afforded thesame protection or information, which would be made available to you, were youinvesting in a United States public corporation because the requirements of a Form 10-Qand Form 8-K are not applicable to us.

 

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

** **

Historically, there was virtually notrading in our ADSs through the pink sheets after the establishment of ourLevel I ADR Program.  However, subsequentto the Level 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 certain circumstances, holders of ADRs may havelimited rights relative to holders of Ordinary Shares******.***

 

The rights of holders of ADSs withrespect to the voting of Ordinary Shares and the right to receive certaindistributions may be limited in certain respects by the deposit agreement enteredinto by us and The Bank of New York.  Forexample, although ADS holders are entitled under the deposit agreement, subjectto any applicable provisions of Australian law and of our Constitution, toinstruct the depositary as to the exercise of the voting rights pertaining tothe Ordinary Shares represented by the American Depositary Shares, and thedepositary has agreed that it will try, as far as practical, to vote theOrdinary Shares so represented in accordance with such instructions, ADSholders may not receive notices sent by the depositary in time to ensure thatthe depositary will vote the Ordinary Shares. This means that the holders of ADRs may not be able to exercise theirright to vote.  In addition, under thedeposit agreement, the depositary has the right to restrict distributions toholders of the ADSs in the event that it is unlawful or impractical to makesuch distributions.  We have noobligation to take any action to permit distributions to holders of ourAmerican Depositary Receipts, or ADRs. As a result, holders of ADRs may not receive distributions made byus.  For further information about therights and limitations on rights applicable to holders of our ADSs, please seeItem 12D of this Annual Report entitled “American Depositary Shares”.

** **

**Our Company has a history of losses and we expect to continue to incurcosts.**

** **

The business which is now known asGenetic Technologies Limited was founded in 1989.  We have incurred operating losses in everyyear of our existence.  We incurred netlosses of $960,395 for the year ended June 30, 2003, net losses of$4,816,726 for the year ended June 30, 2004, net losses of $5,742,949 foryear ended June 30, 2005, net losses of $4,020,323 for year ended  June 30, 2006 and net losses of$1,412,789 for year ended June 30, 2007. As of  June 30, 2007, we haveaccumulated losses of $18,415,225.  Theextent of future losses and the time required to achieve profitability remainsuncertain.

 

**Risks Related to our Industry**

** **

**Our sales cycle istypically lengthy.**

** **

The sales cycle for our testing productsand license generation is typically lengthy. As a result, we may expend substantial funds and management effort withno assurance of successfully selling our products or services or granting newlicenses.  Our ability to obtaincustomers for our genetic testing services depends significantly on theperception that our services 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.

 

8

----

 

**If our competitorsdevelop more effective products, the results from our operations and financialcondition could be affected.**

** **

We aresubject 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 services, or which otherwise address the needs of ourcustomers and potential customers.  Ourcompetitors in the testing market include private and public sector enterpriseslocated in Australia and elsewhere.  Manyof the organizations competing with us have greater experience in the areas offinance, research and development, manufacturing, marketing, sales,distribution, technical and regulatory matters than we do.  In addition, many current and potentialcompetitors have greater name recognition and more extensive collaborativerelationships.  However, because of ourpatents, we have virtually no competition in the licensing area.

 

Our competitive position in thetesting area is based upon our ability to:

 

·                  create and maintainscientifically-advanced technology and offer proprietary products and services;

 

·                  attract and retainqualified personnel;

 

·                  obtain patent or other protection for our products andservices;

 

·                  obtain required government approvals and otheraccreditations on a timely basis; and

 

·                  successfully market our services.

 

If we are not successful in meetingthese goals, our business could be adversely affected.  Similarly, our competitors may succeed indeveloping technologies, products or services that are more effective than anythat we are developing or that would render our technology and servicesobsolete, noncompetitive or uneconomical.

 

Fora full discussion of competition see Item 4.B, “Competition”.

 

**We rely heavily upon our patents andproprietary technology and any future claims that our patents are invalid couldseriously affect our licensing business and adversely affect our revenues andour financial condition.**

** **

We rely upon our portfolio of patentrights, patent applications and exclusive licenses to patents and patentapplications relating to genetic technologies. We expect to aggressively patent and protect our proprietarytechnologies.  However, we cannot becertain that any additional patents will be issued to us as a result of ourdomestic or foreign patent applications or that any of our patents willwithstand challenges by others.  Patentsissued to, or licensed by, us may be infringed or third parties mayindependently develop either the same orsimilar technologies.  Similarly, ourpatents may not provide us with meaningful protection from competitors, including those who may pursue patents which may prevent, limit orinterfere with our products or will require licensing and the payment ofsignificant fees or royalties by us to such third parties in order to enable usto conduct our business.  We may sue orbe sued by third parties regarding our patents and other intellectual propertyrights.  These suits are often costly andwould divert valuable funds and technical resources from our operations andcause distraction to Management.

 

**We have important relationships with externalparties over whom we have limited control.**

** **

We have relationships with a number ofacademic consultants who are not employed by us.  Accordingly, we have limited control overtheir activities and can expect only limited amounts of their time to bededicated to our activities.  Thesepersons may have consulting, employment or advisory arrangements with otherentities that may conflict 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 proprietarymethods and technologies, we may not be able to commercialize products orservices.**

** **

Our commercial success will largelydepend on our ability to obtain patent protection for many aspects of ourbusiness, including the products, methods and services we develop.  Patents issued to us may not provide us withsubstantial protection or be commercially beneficial to us.  The issuance of a patent is not conclusive asto its validity or its enforceability. In addition, our patent applications or those we have licensed, may notresult in issued patents.  If our patentapplications do not result in issued patents, our competitors may obtain rightsto commercialize our discoveries 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,if at all.

 

9

----

 

Certain parties are attempting torapidly identify and characterize genes and genetic variations through the useof sequencing and other technologies.  Tothe extent that any patents are issued to other parties on such partial orfull-length genes or genetic variations or uses for such genes or geneticvariations, the risk increases that the sale of products or services developedby us or our collaborators may give rise to claims of patent infringementagainst us.  Others may have filed and,in the future, are likely to file patent applications covering many geneticvariations and their uses.  Any suchpatent applications may have priority over our patent applications and couldfurther require us to obtain rights to previously issued patents coveringgenetic variations.  Any license that wemay require under any such patent may not be made available to us on commercially acceptable terms, if at all.

 

We may be sued for infringing on theintellectual property rights of others. We could also become involved in interference proceedings in the UnitedStates Patent and Trademark Office to determine the relative priority of ourpatents or patent applications and those of the other parties involved in theinterference proceeding.  Intellectualproperty proceedings are costly, and could affect our results ofoperations.  These proceedings can alsodivert the attention 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 inthe future become a party to litigation involving patents and intellectualproperty rights.  We have previouslycommenced litigation against a number of parties to protect our rightspertaining to our intellectual property. We may in the future receive claims of infringement of intellectualproperty rights from other parties.  Ifwe do not prevail in any future legal proceedings, we may be required to paysignificant monetary damages.  Inaddition, we could also be enjoined from use of certain processes or preventedfrom selling certain configurations of our products or services that were foundto be within the scope of the patent claims. In the event we did not prevail in any future proceeding, we wouldeither have to obtain licenses from the other party, avoid certain productconfigurations or modify some of our products, services and processes to designaround the patents.  Licenses could be costly or unavailable oncommercially reasonable terms.  Designingaround patents or focusingefforts on different configurations could be time consuming, and we may have toremove some of our products or services from the market while we werecompleting redesigns.  Accordingly, if weare unable to settle future intellectual property disputes through licensing orsimilar arrangements, or if any such future disputes are determined adverselyto us, our ability to market and sell our products and services could beseriously harmed.  This would in turnreduce demands for our services and harm our financial condition and results ofoperations.

 

In addition, in order to protect orenforce our patent rights or to protect our ability to operate our business, wemay need to initiate 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 our patents.  We may not prevail in any such proceedingsand a court may find damages or award other remedies in favor of our opposingparty in any of these suits.  During thecourse of any future proceedings, theremay be public announcements of the results of hearings, motions and otherinterim proceedings or developments in the litigation.  Securities analysts orinvestors may perceive these announcements to be negative, which could causethe market price of our stock to decline.

 

**We may be subject toprofessional liability suits and our insurance may not be sufficient to coverdamages.  If this occurs, our businessand financial condition may be adversely affected.**

** **

Our business exposes us to potentialliability risks that are inherent in the testing, manufacturing, marketing andsale of genetic tests.  The use of ourproducts and product candidates, whether for clinical trials or commercialsale, may expose us to professional liability claims and possible adversepublicity.  We may be subject to claimsresulting from incorrect results of analysis of genetic variations or otherscreening tests performed using our services. Litigation of such claims could be costly.  We could expend significant funds during anylitigation proceeding brought against us. Further, if a court were to require us to pay damages  to a plaintiff, the amount of such damagescould significantly harm our financial condition.  Although we have public and productsliability insurance coverage under broadform liability and professionalindemnity policies, for an aggregate amount of AUD60,000,000, the level orbreadth of our coverage may not be adequate to fully cover potential liabilityclaims.  To date we have not been subjectto any claims, or ultimately liability, in excess of the amount of ourcoverage.  In addition, we may not beable to obtain additional professional liability coverage in the future at anacceptable cost.  A successful claim orseries of claims brought against us in excess of our insurance coverage and theeffect of professional liability litigation upon the reputation andmarketability of our technology and products, together with the diversion ofthe attention of key personnel, could negatively affect our business.

 

10

----

 

**We use potentially hazardous materials,chemicals and patient samples in our business and any disputes relating toimproper handling, storage or disposal of these materials could be timeconsuming and costly.**

** **

Our research and development, productionand service activities involve the controlled use of hazardous laboratorymaterials and chemicals, including small quantities of acid and alcohol, andpatient tissue and blood samples.  We donot knowingly deal with infectious samples. We, our collaborators and service providers are subject to stringentAustralian federal, state and local laws and regulations governing occupationalhealth and safety standards, including those governing the use, storage,handling and disposal of these materials and certain waste products.  However, we could be liable for accidentalcontamination or discharge or  anyresultant injury from hazardous materials, and conveyance, processing, andstorage of and data on patient samples. If we, our collaborators or service providers fail to comply withapplicable laws or regulations, we could be required to pay penalties or beheld liable for any damages that result and this liability could exceed ourfinancial resources.  Further, futurechanges to environmental health and safety laws could cause us to incuradditional expense or restrict our operations. We have never had a reportable injury through the date of this AnnualReport.

 

In addition, our collaborators andservice providers may be working with these types of hazardous materials,including hazardous chemicals, 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 AUD40,000,000, the level or breadth of ourcoverage may 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 ouracademic and corporate partners for research, development and commercializationof some of our products.  A breach by ourpartners of their obligations, or the termination of the relationship, coulddeprive us of valuable resources and require additional investment of time andmoney.**

** **

Our strategy for research, developmentand commercialization of some of our products involves entering into variousarrangements 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 terminatetheir agreement with us or otherwise fail to conduct their collaborativeactivities in 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 arbitrationfor resolution.  These consequences couldbe time-consuming and expensive and could have material adverse effects on us.

 

Other than our contractual rights underour license agreements, we may be limited in our ability to convince ourlicensees  to fulfill theirobligations.  If our licensees fail toact promptly and effectively, or if a dispute arises, it could have a materialadverse effect on our results of operations and the price of our OrdinaryShares and ADSs.

 

We rely upon scientific, technical andclinical data supplied by academic and corporate collaborators, licensors,licensees, independent contractors and others in the evaluation and developmentof potential therapeutic methods.  Theremay be errors or omissions in this data that would materially adversely affectthe development of these methods.

 

We may seek additional collaborativearrangements to develop and commercialize our products in the future.  We may not be able to negotiate acceptablecollaborative arrangements in the future and, if negotiated, we have no certaintythat they will be on favorable terms or will be successful.  In addition, our collaborative partners maypursue alternative technologies independently or  in collaboration with others as a means ofdeveloping treatments for the diseases targeted by their collaborative programswith us.  If any of these events occurs,the progress of the Company could be adversely affected and our results ofoperations and financial condition could suffer.

 

11

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**Problems associatedwith international business operations could affect our ability to license ourtechnology and our results of operations.**

** **

We seek to license our intellectualproperty on a global scale, including eventually in countries that areconsidered to provide significantly less protection to intellectual propertythan the United States and Australia.  Inaddition, a number of other risks are inherent in international transactionsand commerce, including political and economic instability, foreign currencyexchange fluctuations and changes in tax laws. For example, in fiscal year 2003 we sustained foreign exchange losses ofover $500,000 primarily due to the appreciation in the value of the AustralianDollar compared to the U.S. Dollar and the impact on our cash deposits whichare denominated in U.S. Dollars.

 

**Government regulation of genetic research or testing may adversely affect the demand for ourservices and impair our business and operations.**

** **

Apart from accreditation requirements,we are generally 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.  Regulationsrelating to genetic research activities could adversely affect our ability toconduct our research and development activities.  Regulations restricting genetic testing couldadversely affect our ability to market and sell our services.  Accordingly, any regulations of this naturecould increase the costs of our operations or restrict our ability to conductour testing business and might adversely affect our operations and financialcondition.

 

InAustralia, there is no law that prohibits the performing 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 aboutcounselling.

 

Thisapproach is very similar to the model adopted in the United Kingdom where, fora laboratory to perform tests for legal purposes, it is not allowed to performtesting where just the father and the child give a sample without the knowledgeor consent of the mother.  If NATAfollows the UK model, this will have a negative impact on our revenue  as father/child testing is a substantial andgrowing market.

 

TheGovernment also rejected the ALRC recommendation that all human DNA testinglaboratories be accredited by NATA. This means that the non-accredited providers can continue to offer thistype of testing.  It should be noted,however, that none of the Government’s recommendations in relation to thereport have yet been incorporated into legislation and it is not known when andif this will occur.

 

**We rely on the services of individuals whopossess special skills and experience.**

** **

Much of the future success of theCompany depends on the continued service and availability of skilled personnel,including its Chief Executive Officer, members of its senior executive team,and those in technical, marketing and staff positions.  While we are actively recruiting 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.

 

**Ethical and other concerns surrounding theuse of genetic information may reduce the demand for our services.**

** **

Public opinion regarding ethical issuesrelated to the confidentiality and appropriate use of genetic testing  results may influence governmentalauthorities to call for limits on, or regulation of the use of, genetictesting.  In addition, such authoritiescould prohibit testing for genetic predisposition to certain conditions,particularly for those that have no known cure. Furthermore, adverse publicity or public opinion relating to geneticresearch and testing, even in the absence of any governmental regulation, could reduce the potential markets forour 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.

 

12

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**Licensing**

** **

Thepatenting of genes and issues surrounding access to genetic knowledge are thesubjects of extensive and ongoing public debate in many countries.  In recent times, for example, the AustralianLaw Reform Commission has 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 ororganisations 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. Subsequent legal action could potentially overturn, invalidate or limitthe scope of our patents.

 

Underthe relevant Patent Act in most, if not all, of the countries in which our non-codingpatents 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 the relevant patents was the subject ofanother government inquiry being conducted by the Australian Council forIntellectual Property who recommended the creation of a research exemption.

 

**Genetic testing**

** **

There is a risk that a moratorium ongenetic testing by the Australian Institute of Sport may impact on thecommercialization of our sports performance genetic test for the elite competitor marketin Australia.  However, this moratoriumshould not impact our ability to distribute this testthroughout the rest of the world.  Thereis also a view held by some elements of the medical and academic communities that the marketing of some of our cancer predispositiontests is done solely with a commercial objective in mind.  In essence, some parties have indicated that,in their view, the risk of inheriting certain types of cancer is too low towarrant the marketing of genetic testing services to the wider cancer communitywhere such promotion may increase anxiety unnecessarily.  Guidelines laid down by the AustralianNational Health Medical Research Council also prevent us from promoting ourtesting in a manner which may “cause any unnecessary alarm”.

 

In recent years,health care payers as well as federal and state governments have focused oncontaining or reducing health carecosts.  We cannot predict the effect thatany of these initiatives may have on our business.  In particular, gene-based therapeutics, if successfully developed and commercialized,are likely to be costly compared to currently available drug therapies.  Health care cost containment initiativesfocused either on gene-based therapeutics or on genetic testing could result inthe growth in the clinical market for genetic testing being curtailed orslowed.  In addition, health care costcontainment initiatives could also cause pharmaceutical companies to reduce research and development spending. In either case, our business and our operating results  could be adversely affected.  Further,genetic testing in clinical settings is often billed to third-party payers,including private insurers and governmental organizations.  If our current and future clinical productsand services are not considered cost-effective by these payers, reimbursementmay not be available to users of our services. In this event, potential customers would be much less likely to use ourservices and our business and operating results could be seriously harmed.

 

**ITEM 4.          INFORMATION ON THE COMPANY**

** **

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

** **

We were incorporated under the laws ofWestern Australia 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, the type of company was changed from a No Liability Company to a companylimited by shares.  On August 29,2000, we changed 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 Corporations Act, the Australian Securities Exchange Listing Rules, the Marketplace Rules ofNASDAQ and, where applicable, local legislation.

 

Our registered office, headquarters,laboratory and business activities are all located at 60-66 Hanover Street,Fitzroy, Victoria, 3065 Australia.  Ourtelephone number is +61 3 9415 1135.  Ourwebsite address is www.gtg.com.au.  Information on our website, and websiteslinked to it, does not constitute part of this Annual Report.

 

13

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On August 29, 2000, we acquired100% of GeneType AG, including all of its valuable patents, and we changed ourfocus exclusively to the area of biotechnology. We also changed our name to Genetic Technologies Limited to betterreflect our new business.  In September 2000,our listing was duly transferred from the mining board of the ASX to theindustrial board and our shares were thereafter classified under the industrygroup “Health and Biotechnology”, completing our transformation from a miningand resources company into a biotechnology company.  During 2001, we also acquired 10% of theissued and outstanding shares in Cytomation Inc., based in Fort Collins,Colorado.  At that time, Cytomation was aleader in the manufacture 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.  In July 2001,we acquired the business of DNA-ID Labs in Perth, Western Australia, as part ofour strategy of expanding our paternity testing business in Australia.  In March 2002, we formed AgGenomics Pty.Ltd., based in Melbourne, in order to expand our genetic testing services intothe field of plant genetics.  In May 2003,we acquired the fixed assets of the business Genetic Science Services inMelbourne, in order to further expand into the field of genetic testing.  In May 2007,we sold all of our shares in XY, Inc. The total proceeds received from the sale were $274,418 which resultedin a loss on sale of $27,472.

 

Since the acquisition of GeneType AG,with the exception of certain minor passive interests, the directors havedisposed of all remaining mining interests so that our activities now focussolely 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”.

 

In early calendar year 2002, wecommenced the process of out-licensing our non-coding patents, announcingseveral early successes.  Since then, wehave granted commercial licenses to a total of 34 licensees and 6 researchlicenses to the following parties, which are listed in chronological order oftheir effective dates:

 

**Commerciallicensees**

** **

34.Kimball Genetics Inc., **USA**

33.BioSearch Technologies Inc., **USA**

32.Syngenta Crop Protection AG, **Switzerland**

31.Monsanto Company (swine genetics), **USA**

30.Thermo Fisher Scientific Inc., **USA**

29.Monsanto Company (plant genetics) **USA**

28.Sciona Inc., **USA**

27.Genosense Diagnostics GmbH, **Austria**

26.Innogenetics NV, **Belgium**

25.Bovigen LLC, **USA**

24.Optigen LLC, **USA**

23.Applera Corporation, **USA**

19 -22. Four agriculture groups, **New Zealand**

18.Australian Genome Research Facility Limited, **Australia**

17.Bionomics Limited, **Australia**

16.C.Y. O’Connor ERADE Village Foundation, **Australia**

15.ViaLactia Biosciences Limited, **New****Zealand**

14.MetaMorphix Inc., **USA**

13.Genzyme Corporation, **USA**

12.Ovita Limited, **New****Zealand**

11.Laboratory Corporation of America Holdings, **USA**

10.TM Biosciences Corporation, **Canada**

9. QuestDiagnostics Inc., **USA**

8. OrchidBiosciences Inc., **USA**

7. ARUP,**USA**

6. BiotageAB, **Sweden**

5. MyriadGenetics Inc., **USA**

4. PerlegenSciences Inc., **USA**

3. NanogenInc., **USA**

2. SequenomInc., **USA**

1. GeneticSolutions Pty. Ltd., **Australia**

 

**Researchlicensees**

 

6. Texas A&M University (Merlogen Inc.), **USA**

5. Colorado State University, **USA**

4. University of Technology Sydney, **Australia**

3. King’s College, London, **UK**

2. University of Sydney, **Australia**

1. University of Utah, **USA**

 

14

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It is a priority for the Company to continueto identify 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, together with a variety of other countries, that would benefit fromtaking a license to our non-coding patents or from collaborations with ourservice 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 have also been engaged to represent the Company  “on the ground” in our major markets.

 

**Item4.B**                          Business Overview

** **

We are abiotechnology company, now pursuing commercial opportunities in three mainareas of activity:

 

(i)                     out-licensing our non-coding patents globally;

 

(ii)                  expanding our genetic service-testing business inthe Asia-Pacific Region; and

 

(iii)               supporting certain research projects in which weare already involved.

 

**Industry Background**

** **

The Human GenomeProject announced (in April 2003) the completion of the first draft of theentire sequence of the human genome.  The biotechnology industry is now working tobuild upon the vast amount of knowledge generatedby that program in order to develop a better understanding of the genetic basis of human healthand disease.  Increasingly, genetics is being shown to play a key role in the diagnosis and treatment of manydiseases in humans, as well as diseases in animals and plants.  Our growing understanding  ofgenetics is now providing new information for understanding such predisposingor causative factors in many of these diseases.

 

Prior to theHuman Genome Project, the successful mapping of the Mouse Genome (published in December 2002)permitted, for the first time,a detailed comparison of human genes and mouse genes.  One of the key findings that has arisen fromthis work is the significant rolethat non-coding DNA plays in controlling gene function in both human genes andmouse genes.  For some scientists, but not for our company, these findings - of thegreat significance of non-coding DNA to gene function - were new, significantand totally unexpected.

 

A major focus inscience is now the identification and analysis of genetic variations anddisease-associated genes within the genome.  These genetic variations, or polymorphisms,in the DNA sequences vary between individuals. The most common geneticvariations are Single Nucleotide Polymorphisms, or SNPs, which are merely adifference in a single nucleotide.  The first draft of the human genomeidentified over 1.4 million SNPs that can be useful as positional signposts fordisease-associated DNA sequences in a gene or as markers to map genes along achromosome.  A significant number of these SNPs (perhaps more than 97%) arenow known to be non-coding.

 

**Genomics**

** **

A genome is an organism’s complete setof 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.  The DNA of the human genome is organized into24 distinct chromosomes that contain from 50 million to 250 million base pairs oneach chromosome.  The DNA on eachchromosome contains genes that are specific sequences that encode proteins thatactually perform the work within a cell and also make up the cell itself.  Surprisingly, only about 2% to 5% of thehuman genome is organized into coding DNA, with the remainder being consideredto be non-coding DNA.  Our patentportfolio is centered on proprietary methods for utilizing the valuableinformation contained within these non-coding regions.

 

**Genetic Variability**

** **

Almost 99.9% ofan individual’s genome is identical to that of every other individual’sgenome.  However, even slightvariations in sequence can drastically change how a gene functions.  Variations can lead to harmless changes, such as blue eyes instead of brown, or to majordiseases such as cancer, cystic fibrosis, or cardiovascular disease.  Genetic variations can also be responsiblefor many of the differences in the ways individuals respond to drugtherapies.  As a result of thisknowledge, routine analysis of SNPs and other genetic variations is expected toplay an increasingly important role in the discovery and development of newdrugs, as well as in a variety of diagnostic therapeuticand other medical and life science applications.  Industry sources estimate there are millionsof genetic variations in the human genome, creating demand for products and technologies that can quicklyand accurately detect and analyze these variations.  It is thought that the medicine of the future will be dispensed to apatient based on his or her own specific DNA variations.  This typeof “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.

 

15

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**GeneticTests**

** **

Most genes come in many different forms,called alleles.  One or more allele maybe associated with a particulardisease state.  Genetic testing involves the directexamination of an individual’s DNA for a DNA marker associated with the allele of interest.  Thedetermination of the particular alleles an individual has within his or her DNAis called genotyping.

 

The most commonlytested marker of a particular allele is a SNP. As much as 98% of the human genome is considered to be non-codingDNA, the majority of the identified 1.4 million SNPs are also located innon-coding regions of DNA.  We believe that a license to our proprietarymethods of analyzing non-coding regions of DNA will be absolutely necessary for many of the genetic tests of the future.  Similarly, tests for genetic abnormalities ormutations may involve not justindividual SNPs, but also groups of SNPs or even larger sequences of DNA, andsuch abnormal sequences - large or small - may be located either in the codingregion alone, or in the non-coding region alone, or in both the coding andnon-coding regions of the gene (or genes) under examination.  Clearly, the variations within genes that maybe responsible for a disease are now known to be much more complicated than waspreviously understood, and the role of non-coding DNA isnow being found to be highly relevant in a growing number of diseases.  This similarly applies to genetic disorders in animals and in plants.  Accordingly, more and more genetic testingwill in future look not only at coding variations, but also at the non-codingvariations within a particular gene.

 

**OurPatent Portfolio**

** **

The acquisitionof GeneType AG gave our company ownership rights to a potentially significantportfolio of issued patents.  The majorfamilies of patents in the portfolio include:

 

(a)          Intron sequence analysis;

 

(b)         Genomic mapping;

 

(c)          Fetal cell recovery;

 

(d)         Electrophoresis standards;

 

(e)          Sports performance;

 

(f)            Parasitology;

 

(g)         Ancestral haplotypes for tissuetyping;

 

(h)         Modulation of the immunesystem.

 

**(a)   The Intron Sequence Analysis patents** - allow for the detection of specific motifswithin the genetic material in the non-coding regions of DNA which have beenshown may be linked to certain alleles or haplotypes within the coding regionof the gene.  In other words, whereasmost geneticists previously looked at the genetic information located withinthe coding region alone, our inventions have provided a means of also lookingat additional useful information which is located within the non-coding part ofthe gene, and which is now known to also be important in influencing genefunction and, in particular, protein production.  The method is useful, for example, in thedetermination of tissue typing for transplantation in order to test for possiblelikely acceptance or rejection of bone marrow or tissue grafts.  Themethod is also useful in the detection of genetic changes or mutations in thenon-coding region of certain genes associated with a higher incidence ofcertain genetic diseases, such as cystic fibrosis, susceptibility to breastcancer, multiple sclerosis, Alzheimer’s Disease, etc.  It is also now known that more than 100 humandiseases are associated with genetic changes in the non-coding part of aparticular gene and which are linked to the function of the coding part of thatgene.  Similar applications also exist inanimals and plants.  Several importantmarkers in livestock, for example, have been shown to be located in thenon-coding part of the DNA and also linked to particular coding function - forexample, 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 ofgermination and growth.

 

**(b)**   **The Genomic Mapping patents** - describe methods for analyzinggenetic material collected from various selected populations to identify andlocate genes and markers of interest, by identifying highly polymorphic sitesthroughout the genome and particular haplotypes associated with such sites, allbased on a reading of sequence information in both the coding and thenon-coding portions of the genome.

 

**(c)**   **The FetalCell Recovery 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.  These patents form the basis of theRareCellect project.

 

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

 

16

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**(e)**   **The SportsPerformance patents** - describe a method that enables aspects ofathletic performance to be predicted based on detection of various forms of thealpha actinin 3 (ACTN3) gene.

 

**(f)    The Parasitology patents** - describe means toidentify and to control a variety of species of parasites.  The patent applications describe the use ofmodern genetic technologies to identify two novel classes of chemicals whichcan be used to control the major parasitic worms of sheep and cattle.  These nematodes are responsible for extensiveeconomic losses to the sheep and cattle industries and are rapidly developingresistant to the existing chemicals.  Thenovel classes of chemical described in these patents offer a safe and highlyeffective alternative.

 

**(g)**   **TheAncestral Haplotypes for Tissue Typing patents** - describe a methodfor determining ancestral haplotypes using haplospecific geometric elementswithin the major histocompatibility complex multi gene cluster and methods ofgenetic analysis involving the amplification of complimentary duplicons.  These patents were acquired from the C.Y. O’ConnorERADE Village Foundation in Western Australia.

 

**(h)**   **TheModulation of the Immune System patents** - describe various methodsaimed at improving the efficacy of cancer therapy and treatment of HIV-AIDS andform the basis of the ImmunAid project.

 

In total, we own 8 issued patents and 9pending patents 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.

 

The many issued, allowed and pendingpatents claimed by GeneType AG, and which are now owned by our Company,distinguish us from competitors by giving us the legal right to claim ownershipor proprietary methods and compositions for analysis of DNA using informationcontained within non-coding regions and for isolation of fetal cells from amaternal blood sample.  The methods andcompositions for analysis of DNA may be used to identify a particular form of agene or to map the location of a disease-associated gene along a chromosome.

 

Generally, United States patents have aterm of 17 years from the date of issuance for patents filed with the UnitedStates Patent Office prior to June 8, 1995, and 20 years from theapplication filing date or earlier claimed priority date in the case of patentsissued from applications filed on or after June 8, 1995.  For applications filed after May 29,2000, the term is 20 years from the date of filing.  A minimum term of 17 years is assured,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 will expirebetween 2009 and 2019.  We intend tocontinue to file patent applications as we develop new products, technologiesand patentable 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 determinationsand evolving law make patent protection uncertain.  As a result, we cannot be certain thatpatents will be issued from any of our pending patent applications or fromapplications licensed to us or that any issued patents will have sufficient breadthto offer meaningful protection.  Inaddition, our issued patents may be successfully challenged, invalidated,circumvented or rendered unenforceable so that our patent rights would notcreate an effective competitive barrier. Moreover, the laws of some countries may not protect our proprietaryrights to the same extent as do the United States patent laws.

 

In addition topatent protection, 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 from theirwork for us.  They also are required tomaintain the confidentiality of our intellectual property, and refrainfrom unfair competition with us during their employment and for a certainamount of time after their employmentwith us, which includes solicitation of our employees and customers.  We cannot be certain these agreements willnot be breached or invalidated.  Inaddition, third parties may independently discover or invent competingtechnologies or reverse engineer our trade secrets or other technologies.

 

In the future, we may become involved inlawsuits in which third parties file claims asserting that our technologies or products infringe on their intellectualproperty.  We cannot predict whetherthird parties will assert such claims against us or against the licensors oftechnologies licensed to us, or our licensees, or whether those claims willhurt our business.  We may be forced todefend against such claims, whether they are with or without merit or whetherthey are resolved in favor of or against our licensorsor us and may face costly litigation and diversion of Management’s attentionand resources.  As aresult of such disputes, we may have to develop costly non-infringingtechnologies or enter into licensing agreements.  These agreements may oblige usto accept costly terms, which could seriously limit the ability to conduct ouroperations and affect adversely our financial condition.

 

17

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In addition, we may become involved inlawsuits in which third parties file claims asserting that one or more of ourpatents are invalid. We cannot predict whether third parties will assert suchclaims against us or against the licensees of such patents, or whether thoseclaims will have an adverse impact on our business. We may be forced to defendagainst such claims, whether they are with or without merit or whether they areresolved in favor of or against our licensees or us and may face costlylitigation and diversion of Management’s attention. During the period from February 2001through March 31, 2002, we had in place a patent insurance policy, placedwith GE Reinsurance Corporation through Dexta Corporation Limited, theirmanaging 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 the 13 identified, we have securedlicenses with six, relinquished our claims against four and commencedproceedings against Applera, Covance and Nuvello.  The suits against Covance and Nuvello weresubsequently settled.  On December 12,2005, we announced the final settlement of our patent dispute with AppleraCorporation, further to a settlement conference held in San Francisco,California.  The parties had executed anumber of binding agreements, including a final Settlement Agreement pluslicense agreements and a supply agreement and, subsequently, they jointlyapplied to Northern California District Court requesting that all claims andcounterclaims in the legal action be dismissed forthwith.  The total value of the considerationreceivable by us is approximately AUD15 million, payable partly in cash andpartly in kind, including agreements supplying the Company with certain Appleraequipment, reagents and intellectual property rights.  Recognition of in-kind consideration asrevenue is subject to us meeting certain revenue recognition criteriaincluding, but not limited to, the measurement of fair value at the time ofreceipt.

 

**Our Patents**

 

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

 
| **NON-CODING DNA**                                                                                    | ** ** | **Country / region** | ** ** | **Numbers** | ** ** | **Granted** | ** ** | **Pending** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------|------------|-------------|------------|-------------|
| ** **                                                                                            | ** ** | ** **           | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  |
| **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   |       | ·      |       |        |
|                                                                                                  |       | Liechtenstein        |       | EP414469    |       | ·      |       |        |
|                                                                                                  |       | Luxemburg            |       | EP414469    |       | ·      |       |        |
|                                                                                                  |       | Netherlands          |       | EP414469    |       | ·      |       |        |

 

18

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| **NON-CODING  DNA (cont.)**                                                                                    | ** ** | **Country / region** | ** ** | **Numbers**   | ** ** | **Granted** | ** ** | **Pending** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|---------------|------------|-------------|------------|-------------|
| ** **                                                                                                     | ** ** | ** **           | ** ** | ** **    | ** ** | ** **  | ** ** | ** **  |
| **Intron  sequence analysis method for detection of  adjacent and remote locus alleles as haplotypes (cont.)** |       | New  Zealand         |       | NZ235051      |       | ·      |       |        |
|                                                                                                           |       | Singapore            |       | SG47747       |       | ·      |       |        |
|                                                                                                           |       | South  Africa        |       | ZA9006765     |       | ·      |       |        |
|                                                                                                           |       | Spain                |       | ES2095859     |       | ·      |       |        |
|                                                                                                           |       | Sweden               |       | EP414469      |       | ·      |       |        |
|                                                                                                           |       | Switzerland          |       | EP414469      |       | ·      |       |        |
|                                                                                                           |       | United  States       |       | US5192659     |       | ·      |       |        |
|                                                                                                           |       |                 |       | US5612179     |       | ·      |       |        |
|                                                                                                           |       |                 |       | US5789568     |       | ·      |       |        |
|                                                                                                           |       | Japan                |       | JP2001309796  |       |        |       | ·      |
|                                                                                                           |       | United  States       |       | US20030119003 |       |        |       | ·      |
|                                                                                                           |       |                 |       |          |       |        |       |        |
| **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     |       | ·      |       |        |
|                                                                                                           |       | Liechtenstein        |       | EP570371      |       | ·      |       |        |
|                                                                                                           |       | Luxemburg            |       | EP570371      |       | ·      |       |        |
|                                                                                                           |       | Netherlands          |       | EP570371      |       | ·      |       |        |
|                                                                                                           |       | New  Zealand         |       | NZ238926      |       | ·      |       |        |
|                                                                                                           |       | South  Africa        |       | ZA9105422     |       | ·      |       |        |
|                                                                                                           |       | Sweden               |       | EP570371      |       | ·      |       |        |
|                                                                                                           |       | Switzerland          |       | EP570371      |       | ·      |       |        |
|                                                                                                           |       | United  States       |       | US5851762     |       | ·      |       |        |
|                                                                                                           |       | World                |       | WO9201066     |       | ·      |       |        |
|                                                                                                           |       |                 |       |          |       |        |       |        |
| **Markers of predisposition to addictive states**                                                              |       | World                |       | WO2006048778  |       |        |       | ·      |
| Earliest  priority November 8, 2004                                                                       |       |                 |       |          |       |        |       |        |
|                                                                                                           |       |                 |       |          |       |        |       |        |
| **LABORATORY TECHNIQUES**                                                                                      |       |                 |       |          |       |        |       |        |
| ** **                                                                                                     |       |                 |       |          |       |        |       |        |
| **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     |       | ·      |       |        |

 

19

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| **ANCESTRAL HAPLOTYPES**                                                                                                                               | ** ** | **Country / region** | ** ** | **Numbers**    | ** ** | **Granted** | ** ** | **Pending** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------|------------|-------------|------------|-------------|
| ** **                                                                                                                                             | ** ** | ** **           | ** ** | ** **     | ** ** | ** **  | ** ** | ** **  |
| **Genetic analysis**                                                                                                                                   |       | Europe               |       | EP660877       |       | ·      |       |        |
| Earliest  priority November 1, 1991                                                                                                               |       | France               |       | EP660877       |       | ·      |       |        |
|                                                                                                                                                   |       | Germany              |       | DE69232726     |       | ·      |       |        |
|                                                                                                                                                   |       | Great  Britain       |       | EP660877       |       | ·      |       |        |
|                                                                                                                                                   |       | World                |       | WO9309249      |       | ·      |       |        |
|                                                                                                                                                   |       |                 |       |           |       |        |       |        |
| **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     |       |        |       | ·      |
|                                                                                                                                                   |       | Japan                |       | TBA            |       |        |       | ·      |
|                                                                                                                                                   |       | United  States       |       | TBA            |       |        |       | ·      |
|                                                                                                                                                   |       | World                |       | WO2006086846   |       |        |       | ·      |
|                                                                                                                                                   |       |                 |       |           |       |        |       |        |
| **Identification of ancestral haplotypes and uses thereof**                                                                                            |       | World                |       | WO2007022590   |       |        |       | ·      |
| Earliest  priority August 24, 2005                                                                                                                |       |                 |       |           |       |        |       |        |
|                                                                                                                                                   |       |                 |       |           |       |        |       |        |
| **ATHLETIC PERFORMANCE -****ACTN3 SPORTSGENE TEST®**                                                                                              |       |                 |       |           |       |        |       |        |
| ** **                                                                                                                                             |       |                 |       |           |       |        |       |        |
| **ACTN3 genotype screen for athletic performance**                                                                                                     |       | Australia            |       | AU2003258390   |       |        |       | ·      |
| Earliest  priority September 16, 2002                                                                                                                  |       | Canada               |       | CA2499084      |       |        |       | ·      |
|                                                                                                                                                   |       | China                |       | CN1732270      |       |        |       | ·      |
|                                                                                                                                                   |       | Europe               |       | EP1546403      |       |        |       | ·      |
|                                                                                                                                                   |       | India                |       | 599/KOLNP/2005 |       |        |       | ·      |
|                                                                                                                                                   |       | Japan                |       | JP2005538710   |       |        |       | ·      |
|                                                                                                                                                   |       | New  Zealand         |       | NZ538890       |       |        |       | ·      |
|                                                                                                                                                   |       | Russia               |       | RU2005111236   |       |        |       | ·      |
|                                                                                                                                                   |       | South  Korea         |       | KR20050053670  |       |        |       | ·      |
|                                                                                                                                                   |       | United  States       |       | US2006121478   |       |        |       | ·      |
|                                                                                                                                                   |       | World                |       | WO2004024947   |       |        |       | ·      |
|                                                                                                                                                   |       |                 |       |           |       |        |       |        |
| **IMMUNAID PROJECT**                                                                                                                                   |       |                 |       |           |       |        |       |        |
| **A retroviral immunotherapy**                                                                                                                         |       | Australia            |       | AU2003200583   |       | ·      |       |        |
| Earliest  priority August 18, 2000                                                                                                                |       | New  Zealand         |       | NZ524280       |       | ·      |       |        |
|                                                                                                                                                   |       | Singapore            |       | SG95523        |       | ·      |       |        |
|                                                                                                                                                   |       | South  Africa        |       | ZA200301694    |       | ·      |       |        |
|                                                                                                                                                   |       | Brazil               |       | BR0113354      |       |        |       | ·      |
|                                                                                                                                                   |       | Canada               |       | CA2431954      |       |        |       | ·      |
|                                                                                                                                                   |       | China                |       | CN1469746      |       |        |       | ·      |
|                                                                                                                                                   |       | Europe               |       | EP1311267      |       |        |       | ·      |
|                                                                                                                                                   |       | Japan                |       | JP2004506015   |       |        |       | ·      |
|                                                                                                                                                   |       | United  States       |       | US20030228320  |       |        |       | ·      |
|                                                                                                                                                   |       | World                |       | WO0213828      |       |        |       | ·      |

 

20

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| **IMMUNAID PROJECT (cont.)**                                                | ** ** | **Country / region** | ** ** | **Numbers**      | ** ** | **Granted** | ** ** | **Pending** |
|-----------------------------------------------------------------------------|------------|----------------------|------------|------------------|------------|-------------|------------|-------------|
| ** **                                                                  | ** ** | ** **           | ** ** | ** **       | ** ** | ** **  | ** ** | ** **  |
| **Cancer therapy**                                                          |       | Singapore            |       | SG105902         |       | ·      |       |        |
| Earliest  priority February 14, 2002                                   |       | South  Africa        |       | ZA200407142      |       | ·      |       |        |
|                                                                        |       | Australia            |       | AU2003203051     |       |        |       | ·      |
|                                                                        |       | Brazil               |       | BR0307661        |       |        |       | ·      |
|                                                                        |       | Canada               |       | CA2476366        |       |        |       | ·      |
|                                                                        |       | China                |       | CN1646155        |       |        |       | ·      |
|                                                                        |       | Europe               |       | EP1482970        |       |        |       | ·      |
|                                                                        |       | Japan                |       | JP2005523277     |       |        |       | ·      |
|                                                                        |       | New  Zealand         |       | NZ554840         |       |        |       | ·      |
|                                                                        |       | United  States       |       | US2005180971     |       |        |       | ·      |
|                                                                        |       | World                |       | WO2003068257     |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **Strategy for retroviral immunotherapy**                                   |       | Singapore            |       | SG105903         |       | ·      |       |        |
| Earliest  priority February 20, 2002                                   |       | South  Africa        |       | ZA200407143      |       | ·      |       |        |
|                                                                        |       | Brazil               |       | BR0307868        |       |        |       | ·      |
|                                                                        |       | Canada               |       | CA2476956        |       |        |       | ·      |
|                                                                        |       | China                |       | CN1646156        |       |        |       | ·      |
|                                                                        |       | Europe               |       | EP1482971        |       |        |       | ·      |
|                                                                        |       | Japan                |       | JP2005526729     |       |        |       | ·      |
|                                                                        |       | New  Zealand         |       | NZ534590         |       |        |       | ·      |
|                                                                        |       | New  Zealand         |       | NZ554839         |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **Method of therapy**                                                       |       | Singapore            |       | SG121609         |       | ·      |       |        |
| Earliest  priority October 24, 2003                                    |       | Australia            |       | AU2004283322     |       |        |       | ·      |
|                                                                        |       | Canada               |       | CA2543490        |       |        |       | ·      |
|                                                                        |       | China                |       | CN1898569        |       |        |       | ·      |
|                                                                        |       | Europe               |       | EP1692516        |       |        |       | ·      |
|                                                                        |       | Israel               |       | IL175141         |       |        |       | ·      |
|                                                                        |       | Japan                |       | JP2007509078     |       |        |       | ·      |
|                                                                        |       | Mexico               |       | PA/a/2006/004522 |       |        |       | ·      |
|                                                                        |       | New  Zealand         |       | NZ546873         |       |        |       | ·      |
|                                                                        |       | United  States       |       | US2007202119     |       |        |       | ·      |
|                                                                        |       | World                |       | WO2005040816     |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **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      |       |        |       | ·      |
|                                                                        |       | World                |       | WO2006026821     |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **PATHOGENS PROJECT**                                                       |       |                 |       |             |       |        |       |        |
| **Compounds, composition and methods for controlling  invertebrate pests**  |       | Australia            |       | AU2006906383     |       |        |       | ·      |
| Earliest  priority November 15, 2006                                   |       | Australia            |       | AU2007902820     |       |        |       | ·      |
|                                                                        |       |                 |       |             |       |        |       |        |
| **Invertebrate control agents, compositions and methods of  use**           |       | Australia            |       | AU200606556      |       |        |       | ·      |
| Earliest  priority November 23, 2006                                   |       |                 |       |             |       |        |       |        |

 

21

----

 
| **RARECELLECT® PROJECT**                                                                         | ** ** | **Country / region** | ** ** | **Numbers**       | ** ** | **Granted** | ** ** | **Pending** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|-------------|------------|-------------|
| ** **                                                                                            | ** ** | ** **           | ** ** | ** **        | ** ** | ** **  | ** ** | ** **  |
| **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         |       | ·      |       |        |
|                                                                                                  |       | Liechtenstein        |       | EP521909          |       | ·      |       |        |
|                                                                                                  |       | Luxemburg            |       | EP521909          |       | ·      |       |        |
|                                                                                                  |       | Netherlands          |       | EP521909          |       | ·      |       |        |
|                                                                                                  |       | New  Zealand         |       | NZ237589          |       | ·      |       |        |
|                                                                                                  |       | Singapore            |       | SG79188           |       | ·      |       |        |
|                                                                                                  |       | South  Africa        |       | ZA9102317         |       | ·      |       |        |
|                                                                                                  |       | Spain                |       | ES2149760         |       | ·      |       |        |
|                                                                                                  |       | Sweden               |       | EP521909          |       | ·      |       |        |
|                                                                                                  |       | Switzerland          |       | EP521909          |       | ·      |       |        |
|                                                                                                  |       | United  States       |       | US5447842         |       | ·      |       |        |
|                                                                                                  |       |                 |       | US5153117         |       | ·      |       |        |
|                                                                                                  |       | World                |       | WO9114768         |       | ·      |       |        |
|                                                                                                  |       |                 |       |              |       |        |       |        |
| **Maternal antibodies as fetal cell markers to identify and  enrich fetal cells from maternal blood** |       | Singapore            |       | SG108133          |       | ·      |       |        |
| Earliest  priority May 30, 2002                                                                  |       | Australia            |       | AU2003229397      |       |        |       | ·      |
|                                                                                                  |       | Canada               |       | CA2492631         |       |        |       | ·      |
|                                                                                                  |       | Europe               |       | EP1532453         |       |        |       | ·      |
|                                                                                                  |       | Hong  Kong           |       | HK1075699         |       |        |       | ·      |
|                                                                                                  |       | Japan                |       | JP2005528616      |       |        |       | ·      |
|                                                                                                  |       | New  Zealand         |       | NZ537328          |       |        |       | ·      |
|                                                                                                  |       | United  States       |       | US2005287604      |       |        |       | ·      |
|                                                                                                  |       | World                |       | WO03102595        |       |        |       | ·      |
|                                                                                                  |       |                 |       |              |       |        |       |        |
| **Identification of fetal DNA and fetal cell markers in  maternal plasma or serum**                   |       | Australia            |       | AU2004217872      |       |        |       | ·      |
| Earliest  priority March 5, 2003                                                                 |       | New  Zealand         |       | NZ542143          |       |        |       | ·      |
|                                                                                                  |       | United  States       |       | US20070134658     |       |        |       | ·      |
|                                                                                                  |       | World                |       | WO2004078999      |       |        |       | ·      |
|                                                                                                  |       |                 |       |              |       |        |       |        |
| **Methods of enriching fetal cells**                                                                  |       | World                |       | PCT/AU2006/000617 |       | ·      |       |        |
| Earliest  priority May-11, 2005                                                                       |       |                 |       |              |       |        |       |        |

 

22

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**Out-licensingour Non-coding Patents Globally**

 

The Company is currently commercializingand licensing its non-coding patents in the USA and elsewhere.

 

This strategy was initiated in late2000, soon after GeneType 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 madecontact with many companies in the USA and elsewhere, bringing the patents totheir attention and indicating how they might benefit from a license to theCompany’s non-coding patents.  In late2002, we hired a manager to manage the Australianend of the licensing effort and to establish a central database of allprospective licensees, globally.

 

The plan initially was to grant alimited number of licenses focusing primarily on the up-front fee component,and then to progressively build recurring annuity or royalty component ofsubsequent licenses.  When we identifiedcompanies that seemed to be clearly infringing our patents, while alsoindicating they would not take a license, we put them on formal notice underour patent insurance policy.  Overall,the strategy has unfolded as planned.

 

**Our Licenses andCommercial Collaborations**

 

The following section describes ourexisting commercial 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 licenses to a further 33 commercial licensees.

 

**CommercialLicenses and Collaborations:**

 

Agriculture Victoria ServicesPty. Ltd.: In February 2002, our subsidiary GeneType Pty. Ltd. entered into ajoint venture agreement with Agriculture Victoria Services Pty. Ltd. (“AVS”)for the formation of the joint venture company AgGenomics Pty. Ltd., to operatea joint venture business in commercial plant genotyping and genomicsservices.  Under the terms of the jointventure agreement, we hold 50.1% of the sharesof the joint venture company.  We havecertain obligations under the joint venture agreement to loan money to the joint venture company, which is not expected toexceed AUD500,000 at any given time.  AVSis not required to provide further funding to the joint venture company.  The agreement is terminable by a party in theevent of a breach by the other party that is not timely cured or upon theoccurrence of an “adverse event” to the company or to either shareholder.  Adverse events are insolvency type events ordiscontinuation of business.  In theevent of termination the non-defaulting party can require liquidation of thecompany or purchase the other party’s interest, as it chooses.

 

Sequenom License:  Also in April 2002, wegranted a license to bioinstrument maker Sequenom, Inc., who paid us anon-refundable license fee of $500,000 (in cash and shares) in return for alicense to our non-coding analysis and mapping patents.  The license can be terminated by either partyupon any material breach of any term or condition by the other party which hasnot been timely cured after notice.  Wemay also terminate the agreement in the event of the bankruptcy of the licenseeor discontinuation of their business.

 

Nanogen License:  In April 2002 we granted alicense to Nanogen, Inc, of San Diego, USA, who specializes in the developmentof biochip applications in genetics diagnostics.  Nanogen paid us a non-refundable license feeof $250,000 and unlisted warrants in return for a license limited to geneticresearch and human diagnostics. Specifically, Nanogen receives no rights to the mapping patent nor anyapplications in animals or plants.  Sincethe date of the initial license, the warrants became “in the money” and weexercised them, acquiring Nanogen shares which we disposed of in markettransactions generating a further $275,000 of other income.  The license can be terminated by either partyupon any material breach of any term or condition of the agreement not timelycured.  We also can terminate theagreement in the event the licensee becomes involved in insolvency proceedingsor if it discontinues its business for any reason.

 

Perlegen License:  In August 2002, we granteda license to US genome researcher, Perlegen Sciences, Inc., which paid anon-refundable combination of cash and securities worth approximately $598,120for an exclusive license limited to a specialized field known as “highresolution whole genome analysis”. Either party can terminate the license agreement upon any materialbreach of any term or condition by the other party that is not timely curedafter notice.  We also have the right toterminate the agreement in the event of insolvency of the licensee or if itdiscontinues it business for any reason.

 

23

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Myriad Licenses:  In October 2002, weannounced a licensing agreement with Myriad Genetics, Inc, under which wegranted Myriad broad rights to utilize our non-coding patents, in return forwhich Myriad agreed to pay us a non-refundable license fee of $1,000,000 cash,plus future fees on an annual basis in lieu of royalties, plus the rights tobring Myriad’s predictive tests to Australia and New Zealand.  These tests, which include geneticsusceptibility tests for breast cancer, ovarian cancer, bowel cancer, melanomaand cardiac risk are now being offered by the Company in Australia and haveresulted in the expansion of our existing genetic testing facilities inMelbourne.  The license can be terminatedby either party upon material breach by the other party that is not curedwithin 30 days of notice.  We also mayterminate if the licensee fails to make any payment required by theagreement.  Under the second of twoagreements, we are granted a license to use Myriad’s diagnostic services inAustralia and New Zealand in exchange for an annual fee.  We are obligated to use reasonable efforts tocommercialize the licensed diagnostic services in Australia and NewZealand.  Under the terms of thisagreement, we have been granted an option in exchange for upfront payments anda continuing royalty, to expand thelicense in respect of full sequence testing, which has not been exercised.  The term of this agreement extends until 2012.  Either partycan terminate the agreement upon a material breach not timely cured afternotice.  In addition, Myriad canterminate if we fail to make any payment required under the agreement.

 

Pyrosequencing Licenses:  In March 2003, weannounced a cross-licensing agreement with Pyrosequencing AB, of Sweden (nowknown as Biotage AB).  Pyrosequencingreceived a broad non-exclusive license to our non-coding DNA analysis andmapping patents but only when used in combination with Pyrosequencing’s“sequencing by synthesis” reagents.  Inreturn, we received a non-refundablecash up front payment, plus royalties for the life of the non-coding patents,plus three state-of-the-art analytical instruments (Pyrosequencing systems), plus other IP rights and assays fromPyrosequencing.  Either party canterminate the agreement upon material breach that is not timely cured by theother party after notice.  In addition,either party can terminate the agreement if the other party becomes involved ininsolvency proceedings, or if the other party discontinues its business for anyreason.

 

ARUP License:  In April 2003, weannounced a license to Associated Regional & University Pathologists(ARUP) of Salt Lake City, Utah.  ARUP isa laboratory system owned by the University of Utah, and the first serviceprovider actually performing human genetic testing to take a license from theCompany.  The license was granted inreturn for a one-time non-refundable license issuefee.  The license is terminable by aparty upon material breach by the other party that is not timely cured afternotice.  In addition, we have the right to terminate if the licensee becomes involved in aninsolvency 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.

 

Orchid License:  In May 2003, we reachedagreement with Orchid BioSciences Inc. of Princeton, New Jersey, USA.  Under the terms of the agreement, we grantedOrchid an irrevocable option to obtain a non-exclusive license to ournon-coding analysis patents.  We alsogranted Orchid a covenant not to sue, in return for which we received anon-refundable signing fee of $300,000 cash. 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 insolvency eventor failure to pay amounts due and owing to the other.

 

Quest License:  In August 2003, we granteda license to our non-coding analysis patents to Quest Diagnostics Inc.,based   in New Jersey, USA.  The terms included a non-refundable signingfee plus ongoing annual payments in lieu of royalties from Quest for servicesprovided by it in genetic laboratory testing in the United States, Canada andMexico.  The license is unilaterallyrevocable by us if upon notice we have a reasonable belief that the license isbeing used to assist an unlicensed party to avoid obtaining its own licenseunder the licensed patents.  In addition,the license 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.

 

ViaLactia License:  In September 2003, wereached agreement with ViaLactia Biosciences (NZ) Limited of Auckland, NewZealand regarding the terms of a research and commercial license to theCompany’s non-coding patents.  ViaLactiais a wholly-owned subsidiary of Fonterra, New Zealand’s largest dairycooperative.  The license was formallyconcluded in December 2003.  Thepurpose of the license is to permit ViaLactia to conduct internal researchactivities and development of applications of our technology in the dairyindustry, including new applications concerning dairy cattle, pasture grasses,mice as models for dairy cattle and yeast and bacteria as applied to the dairyindustry.  The license is terminable byeither party upon material default of the other party that is not timely cured,without other penalty.

 

GENDIA Network:  In November 2003, weannounced that we had joined the GENDIA diagnostic genetic testing network asthe sole GENDIA affiliated laboratory operating in Australia and NewZealand.  GENDIA is a network of some 20leading laboratories worldwide who work together and share with each otheraccess to highly sophisticated genetic testing procedures.  We are the sole GENDIA-affiliated laboratoryin Australia and New Zealand.

 

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TM Bioscience License:  In December 2003, wegranted a license to our non-coding analysis and mapping patents to TMBioscience Corporation of Toronto, Canada. The terms provide for a signing fee plus ongoing annual payments as anon-refundable license fee and an annual royalty on licensed products.  This was our first commercial license grantedto a Canadian company.  TM Bioscience isa leading provider of diagnostic kits for human genetic testing, exportedglobally.  The agreement is terminable bya party upon material breach by the other party that is not timely cured, andmay be terminated by us in the event of dissolution or sale of the business ofthe licensee.

 

LabCorp License:  In February 2004, wegranted a license to our non-coding patents to Laboratory Corporation ofAmerica Holdings (known as “LabCorp”), a leading provider of human diagnosticservices in the U.S. and Canada.  It alsoperforms testing in Europe for other companies, including pharmaceuticalcompanies, for regulatory compliance purposes. The consideration received for the license, which covers both the non-codinganalysis and non-coding mapping patents, included a non-refundable signing feeplus annual license annuity payments for the life of the patents, through2015.  LabCorp also withdrew adeclaratory action in respect of our patents which had been initiated in NewJersey.  The license is terminable byeither party upon material breach by the other party that is not timelycured.  In addition, we are entitled toterminate the agreement in the event that the licensee intentionally andknowingly promotes the licensee’s reference testing to third party clinicallaboratories for the purpose of circumventing the need for such laboratories tolicense our patents.  The licensee isentitled to terminate the agreement at any time upon 30 days prior writtennotice (without prejudice to its accrued obligations thereunder) and we canterminate in the event of an insolvency event involving the licensee ordiscontinuation of its business.

 

Ovita License:  In June 2004, we enteredinto a license agreement with Ovita Limited of New Zealand, granting them alicense to our non-coding patents to the extent required in order tocommercialize genetic marker tests and pedigree tests and to conduct researchand development activities for new applications of our technology in connectionwith testing of sheep and cattle.  Theagreement included the payment of an initial non-refundable research licensefee, a non-refundable commercial license fee and a royalty on licensed productsmade using our patents, payable calculated on gross sales.  The license is terminable by a party formaterial breach that is not cured by the other party, by licensee upon 30 days’written notice to us and by either party in the event of discontinuation of itsbusiness, an insolvency event or failure to pay amounts due and owing to theother.

 

C.Y. O’Connor ERADE VillageFoundation: In October 2003, we announced that we had signed heads of agreementto establish a broad strategic alliance with the C.Y. O’Connor ERADE VillageFoundation, a leader in biotechnology innovation based in Perth, WesternAustralia.  Definitive documentation wasconcluded in June 2004.  Under theterms of the agreement, we acquired all of the Foundation’s patents and otherintellectual property in the fields of genetics and genomics, including theFoundation’s issued U.S. patent 6383747-B1 and foreign equivalents.  This extensive package of intellectualproperty has created additional opportunities for us in support of licensingand service testing.  As part of thearrangement, the Foundation acquired a license to our non-coding patents for afee, such that the net purchase price for us was settled by the issuance of atotal of 16,666,667 of our Ordinary Shares to the Foundation based on a marketvalue of AUD0.39 per share.  The transactionclosed in June 2004.  Under thearrangement, we support the ongoing genetics and genomics programs of theFoundation.  Initially, five projectswere selected for priority attention and we will provide AUD4.5 million to theFoundation, spread over five years, to help fund such research and developmentof new intellectual property.  On July 7, 2004, the Company supplied aletter of credit for $382,095 (AUD450,000) for the term of the agreement.  Underthe agreements, we are the primary commercialization vehicle for all newinventions, patents, intellectual property and business opportunities arisingat the Foundation in the field of genetics or genomics.  We are also obligated to pay royalties to theFoundation on gross revenue derived from the Foundation IP.  We mayterminate the license following any breach of the license by the licensee,either party can terminate following a material breach that is not timely curedor following an insolvency event of the other party.  Asat June 30, 2007, a total amount of $1,146,285 (AUD1,350,000) remainedpayable by the Company under the agreement. Net payments made by the Company in accordance with the agreementtotaled $710,937 (AUD900,000),$651,876 (AUD872,075) and $680,760 (AUD900,000) for the years ended June 30,2007, 2006 and 2005, respectively.

 

Genzyme License:  Effective as of September 17,2004, we granted a license to our non-coding patents to Genzyme Corporation,based in Cambridge, Massachusetts, in order for the licensee to performpreclinical and human research and human genetic testing.  The grant of the license was in exchange fora non-refundable license issue fee consisting of a cash component and anin-kind component.  The in-kind componentconsisted of a license agreement in respect of patents owned by Johns HopkinsUniversity and licensed by the licensee. In addition, Genzyme is obligated to pay to us license annuity fees in lieu of a royalty for each year ofthe term.  Either party can terminate theagreement upon material breach not timely cured, in the event of insolvency ofthe licensee, or by the licensee at any time upon 30 days written notice to us.

 

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MetaMorphix Agreements:  In September 2004, weexecuted two agreements with MetaMorphix, Inc., based in Maryland andspecializing in the genetics and genomics of certain animal species,particularly cattle and dogs.  Under thefirst such agreement, we granted a license to use our non-coding patents inorder to commercialize applications of DNA/RNA-based diagnostic assays for usein the livestock, aquaculture and companion animal industries.  The licensee is obligated to pay us annuallyincreasing license annuity fees in lieu of a royalty, as well as a non-refundablelicense issue fee.  Either party canterminate the agreement upon a material breach not timely cured, or by us uponthe licensee’s discontinuation of its business for any reason.  Under the second license, to which MMIGenomics, Inc. (a subsidiary of MetaMorphix) is also a party, we weregranted a license to the licensor’s patents and associated know-how in order toperform internal DNA-based diagnostic assays for use in our cattle and canineidentity and parentage verification services. We have subsequently paid the licensor a non-refundable licensefee.  The licensor’s obligations includeongoing support 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 we discontinueour cattle and canine identity and parentage verification genotyping servicesbusiness for any reason.

 

Bionomics License: Effective November 5, 2004, we entered into two agreements withBionomics Limited, a public company based in Adelaide, South Australia.  Under the first such agreement, we granted anon-exclusive, royalty-free license to Bionomics to use our non-coding patentsin order to (i) perform research and development activities relating toand arising from the identification of genetic factors that may influenceepilepsy and (ii) commercialize the results of those research anddevelopment activities including, without limitation, epilepsy diagnosticassays.  Bionomics paid us anon-refundable license fee on signing. Either party can terminate the agreement upon a material breach nottimely cured.  Under the second agreementwith Bionomics,    we were granted alicense to use certain intellectual property rights, including patent rightsand associated 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 FacilityLicense: Effective December 31, 2004, we granted a license to the non-codingpatents to Australian Genome Research Facility Ltd. (“AGRF”) pursuant to whichAGRF can use the patents on a non-exclusive basis for the purpose of performinggenotyping services.  The licenserequires an advance non-refundable license fee and an annual non-refundableannuity for the term of the license in lieu of a royalty, which continues untilsooner terminated or the licensee no longer utilizes the patent.  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.

 

New Zealand Licenses:  Effective June 30, 2005,we entered into a license agreement with four commercial parties in NewZealand: AgResearch Limited, The Horticulture and Food Research Institute ofNew Zealand Limited, New Zealand Forest Research Limited and LivestockImprovement Corporation Limited.  Underthe terms of the agreement, the parties were granted licenses to our non-codingpatents in consideration for which they paid us a non-refundable license issuefee of NZD450,000.

 

AppleraCorporation Licenses:  Effective December 8,2005, we entered into various agreements with Applera Corporation of Norwalk,Connecticut as part of a settlement of a patent dispute.  The binding agreements include a finalSettlement Agreement plus license agreements and a supply agreement.  The total value of the considerationreceivable by us is approximately AUD15 million, payable partly in cash andpartly in kind - including agreements supplying the Company with certainApplera equipment, reagents  andintellectual 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 anagreement with Optigen, LLC of Ithaca, New York.  Under the agreement, Genetic Technologiesgranted Optigen a non-exclusive license to our non-coding patents forapplications in dogs, and Optigen granted the Company the exclusive right tooffer and perform the complete range of Optigen genetic tests for diseases indogs in the Asia-Pacific region.  Theaddition of the Optigen tests substantially expanded the range of genetic testsoffered by us to the canine industry in our region.  The license granted by us to Optigen providesOptigen with access to our non-coding technology, covering all relevant genetictests and research activities conducted by Optigen, in dogs.

 

Bovigen License:  Effective June 1, 2006, we granted alicense to the non-coding patents to Bovigen, LLC of Harahan, Louisiana.  Under the agreement, Bovigen will use the Company’snon-coding technology to build its business of offering genetic tests to theAmerican livestock industry to determine the presence or absence of certaindesirable traits in individual cattle. The rights that we licensed to Bovigen were granted non-exclusively, andare limited to applications in cattle in the USA, Canada and SouthAmerica.  In consideration for grantingthe license, Bovigen paid us an up-front signing fee and will pay ongoingroyalties on the future sales by Bovigen for the life of the non-codingpatents.

 

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Innogenetics License:  Effective June 30, 2006, we granted alicense to the Company’s non-coding patents to Innogenetics NV of Ghent,Belgium.  Innogenetics is a significantsupplier of genetic 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 ongoing annuities for thelife 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.

 

GENOSENSE License:  Effective December 1, 2006, we granted alicense to the Company’s non-coding patents to GENOSENSE Diagnostics GmbH, aleading anti-aging and preventive genetic diagnostics company based in Vienna,Austria.  In consideration for grantingthe license, GENOSENSE 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 the licensee orif it is subject to an insolvency event.

 

Sciona License:  Effective February 16, 2007, we granteda license to the Company’s non-coding patents to Sciona, Inc. based inBoulder, Colorado.  This license runs for nine years and is the first stepin a progressive co-operation between us and Sciona in relation to the emerginglifestyle and life-extension markets.  Wereceived a signing fee plus annual payments from Sciona, increasing withtime.  We were also granted the right tomarket the Sciona range of products in the Asia-Pacific region, and to performthe relevant genetic tests at our laboratory 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.

 

Monsanto Licenses:  Effective June 20, 2007, we granted alicense to the Company’s non-coding patents to Monsanto Company, based in St.Louis, Missouri.  As part of the license,which covers Monsanto’s work in plants, Monsanto paid us an up-front payment of $5million.  Effective August 22, 2007,we granted a second license to the Company’s non-coding patents to Monsanto which, this time,covers its work in swine.  In respect ofthis second license, Monsanto paid us an up-front payment of $1 million.

 

Thermo Fisher Scientific License:  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 indiscussions for some time.  As part ofthe license, Thermo Fisher made an up-front payment to us of $1.2 million.

 

Syngenta License:  Effective September 28, 2007, we granteda license to the Company’s non-coding patents to Syngenta Crop Protection AG,based in Basel, Switzerland.  Syngenta isa large plant and seed company, active in more than 90 countries, with morethan 19,000 employees.  As part of thelicense, Syngenta made an up-front payment to us of $3.5 million.

 

BioSearchLicense:  Effective September 30,2007, we granted a license to the Company’s non-coding patents to BioSearchTechnologies Inc., based in Novato, California. As part of the license, pursuant to which BioSearch is permitted todistribute certain DNA structures, known as oligos or probes, to end usersworldwide for research purposes only, BioSearch will make total payments to usof $800,000.

 

KimballLicense:  Effective November 16,2007, we granted a license to the Company’s non-coding patents to KimballGenetics Inc., based in Denver, Colorado.

 

**Research Licenses andCollaborations**

 

University of Melbourne:  On January 22, 2003, weentered into a collaborative research agreement with the University ofMelbourne, Australia, concerning the so-called “ARC Linkage Project”: towardnovel approaches for the control of parasitic nematodes viagenomics/phenomics.  This agreement setsforth the terms of the collaboration between GeneType Pty. Ltd. and theuniversity for research under an Australian government Research Council LinkageProject.  Under the terms of thisagreement, GeneType Pty. Ltd. is obligated to use its best efforts to provideadditional funds for the project to make up the projected shortfall ascontemplated by the original proposal, over a term of three years.

 

Horticulture Australia Limited:  On June 18, 2003,AgGenomics Pty. Ltd., a subsidiary of the Company, entered into a three-yearCollaborative Research Agreement with Horticulture Australia Limited (HAL) totry and identify a genetic trait for day/night neutrality in strawberrieswhich, if found, could lead to an extension of the cultivation season andconsequently higher production.  Theresearch program, costing approximately $1.5 million (AUD2.1 million), isfunded by HAL as to 45% and AgGenomics as to 55%.  Any and all intellectual property generatedfrom the project will be owned in the same proportions.  Thisinitial agreement was concluded in June 2006, following which it wasagreed that it be extended for a period of a further three years at a totalcost of $1.78 million (AUD2.1 million), to be funded 42.03% by HAL and 57.97%by AgGenomics.  Once again, any and all intellectual property generated from the project will beowned in the same proportions.

 

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University of Sydney License:  In July 2003, we granted aresearch license 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, wegranted a license to our non-coding patents to King’s College, London, in theUnited Kingdom.  Under the terms of thelicense, King’s College will be able to apply the non-coding patents to itsinternal research programs.  The licenseis terminable by either party upon any material breach not timely cured,without penalty.  King’s College isconsidered a leader in the field of researching the genetic basis of variouspsychiatric and psychological disorders, including schizophrenia, anxiety /depression and certain attention deficit disorders.  Future commercial applications arising fromresearch at King’s College would require an additional commercial license fromus.  In March 2004, we initiated ajoint research project in the United Kingdom to explore the functionality ofcertain non-coding DNA elements, initially with special focus on the geneticsof breast cancer susceptibility and the genetics of certain neuro-psychiatricconditions, such as schizophrenia.  Theproject was funded by us for a further period of six months, in an amount ofGBP53,000 that was 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’sCollege during that period up 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 byKing’s College during that period up to a maximum amount of GBP63,700.  This project has now been terminated.

 

University of Technology, Sydney:  Effective December 23,2003, we granted a research license to the University of Technology, Sydney, topermit the University to conduct internal research activities to research,identify, map and 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:  Effective May 14, 2004, wegranted a research 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:  Effective February 7,2007, we granted a research license to Merlogen LLC, a company associated withTexas A&M University.  As part of thelicense, we received a nominal fee and received rights to use certaintechnologies in the field of animal genetics.

 

In addition to the above agreements, wecontinue to negotiate licensing terms to grant licenses to our non-codingpatents to many companies, large and small, and also to government and privateinstitutes, in many countries.  Tofacilitate these negotiations, we have established a database of allprospective licensees, who we believe would benefit from a license to ournon-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.

 

**Buildingthe Genetic Testing Business**

** **

**Backgroundand History of the Paternity Testing Business**

** **

In the early 1990’s, GeneType AGestablished a small service-testing laboratory in Melbourne, Australia,initially to show-case its non-coding inventions, but also to generate revenueto help support and fund its ambitious research program in those earlydays.  Following the acquisition ofseveral other small DNA testing laboratories in Australia, GeneType AGconsolidated the business such that the Company is now the largest provider ofdisputed paternity DNA testing services in Australia.

 

In August 2000, we acquired 100% ofGeneType AG, including control over all its patents and its disputed paternityDNA service testing business.  Later, in July 2001,we acquired the paternity testing business of DNA-ID Labs, another smalltesting laboratory based in Perth. Overall, we acquired several small businesses, two based in Sydney, onebased in Perth and one based in Melbourne, eventually making our servicetesting laboratory based in Melbourne the leading non-Government genetictesting service provider in Australia.  We now have extensive experience in providingDNA-based individuality testing for the resolution of disputed paternity, the determination of familial relationships for immigrationpurposes and for forensic analysis.

 

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The most common type of DNA testing ispaternity testing - 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 priceincreases accordingly.

 

Other types of tests we can offerinclude:

 

·                  Y chromosome testing - determines if two males come fromthe same paternal line, i.e. have a common father or grandfather.

 

·                  Mitochondrial DNA testing - determines if two people comefrom the same maternal line.

 

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

 

·                  Maternity testing - determines the mother of a givenchild.

 

·                  DNA typing - reveals the DNA makeup of an individual.

 

·                  Grandparent analysis - determines the grandparents of agiven child.  This is mainly used whenthe father of a child is deceased and a will is being contested.

 

·                  Antenatal DNA testing - determines the father of anas-yet unborn child.

 

·                  Semen analysis - determines if semen is present on, forexample, 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 DIMIAto provide DNA tests for immigration purposes.

 

Over time, we have gained a reputationas a leading genetic testing laboratory, and progressively, we have started toreceive specimens for testing from other countries, mostly from countries inthe Asia-Pacific region, but also from as far away as the USA and UK.  In addition, we received requests to performtests outside of human paternity, and this has caused us to consider and nowplan a significant expansion of our testing services.

 

**Expansionof DNA Testing Services Beyond Paternity Testing**

 

**(1) PlantTesting –** in March 2002, we formed a joint venture with the Victorian StateGovernment’s Department of Primary Industry, for the purpose of providing a highthroughput genotyping service 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 as theminority partner.  AgGenomics is locatedat the Plant Biotechnology Centre at La Trobe University, in Melbourne.

 

**(2) Molecular DiagnosticTesting –** the strategic alliance with Myriad delivered to theCompany exclusive rights in Australia and New Zealand to perform DNA testingfor susceptibility to a range of cancers. In April 2003, we established our cancer susceptibility testingfacility.  In June 2003, thisfacility was granted provisional accreditation by the National Association ofTesting Authorities, Australia (“NATA”). This important area of testing continues to build momentum, with theaddition of new equipment, new employees joining the Company and new technologybecoming available exclusively to us, such that the Australian community nowhas access to some of the latest technologies available for genetic testing.

 

In November 2003, theCompany 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 2000 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 Companyannounced a strategic alliance with Australian biotechnology company BionomicsLimited for the commercialisation of the diagnostic genetic test for thecondition Severe Myoclonic Epilepsy in Infancy. This test was the first to expand the Company’s human moleculardiagnostics 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 ofcomplex gene sequencing testing services has enabled numerous government fundedgenetics services to begin utilising the Company’s testing service to improvepatient care.

 

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**(3) AnimalTesting –** in May 2003, we acquired the assets of Genetic Science Services toexpand the range of tests we can offer to include relevant genetic testing inanimals - for example, progeny testing in horses, dogs, deer, sexing in birds,and animal disease identification and susceptibility testing for a range ofanimals, including exotic and zoo animals. This acquisition will also allow the Company to support researchprojects involving, for example, the Australian fur seal, and possibly theplatypus and various frogs and reptiles.

 

Inaddition to NATA accreditation for complex genetic analysis mentioned above, in2006 we 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.

 

**(4) ForensicTesting** – recognising the increasing use of DNA analysis in forensics and the demandthis would place on existing government laboratories, in February 2004,the Company successfully gained forensics accreditation from the NationalAssociation of Testing Authorities, Australia (NATA).  We were the first non-government laboratoryin Australia to be awarded this accreditation. Since then, we have developed a highly efficient and technologicallyadvanced forensics laboratory.  Thiscapability was substantially advanced by our recent non-coding licensing dealwith Applera Corporation under which we secured equipment and suppliesessential to conducting forensics analysis. Together with these resources and our experience in DNA analysis, theCompany is becoming a major provider of DNA analysis services to the forensicscommunity.

 

In April 2006,we announced that we had been awarded a contract to supply New South WalesPolice with DNA analysis services.  Underthe contract, we provided services for an initial trial period of three months.  NSW Police are currently reviewing the trialand the benefits of outsourcing.  ThePolice will then make a decision on whether to seek tenders for the awarding ofa longer term contract.  This trialcontract represented the first major outsourcing contract in Australia to beawarded by a state based police department for the provision of DNA analysisservices by a non-government laboratory. We believe that a significant opportunity exists for the Company toassist other policing authorities to expeditiously process DNA samples and isin discussions with a number of these parties. It is estimated that there is a substantial backlog of DNA samplescurrently waiting to be processed by police departments throughoutAustralia.  This is in addition to theprocessing of DNA samples collected on an ongoing basis from crime scenes.

 

**(5) Athletic Performance Testing** – the Company acquired thecommercial rights from the University of Sydney for a genetic test, known asthe ACTN3 Sports Gene TestTM, which is capable of determining whether or notthis gene is providing athletes with a genetic advantage for sprint-powerperformance.  In September 2005, weannounced the official launch of this test in Japan with its Japanesedistribution partner, Sportsstyle, to an audience of over 100 sportsspecialists, including the President of the Japan Federation of Health andSports.  The launch of the ACTN3SportsGene TestTM was widely reported in the Japanese press.  All commercial ACTN3 SportsGene Tests fromJapan will be analysed at our headquarter 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.  Further discussions are also being held withother parties around the world with a view to marketing and licensing this testin other jurisdictions.

 

**Our Support for Four SignificantResearch Projects**

 

We strongly support research and development.  Indeed, Genetic Technologies had itsfoundation as a research company when it was established some 18 yearsago.  Since then, the Company hasconsistently pursued research and, following its Australian listing in 2000when additional working capital became available, its research activities weresignificantly expanded.

 

We currently support four 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.

 

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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®**

 

Oursubsidiary GeneType AG holds issued patents on a method for the recovery offetal cells circulating 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 where filed, includingthe US, United Kingdom, France, Germany, Australia and Japan.  In March 2001, RareCellect Pty. Ltd. was incorporated by us inAustralia for the purpose of performing additional research and development ofthe method and overseeing its eventual commercialization.

 

It has long been generally recognized that asimple, universally applicable, non-invasive means of obtaining fetal cells forprenatal diagnosis would represent a major advance over existing practice and wouldbe widely adopted throughout the developed world.  Accordingly, the RareCellect**®** research isinvestigating the isolation of fetal cells from both maternal blood andcervical mucous samples at a purity and concentration suitable for clinicalgenetic testing.  To this end, severalinnovative patent applications have recently been filed, as the methodology hasundergone further substantial refinement in the laboratory.  If successful, the commercial potential ofthe RareCellect**®**technique is staggering, with some 9 million live births occurring annually inthe USA and Europe alone.  Significantadvances in the RareCellect**®**project have been made and are summarised in the following paragraphs.

 

Put simply, the RareCellect**®** project aims to eliminate the current risks to amother and her unborn baby associated with obtainingfetal cells for genetic testing by amniocentesis or chorionic villus sampling(CVS) during the second trimester of pregnancy.  The project focuses on the development ofnovel and safe processes for isolating fetal cells from the mother during thefirst trimester of pregnancy while avoiding the need to disturb the developingfetus unnecessarily.

 

Approximately0.65% of all live births are affected by major chromosomal abnormalitiesincluding Trisomy 21 (Down’s Syndrome, 0.12%). Prenatal screening for such disorders is now widely available indeveloped countries, but is neither standardized nor universal.  Even the best prenatal screening regimensfail to detect 5% of Down’s cases, and suffers from false positive rates ofabout 5%.  When screening based on pastobstetric history or advanced maternal age indicates an increased risk of fetalgenetic defects, the pregnant woman is generally subjected to a further,invasive procedure - amniocentesis, CVS, or fetal blood sampling - in order to obtain fetal cells for definitiveprenatal diagnosis.  Such procedures arenot without risk, resulting in miscarriage rates from 0.5% to 2.0% above the expected backgroundrate, and can lead to congenital abnormalities when performed too early ingestation. Accordingly these tests are not recommended: consequently, some 80%of Down’s syndrome babies are currently born to women under 35 years of age.

 

It iswell-known that fetal cells, including trophoblasts, lymphocytes anderythroblasts, circulate in the peripheral blood of pregnant women, in somecases as early as five weeks’ gestation. Although these cells are rare, only 1 per 10(6) to 10(7) maternalnucleated cells, it is possible to identify and distinguish them in maternalvenous blood samples.  To date, no grouphas been able to purify these cells to the required purity and concentrationand with the reliability necessary for a routine clinical trisomy test.  Reasons for this failure have included the lackof markers capable of adequately discriminating fetal from adult cells andlimitations on the speed at which the required number of cells can beprocessed.

 

TheCompany’s fetal cell recovery patents describe a method that, in principle,should have the requisite power to reliably discriminate fetal from maternalcells.  The method makes use of the HLAsystem of cell-surface molecules and the different physical properties of fetalcells compared with adult cells.  Thegenes that encode the HLA cell surface molecules show great variability (i.e.they are highly polymorphic) in all human populations and are co-dominantlyexpressed.  Provided that enough different types of HLA moleculescan be interrogated, the probability that maternal and fetal cells share exactlythe same complement of HLA molecules can be made very small.  Recent advances in flow cytometry (cellsorter) instrumentation have now made feasible examination of enough peripheralblood cells in a sample to identify the very rare fetal cells which has in turnenabled methods to be developed to purify these cells using inexpensivelaboratory equipment.  The suitability ofthis novel method to isolate fetal cells to the required purity for Down’sSyndrome testing has been demonstrated in the laboratory using blood samplesobtained from some women in the first trimester of pregnancy.  Given the safety of this test, it could beconducted on mothers of all ages potentially eliminating the current occurrenceof Down’s Syndrome in young mothers. Given the early detection of such abnormalities, should termination berequired, far less emotion would be potentially involved. Following extensiveresearch over the past 12 months, success in isolating sufficient fetal cellsfor genetic analysis has been achieved in approximately 50% of the womentested.  This is not sufficient for acommercial product as it is considered that the success would have to beachieved in at least 90%.

 

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Over the next decade, it is predicted that therewill be an enormous increase in the number of genetic tests available toidentify fetal characteristics.  Therewill also be increased pressure to conduct those tests as soon as possibleafter conception.  The number of cellsthat can be purified from blood to the purity required for such testing(virtually 100% pure) is too small to perform these complex genetic tests.  As a result, the RareCellect**®** project isalso examining the possibility of isolating fetal cells obtained from the cervicalmucous.  This method is moderatelyinvasive but not nearly as invasive as existing methods and is far safer forthe fetus than either amniocentesis or CVS. Using the techniques which weredeveloped for isolation of fetal cells from blood, we have investigated the possibility of isolating fetal cellsfrom cervical mucous samples.  Theapplication of this method has been demonstratedin the laboratory to enable fetal cells to be isolated at the required purityto conduct single gene alterations.  Inthe mothers who have been involved in these examination to date, no adverseeffects have been observed.  Accordinglythis aspect of the project has been raised in priority over the past fewmonths.  Discussions are being held withhospitals regarding the prospects for conducting clinical trials to assess thereliability of this technique.

 

As described above, the proposed project outcomeis a non-invasive, pre-natal genetic test. Revenues from the project will be generated from a mixture of licencefees, royalties and direct, fee-for-service genetic testing.  Using the Company’s patented methods, it ishoped that fetal cells can be reproducibly and routinely isolated from cervicalmucous samples using a combination of the methods.

 

The key risk for this project is that thelaboratory tests will not translate into the clinic.  Should this be the case, further refinementsmay be necessary resulting in a longer lead time to commercial revenues andextended cash burn on research.

 

Marketsand competition**: **there are some four millionpregnancies per year in the US alone.  Itis already the case that some form of antenatal screening is provided for mostpregnancies in developed countries.  Thetrend towards increasing numbers of women becoming pregnant later in life isresulting in an increasing risk of chromosomal aberrations in thesepregnancies.  Given the expense,inconvenience and inaccuracy of current screening strategies, and the risksassociated with subsequent invasive diagnostic procedures, it seems probable thata reliable, accurate, non-invasive, and relatively inexpensive diagnostic testwould be rapidly adopted and applied in all pregnancies early in the pregnancywhich would substantially increase the current markets.

 

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, including academic centers in many countries – the USA, UnitedKingdom, Japan, China, Italy, Singapore, Finland, Germany, Netherlands, France- and commercial organizations, e.g. IQ Corporation, Vysis, Roche Diagnostics,Paragon Genetics and Niagen Genetics.  In1995, the U.S. National Institutes of Health began funding of the large, collaborativeNational Institute of Child Health and Fetal Cell Isolation Study (NIFTY)trial, still on-going.  Despite numerousoptimistic claims made in the past, it does not appear that a fullysatisfactory solution has been found or commercialized yet by any of thesebodies.

 

Governmentregulation:  Clinicaltesting in most developed countries is subject to extensive regulatoryscrutiny, the nature of which varies from one country (and sometimes state) toanother.  In Australia, 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).  Inaddition, in the State of Victoria, where the Company has its headquarters,accreditation may also be obtained from the Pathology Services AccreditationBoard, again subject to favorable assessment by NATA.  In the U.S., laboratories are currentlycertified by the College of American Pathologists and the Health Care FinancingAdministration, under the authority of the Clinical Laboratory ImprovementAmendments of 1988.  However, there arecurrently moves to introduce an additional level of regulation for entitiesoffering genetic testing, probably under the auspices of the FDA.  Both the Clinical Laboratory ImprovementAdvisory Committee and the Secretaries Advisory Committee on Genetic Testinghave recently held hearings and/or issued reports.  In Australia, the Australian Law ReformCommission and the Australian Health Ethics Committee  of the National Health and Medical ResearchCouncil have recently issued a major issues paper, “Protection of Human GeneticInformation”.  It is anticipated that thefield of genetic testing will be progressively subject to increasing levels of governmentalregulation in most countries.

 

**(2) ImmunAid**

 

ImmunAid Pty. Ltd. was formed in March 2001in Victoria, Australia, with GTG owning 60% and the scientists working on theproject owning the remaining 40%. Currently GTG owns 68.2% subsequent to the conversion of loans intoshares.

 

The ImmunAid project is seeking ways to improvethe efficiency of treatments in cancer and chronic diseases such as AIDS, byfocusing on the human immune system. Initial research found that individuals suffering from cancer, or whoare chronically infected with a virus such as HIV/AIDS, mount an immuneresponse against the modified cells, but that the immune response wanes beforeit can eliminate the cancer or virus. The immune system seems to switch itself “on and off” in a continuousand repetitive cycle, with the “off” switch being controlled by a group ofcells called T-Regulatory cells which limit the immune response to a level thatis too low to cure the disease.

 

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ImmunAid researchers have taken regular bloodsamples from cancer and HIV patients and identified a continuous cycle ofrising and falling immune response and a number of small scale monitoringtrials of cancer patients have since been conducted under the guidance ofProfessor Michael Quinn (Royal Women’s Hospital, Melbourne) and ProfessorJonathan Cebon (Austin Hospital, Melbourne). All of the cancer patients examined as part of these trials have shown avarying immune response consistent with the ImmunAid theory.

 

ImmunAid researchers believe that a cancer canbe killed by chemotherapy if the treatment is timed to eliminate theT-Regulatory cells.  Once theT-Regulatory cells are removed, it is proposed that the effectiveness of theimmune system will increase, rendering it free to attack the cancer.  This is why, hypothesised the researchers, asmall percentage of patients treated with normal cancer therapies seem tounexpectedly recover from the cancer.  Inthose rare cases where the cancer disappears, ImmunAid researchers believe thatchemotherapy may actually be having a greater effect on the immune system(T-Regulatory cells) enabling the liberated immune response to attack andeliminate the cancer.

 

Further support comes from a report whichclaimed that some 40% of women examined at autopsy had evidence of some form ofbreast cancer but that only a very small proportion of these cancers woulddevelop into the disease.  Thisobservation is consistent with the proposal that cancers arise far more frequentlythan observed and are usually effectively eliminated by an immunemechanism.  It is only when the immuneresponse is not sufficiently strong, due to perhaps normal mechanisms andageing, concurrent diseases, stresses or medications for example, that thecancer escapes the immune system of the patient and proliferates intodisease.  Given this extensive supportfor the theory, it is planned to initiate a number of small scale trials tofurther support the ImmunAid concepts.

 

The novel discoveries made by ImmunAid offer theprospect of improving current treatments by tailoring timed therapeuticinterventions for these major diseases. If successful, the net result of this project could be a “personalisedmedicine” approach to the treatment of cancer, given that each patient hassubtle differences in the periodicity of their immune response against theircancers and, as it is necessary to accurately time the application of therapy,they would have to be individually monitored.

 

The methods developed by ImmunAid have beenprotected by the initial filing of patent applications which have been filed inthe countries with the major potential markets for these treatments.

 

The project has undergone a review process andconsiderable support has been expressed by external experts in the fields.  Future cost and duration of the project willdepend on the success of the current exploratory trials in cancer patientsaimed to define the optimal timing for treatments.  This may take six months or more.  During this time, it is planned to submitethics approval applications in several hospitals within Australia (andpotentially abroad) which specialise in particular cancers.  As soon as the optimal timing is determined,we will be in a position to initiate the broader number of trials.  The costs of these trials will depend uponthe level of success obtained in the preliminary trials which will determinethe size of the clinical studies and availability of collaborators forrecruitment of patients for further monitoring and intervention studies.

 

ImmunAid has already established a network ofcooperative cancer and HIV clinicians that would be suitable to participate insuch an evaluation.

 

**(3) Pathogens Program**

 

In March 2001we entered into a Collaborative Research Agreement (CRA) with the University ofMelbourne (Department of Veterinary Science) to conduct applied research onmethods for the diagnosis and control of infectious 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.

 

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******(undertakenbetween 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.  Accordingly,we are now able to offer the test directly. The potential markets for this test have been investigated, thoughinterest to date has been limited.

 

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**Project 2******(current applicationinitiated in January 2003) – Novel methods for the control of the majorworm parasites of sheep and cattle including *Haemonchuscontortus,**Trichostrongylus vitrinus*and *Ostertagia ostertagi.*

 

Total estimated costs paid by the Company:$750,000 supported by similar amounts from MLA and ARC.

 

Pathogens, including parasites that effectlivestock and other animals, are a major cause of disease globally and thefinancial losses they cause are substantial. Infestation of sheep and cattle with parasites is estimated to costAustralian producers alone 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, say the experts, is likely to getworse, so there is a major global drive to develop novel means to controlparasites.  The Company, in collaborationwith the University of Melbourne, is working to address the problem byinvestigating the genome of the parasites.

 

This novel approach has led the researchers toidentify several essential genes associated with the reproduction or thedevelopment of the parasitic worms. In a recent development, researchers havegone a step further and identified compounds that actually interact with theparasites, either killing them or rendering them unable to reproduce.  Importantly, these compounds have no adverseeffect on the host animal.

 

The world market for antiparasitic drugs foranimals is estimated to be worth around $5 billion per year and the Company isin initial discussions with major animal health chemical companies to developproducts based on patent applications arising from this exciting research.

 

The Pathogens Program has been supported bygrants from Meat and Livestock Australia (“MLA”) and the Australian ResearchCouncil and is protected by strong patents. In August 2006, we announced that MLA had agreed to contribute morethan $820,000 to the Pathogens Program which will be used to continue theCompany’s research into the use of innovative genetic technologies to producesafe and environmentally friendly treatments to control disease-causingparasites.

 

The next stage of the project is to test thesecompounds under trial conditions with a view to producing commercial productsfor release to global livestock markets. Genetic Technologies has already commenced negotiations with a number oflarge livestock pharmaceutical companies with a view to marketing products fromthe Program.

 

**(4) GenomicMatching Technique**

 

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’sentire patent estate in the field of genetics and genomics, known collectivelyas the “Genomic Matching Technique” (“GMT”) (ii) we granted a license toCYO to utilize our non-coding patents, and (iii) we agreed to provideresearch funding to the Foundation for a period of five years to develop novel,high-value genetic tests for commercialization by us.

 

Theprogram was formed upon the acquisition by the Company of all the genetics andgenomics intellectual property generated by the Foundation, which showedpromise in a number of important areas, including improved tissue typing andtransplantation techniques in human bone marrow transplantation, plus anextensive range of new opportunities in the field of human genetics and animalgenetics, including cattle, horses, dogs and fish.  The Company has certain rights to any and allintellectual property generated by the Foundation as part of the agreementbetween 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.  Onesuch potential disease association has been discovered with Age-related MacularDegeneration, a disease of the eye which often results in blindness in theaged.  A proportion of patients diagnosedwith the milder form of the disease develop to the more-advanced form whichresults in blindness.  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.  These possibilities will be pursued duringthe coming year.

 

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.

 

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We are now in the process of investigatingvarious applications of the GMT technology as they relate to immune-relateddiseases, including autoimmune diseases. These include the early identification of people who are susceptible todisorders such as Type I diabetes, multiple sclerosis, lupus and rheumatoidarthritis, thereby increasing their lifespan and quality of life bydelaying  the onset of disease, reducingthe severity of disease or potentially eliminating the disease altogether.  Research currently being undertaken by CYOinvolves investigating whether this principle can also be extended to diseasesoutside the immune system.  These include many diseases and desirable traits ofplants and animals which may potentially revolutionise genetic testingthroughout the world.  The tests are rapid, inexpensive, can beperformed on standard equipment and provide more information than regulargenetic tests.

 

Success of this research to date has alreadyresulted in new methods that could save lives in human bone marrowtransplantation and have already resulted in a new genetic test which candetermine susceptibility to recurrent spontaneous abortion in humans and alsoin certain livestock species.  Other projects,while still at an early stage of development, have already demonstratedexciting new findings which readily justify this innovative program.  As additional research projects commence,sources of required biological materials will be identified and samplelibraries assembled.

 

Representatives from the Company and theFoundation have recently met with external parties to identify potentialcommercial partners to advance theseprojects and discussions are continuing. Subject to these negotiations, first commercial outputs may be receivedduring the 2008 calendar year.  Further,additional products are likely to be developed and offered to the marketprogressively during the life of the program. Some of these inventions could have significant value - both in terms ofsaving lives and in generating new sources of revenue for the Company.

 

During2007, in conjunction with work performed by an independent valuation expert, animpairment charge of $908,416 was calculated by Management and recorded againstthe carrying value of the patents that were originally acquired from theFoundation.  The recoverable amount ofthe patents is based on value-in-use calculations.  The estimated risk adjusted cashflows werediscounted by the risk free rate of 6.5%. The 2007 financial year is the first year in which an indicator ofimpairment has arisen, requiring an assessment of the recoverable amount of thepatents as required by SFAS 144.  Refer Note 5 of the attached Financial Statements forfurther details.

 

****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 more serious risk of obsolescence comesfrom the inevitable expiry of our patents in 2015, at which time our ability to generatelicense revenues from these particular patents will cease.  It is anticipated that, over time, however, licensing ofadditional patents filed by the Company in other areas of genetics will replacerevenues currently generated from the licensing of the non-coding patents.

 

**Genetictesting - paternity**

** **

Thesize of the Australian DNA paternity testing market can only be estimated, asthe tests fall outside of the Australian public health (Medicare) regime andhence no central records are kept.  Ourbest estimate is that the total size of the market is about 5,000 to 6,000tests per year which, if correct, would give the Company approximately a 50percent total market share.  There arepresently a number of other laboratories that offer these tests in Australia,all of which are NATA accredited.

 

Sonicand Symbion Health are the two largest pathology companies in Australia.  Throughout Australia, Symbion Health refersexclusively to DNALabs.  In Victoria, NSWand WA, Sonic refer exclusively to their own laboratories.  The Australian market for paternity testingis now saturated and, since the entry of two of the three major pathologycompanies in the later part of 2003, our ability to generate growing revenuesfrom this market has reduced.   As of December 2007,our market share appears to have stabilized. A brief outline of each competitor in this area is listed below.

 

DNAlabs:  This is our largest competitor and is awholly-owned subsidiary of Sydney IVF. It obtains paternity testing referrals exclusively from Symbion Health(formerly Mayne Health) which has the largest share of the Australian pathologymarket.

 

Sonic Health 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.

 

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Healthscope(formerly Gribbles):  The thirdlargest pathology provider in Australia, which entered the paternity testingmarket in late 2003. Since entry into the market, they aggressively discountedprices in order to obtain market share. This strategy proved unsuccessful and, in November 2007, they exited thepaternity market.  All of their work isnow referred to a newly-established laboratory called DNA Queensland.

 

VictorianInstitute of Forensic Medicine:  This isthe Coroner’s laboratory in Victoria.  Weknow from their annual report that for the last five years their workload hasbeen relatively static at 150 cases per annum.

 

JohnTonge Centre:  This is theCoroner’s laboratory in Queensland.  Theyare NATA accredited but don’t offer the test commercially.

 

MedvetScience:  This laboratory is based inSouth Australia and its major shareholder is the State Government.  Prior to the entry of Gribbles, it had amonopoly in S.A. and also controls the market in the Northern Territory andTasmania.

 

DNASolutions:  This company was established inthe late 1990’s and sells its services over the internet.  Their business is generated via the web andthey have sites in various countries.

 

DNA-Bioscience:  An internet based company which commencedtrading in May 2005.

 

**Genetictesting - diagnostics**

** **

As the sole licensee in Australia and New Zealand for thegenetic test for the predisposition for familial breast cancer, we do not haveany commercial competitors in this area. However, the test is provided by the pathology departments of certainpublic hospitals.  They are not truecompetitors in that the numbers of such tests that can be performed isrestricted due to limited Government funding. Further, the hospitals use strict patient selection criteria   such that only the top 10% of highest riskpatients are tested.

 

**Genetictesting - forensics**

** **

Forensic DNA testing is defined to include DNA tests, theresults of which can be relied upon as evidence in a court of law.  To meet the strict standards of courtevidence, forensic testing can only be conducted through NATA accreditedlaboratories that have been approved for such work.  We are the first non-government owned, NATAaccredited forensics laboratory in Australia. At the moment, virtually all forensic testing is conducted through stategovernment owned laboratories.  Theselaboratories have substantial backlogs and do not generally undertake privateDNA forensic tests.  As such, we are oneof a few accredited laboratory currently providing forensic testing services tothe public.  To resolve the backlogproblem, various state governments have already suggested that they plan tooutsource the testing of forensic samples to the private sector.  In fact, in April 2006, the Companyannounced that it had been awarded a contract to supply New South Wales Policewith DNA analysis services on a trial basis. The NSW Government is presently reviewing the results of the trial andis considering the possibility of awarding of a longer term contract.

 

**Genetic testing - animals**

** **

We offer a DNA testing service across a number of animalspecies, particularly with respect to establishing an animal’s pedigree andparentage.  This test is common acrossanimal species and is not proprietary. Accordingly, any laboratory that can provide a DNA parentage/pedigreetest is able to enter this market.  Otherthan ourselves, there are currently five other laboratories offering materiallevels of DNA service testing for animals.

 

QueenslandUniversity currently offers testing across animal species but particularlyhorses, where it is currently the preferred laboratory for stud bookrecording.  Queensland University alsoprovides a DNA service testing for dogs and cattle.  Genetic Solutions Pty. Ltd. is currentlyoffering a range of genetic tests for the cattle industry.  Genetic Solutions is a smaller laboratorywhich has also indicated that it may extend its testing services to sheep.

 

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.

 

Some ofmajor pathology companies in Australia already have vet pathology businessesand almost all have expertise in human DNA profiling.  We expect that they will enter the animaltesting market in the medium term.

 

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**Genetictesting - 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 organisations 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 ourselves and the Victorian StateGovernment.  The joint venture iscontrolled by Genetic Technologies (owning 50.1%).  The commercial goal of AgGenomics is to offerthe following services to plant breeders and researchers:

 

·                  High throughputextraction of plasmid DNA and genomic DNA;

 

·                  High throughput DNAsequencing;

 

·                  High throughputgenotyping; and

 

·                  SNP discovery andanalysis.

 

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.

 

InAustralia, we have two major competitors. The first is Southern Cross University, which specializes in tropicalfruits and rice but, as they are highly specialized and do not match AgGenomics’ testingcapacity, they are not seen as a major threat. The second, SouthAustralian Research & Development Institute (SARDI), is seen as ourmajor threat as in the next few years there is a reasonable expectation that theywill have the capacity to match AgGenomics.  In addition to this, their expertise in plants is similar to ours.

 

Whilstwe have few domestic competitors, our major commercial threat comes fromoffshore laboratories based in the USA, England and Korea which have a higherthroughput than AgGenomics and enjoy greater economies of scale, therebyreducing their costs.  To date, a fewlarge Australian plant sequencing contracts have been lost offshore in caseswhere the client simply requires the return of the genetic data and does notrequire our expertise in its interpretation.

 

**Genetictesting - sports performance**

** **

We ownthe worldwide patents and marketing rights to the ACTN3 SportsGene TestTM.  This unique genetic test, which focuses onthe ACTN3 gene, is the subject of granted patents and cannot be offered by anyother party within the patent territories.  As such, we have no competitors for this genetic test.  As 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**

** **

Theonly area of research currently being carried out by the Company that is highlycompetitive relates to the RareCellect project. The examination of fetal cells for early detection of fetal diseases andgenetic abnormalities is undertaken in approximately one out of every thirtypregnant women.  Currently, fetal cellsare obtained by invasive procedures such as amniocentesis and chorionic villousbiopsy.  The current procedures present asignificant risk of  harm to the fetus,particularly after the first trimester of pregnancy.  There is,therefore, both a health and economic requirement to provide an efficient andnon-invasive method for pre-natal diagnosis of genetic abnormalities.

 

Oneinnovation in our research has been to isolate placental derived cells(trophoblasts) from the blood of the mothers. From a scientific standpoint, trophoblasts are easier to isolate thanfetal cells, but they are inherently genetically unstable.  We have, however, been successful indemonstrating that they can be used for prenatal genetic diagnosis.

 

Local competition in Australia has come from Monash Medical Centre and GribblesPathology.  Both of these groupswere working on the isolation of trophoblasts from cervical mucoussamples.  Gribbles has previouslyreleased press statements about their technology suggesting imminentcommercialization, however no such reports have been forthcoming of late.  Similar claims have also appeared in thepress in the past from Monash University, though recent announcements made by the University indicate that thisaspect of their research has been terminated. However, we have approached Monash Medical Center to determine theirinterest in conducting clinical trials with our method, as the Center has alarge number of pregnant women coming through the clinic and the clinicians arevery interested in related research and development.  As yet, no clinical trial has commenced butthe Company is hopeful of a trial commencing during 2008.

 

37

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Worldwidegroups actively pursuing non-invasive fetal cell diagnostics include:

 

·                  Genzyme Corporation, USA

 

·                  Roche Diagnostics, USA

 

·                  Aviva Biosciences, USA

 

·                  Hamilton ThorneResearch, USA

 

·                  Rubicon Genomics, Inc,USA

 

·                  MOR ResearchApplications Ltd.

 

·                  Children’s MedicalCentre — Tuft’s University, Boston, USA

 

·                  The Chinese Universityof Hong Kong

 

·                  Laboratory for PrenatalMedicine, University Women’s Hospital, Basel, Switzerland

 

·                  The Jikai UniversitySchool of Medicine, Tokyo, Japan

 

·                  Imperial College LondonUK

 

(this list is not exhaustive and many other academic andcommercial research departments are active in this field).

 

Concertedpublic health funding schemes have been operating in both the USA and Europeattempting to contribute to this field over recent years (National Institute ofChild Health Fetal Cell Study, USA known by the acronym NIFTY, and a similarconcerted action in Europe under the name COPERNICUS funded by the EEC).  The majority of competitors now appear to beconcentrating their efforts towards using free fetal DNA in maternal blood as asource of material for pre-natal diagnostics. The bulk of the competition and innovation in the pre-natal geneticscreening market appears to be coming at the testing end of the service, ratherthan the sample collection and preparation stage, which is the focus of RareCellect.  This means that samples of fetal cellsprepared using RareCellect technology will be suitable to be used in thecurrent and emerging tests for fetal genetic health.

 

**Environmental Regulations**

** **

The Company’s operations are subject toenvironmental regulations under Australian State legislation.  In particular, the Company is subject to therequirements of the Environment Protection Act SA 1993.  A license has been obtained under this Act toproduce listed waste.

 

We have a minority interest of 16.36% ina mining joint venture in Western Australia known as the North Laverton JointVenture which has been fully written off in the Company’s accounts.  To date, the Venture has only been subject toexploration drilling.  As at June 30,2007, we had provided performance bonds of $65,294 (AUD76,898) to the localMines Department in respect of restoration and environmental matters.  Further, during 2007, we raised a provisionof $66,653 (AUD78,498) in respect   ofour share of potential rehabilitation costs. The Directors of the Company are not aware of any potentialenvironmental issues in respect of this mining exploration project.

 

**Item 4.C         CorporateStructure**

** **

The following table shows the corporatestructure of Genetic Technologies and its subsidiaries as of the date of thisAnnual Report:

 

 

Genetic Technologies Limited is theholding company of the group and is listed on the Australian SecuritiesExchange, under the code GTG, and on the NASDAQ Global Market, under the tickersymbol GENE.

 

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

** **

GeneType Pty. Ltd., a wholly-ownedsubsidiary of the Company, rents the offices and laboratory premises located at60-66 Hanover Street, Fitzroy, Victoria, Australia from Bankberg Pty. Ltd., acompany associated with the Company’s former Chief Executive Officer, Dr. MervynJacobson.  The lease expires on June 30,2011, with an option for renewal for another 10 years, at a current annual costof approximately $350,000.

 

**Item 5.            Operating and Financial Review and Prospects**

** **

You should read the following discussionand analysis in conjunction with Item 3 “Selected Financial Data” and our financial statements, the notes to thefinancial statements and other financial information appearing elsewhere inthis Annual Report.  In addition tohistorical information, the following discussion and other parts of this AnnualReport contain forward-looking statements that reflect our plans, estimates,intentions, expectations and beliefs. Our actual results could differ materially from those discussed in theforward-looking statements.  See the “RiskFactors” section of Item 3 and other forward-looking statements in this AnnualReport for a discussion of some, but not all, factors that could cause orcontribute to such differences.

 

**Item 5.A         OperatingResults**

** **

**Overview**

** **

**Our Formation**

 

GeneType AG was incorporated inZug, Switzerland on February 13, 1989 to exploit the commercialization ofthe hypothesis that the non-coding region of the human HLA gene complex ofchromosome 6 is a valuable and highly ordered reservoir of useful geneticinformation, largely overlooked by the rest of the world.

 

Genetic Technologies Limited wasincorporated on January 5, 1987 as Concord Mining NL in Perth, Western Australia.  On August 13, 1991, we changed our nameto Consolidated Victorian Gold Mines NL to better reflect the operations of theCompany at the time.  On December 2,1991, we again changed our name to Consolidated Victorian Mines NL.  On March 5, 1995, we again changed ourname to Duketon Goldfields NL.  On October 151995, we changed our status from a “No Liability” company to a company limitedby shares and the name became Duketon Goldfields Limited.  On August 29, 2000, we changed our nameto Genetic Technologies Limited, which is the current name of the Company.

 

On August 29, 2000, DuketonGoldfields Limited received shareholder approval to change its activities froma mining company to a biotechnology and genetics company on the acquisition ofall the issued capital 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 five 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.

 

**Development StageEnterprise**

 

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, 2007, wehave incurred $18,415,225 in accumulated operating losses and a further$4,055,432 in other comprehensive income. Our losses have resulted principally from costs incurred in research anddevelopment, investment activity and from general and administrative costsassociated with our operations.  Othercomprehensive losses relate primarily to foreign exchange translationadjustments recorded on conversion of our accounts from Australian dollars toUS dollars.  See the ConsolidatedStatements of Operations in our attached financial statements.

 

The research and development costsincurred prior to August 2000 of approximately $6 million were funded byshareholders of GeneType AG.  On completion of the merger of DuketonGoldfields Limited and GeneType AG in August 2000, to form GeneticTechnologies Limited, existing funds of approximately $5 million within GeneticTechnologies were applied towards research and development and general andadministrative expenses associated with our operations.  The Company also sold its investment inCytomation Inc. of Fort Collins, Colorado in November 2001 forapproximately $5 million.  The fundsrealized from this sale were applied towards research and development andgeneral and administrative expenses associated with our operations.  The Company has completed several placementsof shares, including one in August 2003, and there have been other amountsraised from the exercise of unlisted options. We have primarily depended on these sources of funds to meet ourfinancing needs.  However, we   now license our non-coding technology andprovide a series of genetic tests, both of which generate revenue to fund ourexpenses.

 

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The extent to which we continue to incurlosses will depend on the quantum of license fees received from the licensingof our patents, the amount of annuities and royalties we receive from pastlicenses, and 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 ourRevenues**

 

Our major source of revenues up to June 30,2002 were grants received from the Australian Government under the STARTProgram licensing, fees from licensing the non-coding patents, DNA paternitytesting services income in Australia and interest income from our cash ondeposit and other cash equivalents.

 

Since commencing our licensing programduring the year ended June 30, 2002, the Company has been successful in securing licenses for its technology from a total of 34 commerciallicensees and 6 research licensees (see Item 4A. for a complete list).  We have also received proceedsfrom the disposal of some of our remaining non-core mining assets which wereheld for resale in Australia and Canada during the year ended June 30,2003 and from the sales of various shares in other companies which we formerlyheld.  None of this income is recurring.

 

**Fiscal Year**

 

As an Australian company, our fiscalyear 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 eachyear,  both of which are prepared underAustralian Accounting Standards which include Australian equivalents toInternational Financial Reporting Standards (“AIFRS”).

 

**Recent Accounting Pronouncements**

** **

*Uncertainty in Income Taxes*

 

In July 2006,the FASB issued FASB Interpretation (“FIN”) No. 48, *Accountingfor Uncertainty in Income Taxes*, an interpretation of FASB No. 109,*Accounting for Income Taxes* (“FIN 48”).  FIN 48 creates a single model to addressuncertainty in tax positions and clarifies the accounting for income taxes byprescribing the minimum recognition threshold a tax position is required tomeet before being recognized in the financial statements.  FIN 48 also provides guidance onderecognition, measurement, classification, interest and penalties, accountingin interim periods, disclosure, and transition. In addition, FIN 48 clearly scopes out income taxes from SFAS No. 5,*Accounting for Contingencies*.  FIN 48 applies to all tax positions relatedto income taxes subject to SFAS No. 109. This includes tax positions considered to be “routine” as well as thosewith a high degree of uncertainty.  Theguidance contained in FIN 48 is also applicable to pass-through entities, non-taxableentities, and entities whose tax liability is subject to 100% credit fordividends paid.  FIN 48 utilizes thefollowing two-step approach for evaluating tax positions: recognition (stepone) and measurement (step two).  Stepone occurs when an enterprise concludes that a tax position, based solely onits technical merits, is more-likely-than-not to be sustained onexamination.  Step two is only addressedif step one has been satisfied.  Understep two, the tax benefit is measured as the largest amount of benefit,determined on a cumulative probability basis, which is more-likely-than-not tobe realized on ultimate settlement. Derecognition of a tax position that was previously recognized wouldoccur when a company subsequently determines that a tax position no longermeets the more-likely-than-not threshold of being sustained.  FIN 48 specifically prohibits the use of avaluation allowance as a substitute for derecognition of  tax positions.  FIN 48 requires expanded disclosures,including a tabular roll forward of the beginning and ending aggregateunrecognized tax benefits as well as specific detail related to taxuncertainties for which it is reasonably possible the amount of unrecognizedtax benefit will significantly increase or decrease within twelve months.  These disclosures are required at each annualreporting period, unless a significant change occurs in an interim period.  FIN 48 is effective for fiscal years beginningafter December 15, 2006.  TheCompany plans to adopt this pronouncement in fiscal year beginning July 1,2007 and does not believe the adoption of FIN 48 will have a material effect onthe financial statements.

 

*Fair Value Measurements*

 

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS 157”).  SFAS 157 provides guidancefor using fair value to measure assets and liabilities and responds toinvestors’ requests for expanded information about the extent to whichcompanies measure assets and liabilities at fair value, the information used tomeasure fair value, and the effect of fair value measurements on earnings.  SFAS 157 applies whenever other standardsrequire (or permit) assets or liabilities to be measured at fair value and doesnot expand the use of fair value in any new circumstances.  Under SFAS 157, fair value refers to theprice that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants in the market in whichthe reporting entity transacts.  SFAS 157clarifies the principle that fair value should be based on the assumptionsmarket participants would use when pricing the asset or liability.  In support of this principle, SFAS 157establishes a fair value hierarchy that prioritizes the information used todevelop those assumptions.  The fairvalue hierarchy gives the highest priority to quoted prices in active marketsand the lowest priority to unobservable data. Under SFAS 157, fair value measurements would be separately disclosed bylevel within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007. The Company plans to adopt this pronouncement in fiscal years beginning July 1,2008 and does not believe   the adoptionof SFAS 157 will have a material effect on the financial statements.

 

40

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*Payment forGoods or Services for Research*

 

In June 2007,the FASB issued EITF Issue No. 07-3 “Accounting for Non-refundable AdvancePayments for Goods or Services Received for Use in Future Research andDevelopment Activities” (“EITF 07-3”). EITF 07-3 requires that non-refundable advance payments for goods orservices that will be used or rendered for future research and developmentactivities should be deferred and capitalized. Amounts that have been deferred and capitalized should be recognised asan expense as the related goods are delivered or the related services areperformed.  It is a requirement that theCompany should continue to evaluate whether it expects the goods to bedelivered or services to be rendered.  Ifat any point that expectation ceases to exist, the capitalized advance paymentshould be charged to expense.  EITF 07-3is effective for financial statement issued for fiscal years beginning after December 15,2007, and interim periods within those fiscal years.  The Company plans to adopt this pronouncementin fiscal year beginning July 1, 2008 and does not believe the adoption ofEITF 07-3 will have a material effect on the financial statements.

 

*Fair ValueOption for Financial Assets and Financial Liabilities*

 

In February 2007,the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assetsand Financial Liabilities, including an amendment of FASB Statement No. 115”(“SFAS 159”).  SFAS 159 permits entitiesto measure eligible financial assets, financial liabilities and firmcommitments at fair value, on an instrument-by-instrument basis, that areotherwise not permitted to be accounted for at fair value under other generallyaccepted accounting principles.  The fairvalue measurement is irrevocable and subsequent changes in fair value must berecorded in earnings.  SFAS 159 iseffective for financial statements issued for fiscal years beginning after November 15,2007.  The Company plans to adopt thispronouncement in fiscal year beginning July 1, 2008 and does not believethe adoption of SFAS 159 will have a material effect on the financialstatements.

 

**CriticalAccounting Policies**

** **

**Revenue Recognition**

 

Revenues are recognized at the fair valueof the consideration received net of any goods and services tax (GST).

 

**Rendering of Services**

** **

Revenuesreceived from the rendering of services are recognized when the provision ofthese services is completed and the fee for the services provided is recoverable.  Service arrangements are of short duration(in most cases less than 3 months).

 

**Research and Development Grants**

 

The Company receives non-refundable grants that assistthe Company to fund specific research and development projects.  These grants generally provide forreimbursement of approved costs incurred as defined inthe various agreements.  Governmentgrants are recorded as revenue when key milestones set within each agreementare achieved and accepted by all parties to the grant, no performanceobligation remains and collectibility is reasonably assured.  Grant funds received in advance of theCompany completing its performance are deferred.  When the Company is required to make cashpayments or purchases from the issuer of the grant as a requirement for thegrant to be issued, the income is recorded net of the consideration payable bythe Company.

 

**License fee income**

** **

Whenthe Company has no future obligations in relation to its license agreementsthat do not have fixed terms and renewal options, license fee income isrecorded on the execution of a binding agreement, because the Company has nofuture obligations, income is fixed and determinable, and collection isreasonably assured.  Royalties receivedfrom these licenses are recognized when earned and no future performance is required bythe Company and collection is reasonably assured.  Income under license arrangements with fixed terms andrenewal options is deferred and recognized on a straight-line basis over thelicense period.  The Company has no otherarrangements with its licensees to provide services besides the licenseagreement.  Revenues are recognized atthe fair value of the consideration received net of the amounts of goods andservices tax (GST).  Any securitiesreceived as a component of the upfront license fees are recorded as revenue,based on the market price of the securities at the date of signing the licenseagreement  in the case of listedsecurities, and the price at which securities were most recently issued by thelicensee in the case of unlisted securities. The Company grants no refunds to its customers.

 

**Sale of Marketable Securities**

 

Thesecurities consist of equity securities, which are stated at fair value, andunrealized gains or losses on the securities are recorded in the consolidatedstatements of operations.

 

41

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**Patents**

 

External costs incurred in filing, defending andprotecting patent applications for which no future benefit is reasonablyassured are expensed as patent fees as incurred.  As of June 30, 2007 and 2006, none ofthese external costs have been capitalized. Acquired patents, for which a future benefit is reasonably assured, arecapitalized and amortized using the straight-line method over their usefullife, being 10 years.

 

TheCompany assesses at each reporting date whether there is an indication that anasset may be impaired.  If any suchindication exists, assets, other than goodwill, are tested for impairment basedon undiscounted cash flows and, if impaired, written down to fair value****based on either discounted cash flows or appraised values.

 

Inassessing fair value, 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. Risks specific to the recoverability of the asset are reflected in thefuture cash flow estimates through the use of an expected present valueapproach based upon weighted average probability outcomes.  Impairment losses relating to operations arerecognized in those expense categories consistent with the function of theimpaired asset.

 

During 2007, animpairment loss of $908,416 in respect of the patents acquired from the C.Y.Connor ERADE Village Foundation was incurred.

 

The impairment loss arose in respect of patents heldwithin the research operating segment resulting from slower than expectedprogress with research and development related to the potentialcommercialisation of the genetic testing technology covered by these patents,combined with increased competition in this marketplace within the pastyear.  Specifically, events during theyear contributed to a change in the following key assumptions:

 

1.          Reduction in the expected future market penetration of developedproducts (e.g. bone marrow testing kits);

 

2.          Reduction in the expected underlying market price;

 

3.          Refinement of market size parameters based on actual, rather thanestimated, data;

 

4.          Revision of expected overhead costs related to the ongoing research andfuture commercialisation of these products; and

 

5.          Exclusion of Europe as a potential market, as it was decided, based onthe Company’s limited resources, increased competition, the remaining patentlife and the delays mentioned previously, that it would focus initially on theUS market (being the world’s largest market).

 

In conjunction with work performed by an independentvaluation expert, an impairment charge of $908,416 was calculated by Managementand recorded against the carrying value of the respective patents.  The recoverable amount of the patents isbased on value-in-use calculations.  Theestimated risk adjusted cashflows were discounted by the risk free rate of6.5%.  The risks specific to therecoverability of the asset are reflected in the future cash flow estimatesthrough the use of an expected present value approach as discussed in Note 2.

 

Cashflow forecasts associated with the impairmentassessment of the patents have been projected to 2012, being the year   in which the first of the respective patentsis due to expire, using the weighted average outcomes arising from differentscenarios varying the success rate in penetrating the US market as the keyassumption to which the recoverable amount assessment is most sensitive.  The forecasts and associated recoverableamount has been determined by an independent valuation expert, taking intoaccount the Company’s contractual future research funding obligations, thecurrent market prices for bone marrow testing kits and the estimated bonemarrow transplant market size based on the US national bone marrow registrydatabase.

 

With regards to the assessment of the value-in-use of thepatents in the research operating segment, Management believes that there areno reasonably possible changes in any of the above key assumptions that wouldcause the carrying value of the patents to materially exceed their recoverable amount.  No other class of asset was impairedfollowing from this exercise and no change in the useful economic life of thepatents was noted.

 

**Goodwill**

 

Goodwill represents the excessof the cost of businesses acquired over the fair value of the identifiable netassets acquired.  Prior to the adoptionof SFAS No. 142:*Goodwill and Other Intangible Assets*(“SFAS 142”), through June 30, 2002, goodwill was amortized on astraight-line basis over a period of between 10 to 20 years.  Subsequent to the adoption of SFAS 142 on July 1,2002, amortization of goodwill ceased. Goodwill attributable to purchased business combinations completedsubsequent to June 30, 2001 was never amortized pursuant to SFAS 142.

 

42

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Goodwillis tested annually for impairment, or sooner when circumstances indicate animpairment may exist, using a two step approach at the reporting unit levelprescribed in SFAS 142.  The first stepis a comparison of the fair value of the reporting unit with its carryingamount, including goodwill.  If this stepreflects impairment, then the loss is measured as the excess of the recordedgoodwill over its implied fair value. Implied fair value is the excess of the fair value of the reporting unitover the fair value of all identified assets and liabilities.

 

Discretefinancial information is prepared and regularly reviewed by Management at thesegment level thus a reporting unit represents the operating segment.  Since the adoption of SFAS 142, no impairmentlosses have been recognized.  However, duringfiscal year 2006, the Company recorded a write-off of goodwill amounting to$81,851.

 

Goodwill is allocated to the Company’s testing segment onthe basis of the appropriate operating segment to which it relates.  Discrete financial informationis prepared and regularly reviewed by Management at the segment level and thusa reporting unit represents the operating segment.  The recoverable amount of the reporting unitis determined based on the value-in-use calculations.  There is no carrying amount of intangibleassets with indefinite useful lives allocated to this segment.  These calculations use cash flow projectionsbased on financial budgets approved by the Board.  In performing the value-in-use calculations,the Directors have assumed that the testingbusiness will begin to generate an operating profit in the next 2 to 3 yearsbased on projected revenue growth.  Should this time period be extended beyond 3years, there is a possibility that the value-in-use may fall below the carryingvalue of the goodwill.

 

The cashflow projections assume revenues of $3.8million in 2008 based on Management forecasts. As a key assumption, constant revenue growth of 18% is assumed beyond2008 based on the historical five-year average growth rate applicable to the testing business.  Expenses areassumed to be relatively constant over time given that significant capacity isavailable with the existing laboratory equipmentand the testing business is relatively capital-intensive.  Management has assessed the future cashflowsusing discount rates ranging between 10% and 25% which result in the recoverableamount exceeding the carrying value of goodwill.

 

**Impairment of Long-Lived Assets**

** **

Pursuant to guidance established in SFASNo. 144, *Accounting for the Impairmentor Disposal of Long-Lived Assets,* the Company evaluates therecoverability of its long-lived assets at least annually, or whenever eventsor changes in circumstances indicate that the carrying amount of such assetsmay not be recoverable.  Managementconsiders the carrying value not to be recoverable if it exceeds the futureprojected cash flows (undiscounted and without interest charges) from the useof the asset and its eventual disposition. Management also re-evaluates the periods of amortization to determinewhether subsequent events and circumstances warrant revised estimates of usefullives.  An impairment loss is recognizedwhen the carrying amount of the asset exceeds its fair value.  The resulting impairment loss is classifiedas a component of loss from operations.

 

**Stock-based Compensation**

** **

Prior to July 1, 2005, the Companyelected to account for its stock-based employee compensation plan under theintrinsic value method in accordance with the Accounting Principals BoardOpinion No. 25: *Accounting for StockIssued to Employees* (“APB 25”) and related interpretations.  The Company has adopted the disclosure-onlyprovisions of SFAS Statement No. 123: *Accountingfor Stock-Based Compensation* (“SFAS 123”) as amended by SFASStatement No. 148: *Accounting for StockBased Compensation — Transition and Disclosure* (“SFAS 148”).

 

In accordance with APB 25, the Companyrecords and amortizes, over the related vesting periods, deferred compensationrepresenting the difference between the exercise price of stock options grantedand the fair value of the Company’s ordinary shares on the measurementdate.  Options granted to consultants andother non-employees are accounted for in accordance with Emerging Issues Task Force Consensus No. 96-18:  *Accounting for EquityInstruments That Are Issued toOther Than Employees for Acquiring**, or In Conjunction with Selling, Goods or Services*, and valued using the Black-Scholes option valuation model.  In circumstances in which the Company’sshares are issued in exchange for services, compensation is recorded based onthe fair value of the shares at the date of measurement, as determined byreference to quoted market price.

 

Effective from July 1, 2005, the Company adopted therequirements of SFAS 123 (revised 2004): *Share-Based Payments*(“SFAS 123R”) using the “modified prospective” method thereby recognising thecompensation cost in the financial statements for all share-based paymentsgranted after that date, and based on the requirements of SFAS 123, for allunvested awards granted prior to the effective date of SFAS 123R.

 

On August 29, 2000, shareholdersapproved the grant of 3,000,000 options to Directors.  Each option granted to Directors wasexercisable into one Ordinary Share at any time on or before April 14,2005 at a fixed price of AUD0.45 per share. On August 12, 2003, Ian Dennis exercised 1,000,000 options atAUD0.45 by paying AUD450,000 and simultaneously sold the resulting 1,000,000shares.  The remaining 2,000,000 lapsedunexercised on April 14, 2005.

 

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On November 30, 2001, under our Constitution, shareholders approved the creation of a Staff Share Plan (the “Plan”).  Under the Plan, the Directors may at theirdiscretion, grant options over our Ordinary Shares to Directors, executives andmembers  of staff of the consolidatedentity.  The options, issued for nilconsideration, are granted in accordance with guidelines established   by the Directors.  The options are generally issued for a termof up to six years.  In accordance withthe terms of the Plan, options generally vest on the basis of 25% per annum andcan be exercised at any time after vesting prior to the date of theirexpiry.  The options are not transferableand are not quoted on the ASX.  There arecurrently no Directors, six executives, three consultants and 19 staff who have been granted options under the Plan.  Options issued under the Plan carry no rightsto dividends and no voting rights.

 

Options issuedunder the Plan during the following financial years are as follows:

 

Year ended June 30, 2005:

 
| **Grant date**    | ** ** | **Expiry date**   | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|------------------------|------------|------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **             | ** ** | ** **             | ** ** | ** **              | ** ** | ** **              | ** ** |
| July 29, 2004     |       | February 27, 2010 |       | 580,000                 |       | AUD0.56                 |       |
| July 29, 2004     |       | February 27, 2010 |       | 500,000                 |       | AUD0.49                 |       |
| September 6, 2004 |       | September 6, 2010 |       | 750,000                 |       | AUD0.48                 |       |
| November 30, 2004 |       | April 19, 2010    |       | 500,000                 |       | AUD0.48                 |       |
|                   |       | Total                  |       | 2,330,000               |       |                    |       |

 

On July 29, 2004, we issued a totalof 1,080,000 options under the Plan to employees of the Company, with exerciseprices ranging from AUD0.49 to AUD0.56. On September 6, 2004, we issued 750,000 options under the Plan to TomHowitt, our Chief Financial Officer and Company Secretary.  These options are exercisable at AUD0.48 andexpire on September 6, 2010.  On November 30,2004, we issued 500,000 options under the Plan to a Director, Robert Edge.  These options are also exercisable at AUD0.48and, following his retirement on November 17, 2006, will expire on May 17,2007.  A total of 3,604,276 optionsissued under the Plan were forfeited during the year ended June 30, 2005.

 

Year ended June 30, 2006:

 
| **Grant date**    | ** ** | **Expiry date**   | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|------------------------|------------|------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **             | ** ** | ** **             | ** ** | ** **              | ** ** | ** **              | ** ** |
| August 12, 2005   |       | August 12, 2011   |       | 1,450,000               |       | AUD0.43                 |       |
| August 12, 2005   |       | August 12, 2011   |       | 1,000,000               |       | AUD0.53                 |       |
| November 23, 2005 |       | November 23, 2011 |       | 1,000,000               |       | AUD0.56                 |       |
| January 17, 2006  |       | January 17, 2012  |       | 400,000                 |       | AUD0.45                 |       |
| June 22, 2006     |       | February 1, 2012  |       | 750,000                 |       | AUD0.46                 |       |
| June 22, 2006     |       | May 31, 2012      |       | 700,000                 |       | AUD0.40                 |       |
|                   |       | Total                  |       | 5,300,000               |       |                    |       |

 

On August 12, 2005, we issued750,000 options under the Plan to Geoff Newing, our Chief Operating Officer,and a further 250,000 options to Tom Howitt. These options are exercisable at AUD0.53 and expire on August 12,2011.  On November 23, 2005, weissued 500,000 new options under the Plan to each of two Directors, Henry BoschAO and John Dawkins AO.  These optionsare exercisable at AUD0.56 and expire on November 23, 2011.  The remaining 3,300,000 options were issuedto various employees.  A total of6,666,667 options were forfeited during the year ended June 30, 2006 and afurther 2,630,000 options that had been issued under the Plan were cancelled.

 

Year ended June 30, 2007:

 

There were no options granted during theyear ended June 30, 2007.

 

A total of 1,175,000 of the optionsissued under the Plan were forfeited during the year ended June 30, 2007and a further 1,525,000 options were cancelled.

 

Post June 30, 2007:

 
| **Grant date**     | ** ** | **Expiry date**    | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|-------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **              | ** ** | ** **              | ** ** | ** **              | ** ** | ** **              | ** ** |
| September 24, 2007 |       | September 24, 2012 |       | 3,650,602               |       | AUD0.17                 |       |
| October 23, 2007   |       | October 23, 2012   |       | 3,500,000               |       | AUD0.22                 |       |
|                    |       | Total                   |       | 7,150,602               |       |                    |       |

 

Since June 30, 2007, a total of7,202,500 of the options outstanding at that date were forfeited orcancelled.  As of the date of this AnnualReport, there was a total of 12,525,602 options outstanding.

 

44

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On August 2, 2001, the Companyannounced that it had entered into an agreement with GTH Capital of New York topursue its listing on the National Association of Securities Dealers AutomatedQuotations (“NASDAQ”).  This agreementwas assigned by GTH Capital to GMCG, LLC, the successor of GTH Capital, on April 1,2002.  In accordance with the agreement, Genetic Technologies issued 150,000 shares to GTH Capital on October 10,2001 and agreed to issue 900,000 options at an exerciseprice of $0.36 (AUD0.70) to GTH Capitalwithin three years, subject to it meeting certain performance criteria.  On January 14, 2002, GTH were entitled to receive 540,000 of the options.  In accordance with SFAS 123, the Company hasrecorded an expense of $67,846 during the year ended June 30, 2002.  During the year ended June 30, 2004,GMCG, LLC became entitled to a further 60,000 options which in accordance withSFAS 123 we have recorded as an expense of $10,827 during that year.  We have now issued to GMCG, LLC the 600,000options 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,notwithstanding the 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 unexercised on September 7, 2007.

 

On May 22, 2001, GtechInternational Resources Limited, a subsidiary of the Company, issued 130,000directors options to Dr. Mervyn Jacobson at an exercise price of $0.25(CAD0.38) which vested immediately. These options lapsed unexercised on May 22, 2006.  Stock compensation expense in respect ofthese options of $8,380 was recorded during the year ended June 30,2001.  On February 3, 2005, FredBart and Ian Dennis exercised a total of 158,500 options in Gtech Internationalat an exercise price of $0.16 (CAD0.20) each. On August 26, 2005, 100,000 options in Gtech International weregranted to each of Tom Howitt and Elizabeth Sy, both Directors of Gtech, at anexercise price of $0.38 (CAD0.45) each.

 

On September 4, 2003, as part ofthe placement of 13,333,333 shares at AUD0.75, we issued the subscriber with6,666,667 options exercisable at AUD1.00 on or before September 30,2005.  These options subsequently lapsedon September 30, 2005.

 

Optionsissued under the Staff Share Plan (the “Plan”) carry no rights to dividends andno voting rights.  In accordance with theterms of the Plan, options generally vest on the basis of 25% per annum and canbe exercised at any time after vesting to the date of their expiry.  The options generally have an expiry date ofsix years from the date of grant. Effective from July 1, 2005, the Company adopted SFAS 123R, therebyrecognising the compensation cost in the financial statements for allshare-based payments granted after that date, and based on the requirements ofSFAS 123,  for all unvested awards grantedprior to the effective date of SFAS 123R. In 2005 and 2004, the Company recorded an expense based upon thedifference between the exercise price and the issue price of the Company’sOrdinary Shares at the date of the option grant.  In the years ended June 30, 2007, 2006and 2005, the expense was $360,677, $597,088 and $591, respectively.  Under the Plan, the Company also issuedoptions to consultants who would not be deemed employees of the Company.  The Company records an expense in accordancewith APB 25 based on the fair value of the options issued in exchange for theservices and the vesting period.  In theyears ended June 30, 2007, 2006 and 2005, this expense was $18,765, $13,755 and $nil, respectively.

 

The following is additionalinformation relating to all options outstanding 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                       |       | 3,575,000                    |       | $                                          | 0.37       |   | 3.73 |   | 1,700,000 |   | $ | 0.37 |   |
| $0.41 - $0.50                       |       | 5,902,500                    |       | $                                          | 0.45       |   | 2.30 |   | 4,377,500 |   | $ | 0.45 |   |
| $0.51 - $0.60                       |       | 3,100,000                    |       | $                                          | 0.53       |   | 0.37 |   | 3,100,000 |   | $ | 0.53 |   |
|                                |       | 12,577,500                   |       | $                                          | 0.45       |   | 2.23 |   | 9,177,500 |   | $ | 0.46 |   |

 

The following is additional information relating to alloptions outstanding as of June 30, 2006:

 
| ** **                          | ** ** | **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                       |       | 875,000                      |       | $                                          | 0.29       |   | 2.89 |   | 131,250 |   | $ | 0.28 |   |
| $0.31 - $0.40                       |       | 8,552,500                    |       | $                                          | 0.35       |   | 3.04 |   | 3,465,000 |   | $ | 0.35 |   |
| $0.41 - $0.50                       |       | 5,250,000                    |       | $                                          | 0.43       |   | 2.28 |   | 4,700,000 |   | $ | 0.44 |   |
| $0.51 - $0.60                       |       | 600,000                      |       | $                                          | 0.52       |   | 1.19 |   | 600,000 |   | $ | 0.52 |   |
|                                |       | 15,277,500                   |       | $                                          | 0.38       |   | 2.72 |   | 8,896,250 |   | $ | 0.40 |   |

 

45

----

 

The following is additional information relating to alloptions outstanding as of June 30, 2005:

 
| ** **                          | ** ** | **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                       |       | 175,000                      |       | $                                          | 0.29       |   | 3.89 |   | 87,500 |   | $ | 0.29 |   |
| $0.31 - $0.40                       |       | 5,252,500                    |       | $                                          | 0.35       |   | 3.97 |   | 1,676,875 |   | $ | 0.35 |   |
| $0.41 - $0.50                       |       | 6,580,000                    |       | $                                          | 0.45       |   | 2.62 |   | 4,450,000 |   | $ | 0.45 |   |
| $0.51 - $0.60                       |       | 600,000                      |       | $                                          | 0.53       |   | 2.19 |   | 600,000 |   | $ | 0.53 |   |
| $0.71 - $0.80                       |       | 6,666,667                    |       | $                                          | 0.76       |   | 0.25 |   | 6,666,667 |   | $ | 0.76 |   |
|                                |       | 19,274,167                   |       | $                                          | 0.53       |   | 2.11 |   | 13,481,042 |   | $ | 0.60 |   |

 

Theweighted-average fair value at grant date of the 5,300,000 options issued underthe Staff Share Plan during 2006 was $0.15. The aggregate intrinsic value of the 12,577,500 options outstanding asof June 30, 2007 was $nil.  Theaggregate intrinsic value of the 9,177,500 options exercisable as of June 30,2007 was also $nil.  The total fair valueof the options which vested during the years ended June 30, 2007, 2006 and2005 was $343,150, $262,436 and $660,919, respectively.  The weighted average fair values of thoseoptions were $0.18, $0.18 and $0.22, respectively.  The weighted average fair value of the2,700,000 options which were forfeited or expired during 2007 was $0.24.  The aggregate intrinsic value of the 65,561,338options that were exercised during 2005 was $13,016,636.

 

Thetotal compensation expense related to the 3,400,000 (2006: 6,381,250)non-vested options as of June 30, 2007 was $535,211 (2006: $985,343).  The periods over which these amounts will be recognizedare disclosed in the tables below.  Theweighted average fair value of the non-vested options as of June 30, 2007and 2006 were $0.16 and $0.15, respectively.

 

During2007 and 2006 (2005: 500,000), no options were issued at an exercise price equalto the market price of the stock  on thegrant date.  The weighted averageexercise price and weighted average fair value of the options issued in 2005was $0.38 and $0.24, respectively.  Inaddition, no options were granted during 2007 and 2006 (2005: 1,830,000) atexercise prices exceeding the market prices of the stock on the respectivegrant dates.

 

Proforma information regarding net income is required by SFAS 123, as amended bySFAS 148, and has been determined as if the Company had accounted for itsemployee stock options under that fair value method of SFAS 123 as of itseffective date.  The fair value for theoptions issued to employees was estimated at the date of grant using aBlack-Scholes option-pricing model with the following weighted-averageassumptions for June 30:

 
| ** **              | ** ** | **June 30,** | ** ** |
|-------------------------|------------|-------------------|------------|
| ** **              | ** ** | **2007**          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Risk Free Interest Rate |       | N/A               |       | 5.62 | % | 5.21 | % |
| Expected Dividend Yield |       | N/A               |       | — |   | — |   |
| Expected Volatility     |       | N/A               |       | 0.53 |   | 0.55 |   |
| Expected Lives (years)  |       | N/A               |       | 5.0 |   | 5.0 |   |

 

Hadthe Company elected to adopt the fair value recognition provisions of SFAS 123,pro forma net loss would be as follows:

 
| ** **                                                                                                    | ** ** | **Year ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                    | ** ** | **2005**                               | ** ** |
| Net loss as reported                                                                                          |       | $                                      | (5,742,949 | ) |
| Employee stock-based compensation, net of taxes, as calculated under  APB 25 included in net loss as reported |       | 591                                    |       |
| Employee stock-based compensation, net of taxes, as calculated under  SFAS 123                                |       | (606,418                               | )          |
| Pro forma net loss                                                                                            |       | $                                      | (6,348,776 | ) |
|                                                                                                          |       |                                   |       |   |
| Net loss per ordinary share (basic and diluted) as reported                                                   |       | $                                      | (0.02      | ) |
|                                                                                                          |       |                                   |       |   |
| Pro forma net loss per ordinary share (basic and diluted) as reported                                         |       | $                                      | (0.02      | ) |

 

Refer to Note 13 of the attached financial statements forfurther details regarding the Company’s stock options plans.

 

46

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**Comparisonof the Year Ended June 30, 2007 to the Year Ended June 30, 2006**

** **

**Licenserevenues**

** **

Our total license revenue generated forthe 2007 financial year was $8,955,467, an increase of 79% on the previousyear.  The most significant improvementin the 2007 revenue was the 95% increase in license fees earned in 2007.  This increase is predominantly explained bysignificant licenses having been granted to Monsanto Company ($5 million) andThermo Fisher Scientific Inc. ($1million).  As with the 2006 financialyear, we continued to receive income from the Applera settlement ($902,168), representing an increase of $127,675 on the previous year.  Annuities and royalty income continued itsstrong growth after a 143% increase in 2006, managing to further improve 80% inthe current year, bringing in $2,100,412. Again, this revenue stream may continue to increase as we grant morelicenses.

 

**Service testingrevenues**

 

Our service testing income rose 29% onthe 2006 financial year, an increase of $557,596.  Both breast cancer testing (up $328,210) andcanine disease and profiling (up $208,396) divisions contributed significantlyto the increase.  There were alsoconsiderable improvements with the colon and epilepsy testing revenues, withsizeable increases of 746% and 363% being recorded, respectively, althoughthese are based on minimal prior year income levels.  However we can see promising increases in thenumber of tests conducted in futureperiods.  We expect this progress tocontinue as additional marketing initiatives continue to be introduced.  The income we earned on boththe paternity and forensic testing remains stable, which we had anticipated asmore competitors enter the market, however we are satisfied that we are able tomaintain our market position.  Weattribute this to having been granted accreditation by the national authority(NATA) which resulted in us becoming the first non-Government laboratory inAustralia to be able to undertake forensic testing.  We have since secured work in this expandingarea of genetic testing and have tendered for work that certain AustralianState Governments are now seeking to outsource.

 

**Grantincome**

 

Grant income effectively fell by$128,606 in a year on year comparison. However, the income for the 2006 year included previous year’s grantincome of $226,532.  Therefore, when the2006 specific income of $95,991 is compared to the 2007 grant income of$193,916, 2007 has resulted in a positive movement of 102%.  It is expected that considerable grantrevenue will be earned over the remaining two years of the HAL (mark II)project.  The revenue from the ExportMarket Development Grant dropped by 47%, however, we expect to recoup thisincome in the coming year.

 

**Operatingexpenses**

** **

Total operating expenses for 2007 of$12,989,219 were marginally greater than those incurred in the prior period,being $11,922,340.  An explanation ofthis $1,066,879 increase is provided below under the five respective expensecategories.

 

**Servicetesting expenses**

** **

Overall, service testing expensesfell by $57,531, or 1% from the prior year. The costs incurred for laboratory supplies and salaries increased by 7%and 5%, respectively, although this increase would be expected as the volume oftests conducted increased during the current financial year.  As there were no significant changes orintroduction of tests during the past 12 months, we were able to effectivelymaintain other operational costs. Considerable savings were made in the legal and patent costs (down 51%,or$46,323), consulting fees (down 37%, or $60,507) and both stock compensationand travel costs fell in comparison to 2006. The costs associated with maintaining and developing our laboratoryinformation management system (LIMS) represented a substantial cost in the 2006financial year, with the benefits of this expenditure now becoming obvious inthe current year’s cost reduction.

 

**Researchand development expenses**

** **

Research and development expensesincreased by $1,020,778 or approximately 36% to $3,836,583 in 2007 from$2,815,805 in 2006.  This increase isexplained by the impairment loss relating to the patents acquired from CY O’Connor,which represents $908,416 of the overall increase.  This project commenced in June 2004 andthe loss is the first such write-down booked in relation to it.  The Company continued to fund its three otherprincipal research and development projects, which resulted in an increase inconsulting fees (74%, or $34,228), whilst the growth of salaries was kept to amodest 3%, or $18,171.

 

**Patentand license fees**

** **

Patent and license fees includesassociated license and legal fees.  Thepatent and license fees decreased by 25% or $360,153, in comparison to the 69% or $3,194,272 cost reduction which had beenrecorded in 2006.  The major factor forthe reduction in patent and license fees paid is due to lower legal fees andcommissions being paid on licenses granted during the year.  We were also able to restrict cost increasesacross various related expense items and did, in fact, achieve extensivereductions across many costs, such as consulting fees (down $28,123), salaries(down $24,364) and travel (down $38,931). Stock compensation costs also fell $77,425 in comparison to thepreceding year.

 

47

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**Salesand marketing**

** **

Sales and marketing expenses onlymarginally increased by $69,889 or 8% for 2007, as compared to $276,310 or 48%in 2006.  The increase in the employeecosts are the major factor in the costs rising, accounting for $99,739 of theoverall movement.  Salary related costswere expected to rise as more employees provided their time to sales andmarketing activities.  Some costreductions were achieved in the areas of travel (which fell by 63%, or $26,213)and telephone and internet expenses (down 90%, or $10,424) due to thecompletion of our new website during the 2006 financial year.

 

**Generaland administrative expenses**

** **

General and administrative expense haverisen by $393,897 or 17% in comparison to the decline in costs of $323,696(12%) in the proceeding year.  Theincrease in salary related costs (up 50%, or $274,523) supports the majority ofthe increase in general and administrative costs due to the appointment ofadditional Directors and the payment of certain incentive payments.  There were other items incurred during 2007that had not been incurred in the previous year that also explain why there wasan increase in general and administrative costs, including the write-down ofloans to other parties (MycroLab) of $63,194 and the raising of a provision in respect of rehabilitation costs of $62,008relating to our passive interest in the North Laverton joint venture.

 

**Interest income**

 

Interest income has fallen by $215,544to $386,259 or 36% compared to that generated in 2006, which was $601,803.  Despite us having a considerably higher cashand cash equivalents balance at year ($10,568,085 in 2007 as compared to$7,904,399 in 2006), a large sum of the funds at balance date were received inlate June 2007 from the signing of license agreements with Monsanto Company($4,656,508) and Thermo Fischer Scientific ($1,116,377).  Accordingly, the average balance of cash andcash equivalents held during the 2007 year was considerably less than theclosing balance.  As such, thesesignificant year-end deposits generated little interest income for the few daysthat we held the funds in 2007.  If the2007 cash and cash equivalents was adjusted to exclude these late receipts, theadjusted amount would be $4,795,200. This amount is considerably lower than 2006 balance of cash and cashequivalents, which would explain why the interest revenue has dropped for the2007 year.

 

**Interestexpense**

** **

Theinterest expense decreased in 2007 by $10,874, or 17% on the 2006 amount of$63,316.  This was expected as interestis only incurred on the hire purchase agreements we enter into to acquire fixedassets for the laboratory and office, most of which are now nearing the end oftheir three-year terms.  There were twonew such agreements entered into during the 2007 financial year, however, thesewere relatively small.  The majority ofthe lease repayments made during 2007 would have predominately resulted in areduction of principal, as opposed to generating an interest expense.

 

**Netprofit on sale of business**

** **

In 2007, we disposed of a significantportion of our livestock testing business for a profit of $19,748.  There was no comparative transaction duringthe 2006 financial year.

 

**Netforeign exchange gains (losses)**

** **

The net impact of foreign exchange was aloss of $250,657, which represented an increase of $343,060 on the gain of$92,403 for the previous year.  Foreignexchange movements are the result of USD transactions converted to AUD forAustralian reporting requirements and the restatement of foreign currencydenominated cash accounts.  This lossresulted from the significant strengthening of the Australian dollar incomparison to the US dollar during 2007, with the spot rate at June 30,2006 being 0.7423  as compared to therate at June 30, 2007 of 0.8491.

 

**Taxes**

 

Taxesincreased by 209% in 2007, up from $67,649 in 2006 to $208,850.  This resulted from an increase in the licensefees that are obtained mainly from US entities which involved the payment ofassociated withholding taxes, typically at a rate of 5%.

 

**Comparisonof the Year Ended June 30, 2006 to the Year Ended June 30, 2005**

** **

**Licenserevenues**

** **

We earned licensing revenue of$4,997,223 for the year ended June 30, 2006 compared to $4,970,007 for thecorresponding period in 2005, a modest increase of $27,216 or 1%.  The majority of our licensing revenues forthe year were generated as a result of oursuccessful settlement of the disputewith Applera Corporation, to whom we granted a license to use our non-codingtechnology.  In addition, we receivednon-refundable up-front fees from six other licensees, including InnogeneticsNV of Ghent, Belgium, Bovigen LLC of Harahan, Louisiana and various parties inNew Zealand.  The 2006 financial yearalso saw a significant 143% increase in the level of annuity and royalty incomewe received from existing licensees. Annuity and royalty income, which is included in the total licensingrevenue figure above, totaled $1,166,773, as compared to $480,468 for 2005.

 

48

----

 

**Service testing revenues**

 

Our service testing revenues of$1,906,290 represented fees received from our genetic testing services inMelbourne, Australia.  This figurerepresented an increase of $96,989 or 5% over the prior year figure of$1,809,301.  As additional marketingefforts continue to deliver greater numbers of tests, it is hoped that revenuesfrom several areas of the business will increase service testing revenuesduring the coming financial year. Further, recent accreditation has resulted in the Company becoming thefirst non-Government laboratory in Australia to beable to undertake forensic testing.  TheCompany has already secured work in this expandingarea of genetic testing and has tenderedfor work that certain Australian State Governments are now seeking tooutsource.  In addition, through the execution of an agreement with Optigen LLC, the Companyhas secured the exclusive right to offer a range of genetic disease tests fordogs.

 

**Grantincome**

** **

We earned grant income of $426,574 forthe year ended June 30, 2006 which was consistent with the amount of$437,278 for the corresponding period in 2005. As in the prior year, the grants were received from HorticultureAustralia Limited in relation to a research project into the genetic ofstrawberries and from the Australian Government as part of an Export MarketingDevelopment Grant.

 

**Otherincome**

** **

We received other income of $14,915 forthe year ended June 30, 2006 compared to $3,469 for the correspondingperiod in 2005, an increase of $11,446.

 

**Operatingexpenses**

** **

Total operating expenses for 2006 of$11,922,340 were materially less than those incurred in the prior period, being$13,142,133.  An explanation of this$1,219,793 decrease is provided below under the five respective expensecategories.

 

**Servicetesting expenses**

** **

Service testing expensesincreased by $1,036,993 or 30% to $4,547,437 for 2006 as compared to $3,510,444in 2005.  During the 2006 financial year,the Company expanded its current product range whilst continuing the developmentof a range of new tests.  A major area ofimprovement has been the continued development of our Laboratory InformationManagement System (“LIMS”).  The cost ofmaintaining and developing the LIMS is necessary to ensure the accuracy,integrity and confidentiality of the genetic tests performed by theCompany.  The LIMS also enables thereporting of results to be securely and accurately maintained moreefficiently.  A further service testingexpense incurred during the year related to our successful accreditation by theNational Association of Testing Authorities, Australia (“NATA”).  The attainment of this further accreditation,although relatively costly, enables the Company to offer an increased number oftests to the public.  These additionalcosts should lay the foundation for the further expansion of our genetictesting business.  The business ofgenetic testing is still in its relative infancy and the creation of thisvaluable infrastructure should ensure that we maintain our position at the forefrontof a developing industry.  The increasein testing revenues during the year has also resulted in a modest increase ingeneral laboratory supply costs.

 

**Researchand development expenses**

** **

Research and development increased by$984,872 or approximately 53% to $2,815,804 in 2006 from $1,830,932 in2005.  During the 2006 financial year,the Company continued to fund its five principal research and developmentprojects and to incur additional expenditure in an effort to accelerate thecommercialization of its RareCellect and ImmunAid projects, in particular.

 

**Patentand license fees**

** **

Patent and license fees includesassociated license and legal fees. Patent and license fees decreased markedly by $3,194,272, or 69%, to $1,438,345 for 2006 as compared to $4,632,617 in 2005.  The significant decrease in fees incurredduring the 2006 financial year related almost solely to the reduction in legalfees paid by the Company in respect of its dispute with Applera Corporation,which was successfully settled in December 2005.

 

**Salesand marketing**

** **

Sales and marketing expense hasincreased by $276,310 or 48% to $846,808 for 2006 as compared to $570,498 in2005.  This increase is due to greaterlevels of marketing activity undertaken during the year to expand the Company’sgenetic testing business generally and to promote the services offered by theCompany through attendances at various industry and trade shows.

 

**Generaland administrative expenses**

** **

General and administrative expenses fellby $323,696 or 12% to $2,273,946 for 2006 as compared to $2,597,642 in2005.  General and administrativeexpenses continue to be incurred in line with normal operating parameters, withthe modest decrease reflecting certain expense reallocations, principally tosales and marketing, and other general efficiencies generated during the year.

 

49

----

 

**Interestincome**

 

Interest income has increased by$117,517 or 24% to $601,803 for 2006 as compared to $484,286 in 2005.  This additional interest income is dueprincipally to the higher average balances in the Company’s cash and cashequivalents held by the Company during the 2006 financial year and a generalincrease in interest rates applicable to the Company’s deposits.

 

**Interestexpense**

** **

Interestexpense increased by $31,566 or 100% to $63,316 for 2006 as compared to $31,750in 2005.  This interest expense wasincurred in relation to the hire purchase agreements entered into by theCompany part way through the 2005 financial year to finance the purchase ofcertain items of office and laboratory equipment.

 

**Netprofit on sale of assets**

** **

In 2005, the Company generated a netprofit of $97,809 from the sale-and-hire-back of certain items of laboratoryequipment to the National Australia Bank Limited as part of its hire purchasearrangements.  No such profit was madeduring the 2006 year, however a gain of $1,735 was generated from the sale ofother assets.

 

**Netforeign exchange gains (losses)**

** **

Foreign exchange gains of $92,403 wereincurred during 2006 as compared to losses of $140,861 in 2005.  The foreign exchange gains were primarily dueto changes in the value of the Australian dollar as compared to the US dollarwhich had a  positive impact on our cashdeposits in US dollars.

 

**Taxes**

 

Taxesreduced by $127,690 or 65% to $67,649 in 2006 as compared to $195,339 in2005.  This decrease is largelyattributable to movements in the Australian dollar / US dollar exchange ratewhich reduced the balance of the withholding tax payable in respect of the USlicensing revenue generated by the granting of the license to companiesresident in the US.

 

**Item 5.B         Liquidityand Capital Resources**

** **

**Summary**

** **

Our overall cash position depends on numerous factors, including thesuccess of licensing our non-coding patents, the numbers of genetic testsprocessed by our laboratory, completion of our product research and developmentactivities, ability to commercialize our products, market acceptance of ourproducts and services and how we choose to commercially exploit our technology**.**  We expect to devoteadditional capital resources to the expansion of our licensing program on aworldwide basis, continue our research and development programs with a view tocommercializing our technology in our target markets, hire and  train additional staff, expand our researchand development activities and acquire or make investments in businesses thatare complementary to our existing business. Each of these activities will inevitably involve the outflow of cashreserves.

 

During the years ended June 30, 2005, 2006 and 2007, we haveincurred net losses of $5,742,949, $4,020,323 and $1,412,789, respectively.  We anticipate incurring additional costs overat least the next several years as we expand our research and developmentactivities and conduct further trials of our technology.  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 business.

 

Since inception, our operations have been financed primarily fromcapital contributions by our stockholders, licensing and service testingrevenues, grants, and interest earned on cash and cash equivalents.

 

We believe that our cash and cash equivalents of approximately $10.6million as of June 30, 2007, will provide us with sufficient capital tofund a base level of operations for the next two years as from that date.  During this period, we expect to be able to continue toadequately fund our research and development activities, licensing program,product development and commercialization efforts and other operations.  Further, as these activities continue toexpand, we anticipate that the revenues generated should assist the Companyachieve a cash break even result from operations, thereby extending the Company’sbase level of operations.

 

Our net cash provided by/(used in) operating activities was$(5,004,130), $(4,536,415) and $1,866,327 for the years ended June 30,2005, 2006 and 2007, respectively. Importantly, the Company generated positive cash flows from operationsfor the first time in 2007.  Cash used inoperating activities for each period consisted primarily of losses incurred inoperations reduced by depreciation and amortization expenses, exchangemovements and unrealized profits and losses relating to investments.  In approximate order of magnitude, cashoutflows typically consist of staff-related costs, service testing expenses,general and administrative expenses, research and development costs andlegal/patent fees.

 

50

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Our net cash provided by/(used in) investing activities was $(19,276),$(116,047) and $139,668 for the years ended June 30, 2005, 2006 and 2007,respectively.  Typically, cash used ininvesting activities related to the acquisition of laboratory equipment.  During the 2005 financial year, theestablishment of the equipment finance facility described below reduced cashoutflows for that year and future years. In addition, the agreement reached with Applera Corporation in December 2005has provided us with significant credits for laboratory equipment and reagentsproduced by that company.

 

Our net cash provided by /(used in) financing activities was$10,067,926, $(337,042) and $(396,944) for the years ended June 30, 2005,2006 and 2007, respectively.  The vastmajority of these funds were received from the issue of Ordinary Shares in theCompany, either as part of a direct placement of Shares (as during the yearended June 30, 2004) or as the result of the exercise of options (asduring the year ended June 30, 2005). During 2006 and 2007, the cash flows used in financing activities weresolely attributable to the repayment of hire purchase principal.

 

Apart from the purchase of laboratory equipment of$467,689 in 2005, $119,388 in 2006 and $134,750 in 2007, we had no materialcapital expenditures for the years ended June 30, 2005, 2006 and2007.  During the year ended June 30,2005, we also acquired further laboratory equipment costing approximately$540,000, the majority of which was subsequently sold and hired-back under theequipment hire purchase facility detailed below.

 

On January 14, 2005, the Companyexecuted a Master Asset Finance Agreement with National Australia Bank Limited inrespect of a $2,122,750 (AUD2.5 million) asset hire purchase facility (the “Facility”).  As at the date of this Annual Report, the Company had financed the acquisition of laboratory equipment underthe Facility with a total value of $1,386,468 (AUD1,632,868).  It is expected that other purchases oflaboratory equipment will be financed under this Facility in the future, to theextent that sufficient credit is available. The use of this Facility enables the Company to better match the cost ofthe equipment with the future revenues to be generated from it in acost-effective manner and minimizes the outflow of valuable cash.

 

The long-term loan of $594,370 (AUD700,000) as of June 30, 2007represents an unsecured, non-interest bearing loan from the AustralianCommonwealth Government received under the Research & DevelopmentStart Program.  The loan represents aportion of a grant received by the Company, which has been deferred inaccordance with the grant agreement.  Theloan will be repayable on or before January 15, 2009, if the Companycommercializes a product as a result of the research covered under thegrant.  If no product is commercialized,the Company will recognize grant revenue after January 15, 2009, when theloan is no longer repayable.  The costsassociated with the research have been expensed.

 

**Future Cash Needs**

 

We expect that operating expenses and, to a lesser extent, capitalexpenditures will be a material use of our cash resources in future.  As of June 30, 2007, we had cash andcash equivalents totaling approximately $10.6 million.  We believe that this working capital issufficient for our anticipated needs for the next two years as from thatdate.  We do not have any lines of creditapart from the equipment finance facility with National Australia Bank Limitedand a nominal credit card facility with St. George Bank Limited which, as of June 30,2007, had available credit of $93,401 (AUD110,000).  We anticipate generating additional cash infuture years from our licensing activities and the expansion of our service testingbusiness.

 

**Operating Leases**

 

We are obligated under various operating leases for periods expiringthrough 2011.  Payments undernon-cancelable operating lease arrangements for office premises and laboratoryfacilities expire on various dates through June 30, 2011, resulting in thelease commitments over that period which are stated in the following table.

 

The following is a schedule of future minimum leasepayments for operating leases that had initial or remaining non-cancellablelease terms in excess of one year as of June 30, 2007:

 
| **Year  ending,**            |   |    |      |
|------------------------------|--------|---------|-----------|
|                         |   |    |      |
| 2008                         |   | $       | 355,074   |   |
| 2009                         |   | 370,197 |      |
| 2010                         |   | 370,197 |      |
| 2011                         |   | 370,197 |      |
| Total minimum lease payments |   | $       | 1,465,665 |   |

 

Rent expensetotaling $351,822, $298,457 and $293,100 for the years ended June 30,2007, 2006 and 2005, respectively, was paid to Bankberg Pty. Ltd.

 

51

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The following is a schedule of future minimum hire purchase payments forequipment finance that had initial or remaining non-cancelable lease terms inexcess of one year as of June 30, 2007:

 
| Minimum hire purchase payments                                           |   |    |    |
|--------------------------------------------------------------------------|--------|---------|---------|
| Year ending 2008                                                         |   | $       | 421,726 |   |
| Year ending 2009                                                         |   | 42,009  |    |
| Total minimum hire purchase payments                                     |   | $       | 463,735 |   |
| Less: future finance charges                                             |   | (18,835 | )       |
| Aggregate hire purchase expenditure contracted for as at reporting  date |   | $       | 444,900 |   |
|                                                                     |   |    |    |   |
| Aggregate expenditure commitments comprise:                              |   |    |    |
| Current liability                                                        |   | $       | 405,011 |   |
| Non-current liability                                                    |   | 39,889  |    |
| Total expenditure commitments                                            |   | $       | 444,900 |   |

 

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

 

Our principal business is biotechnology,with the emphasis on genomics and genetics, the licensing of the non-codingpatents, reduction to practice of our fetal cell patents and expansion of therelated service testing business.

 

The following table details historicR&D expenditure by project.  Allprojects are described at Item 4.B above.

 
| ** **                          | ** ** | **2007**       | ** ** | **2006**       | ** ** | **2005**       | ** ** |
|-------------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|
| ** **                          | ** ** | **$ (a)** | ** ** | **$ (b)** | ** ** | **$ (c)** | ** ** |
| RareCellect                         |       | $              | 853,962    |           | $          | 891,841        |       | $ | 540,050 |   |
| ImmunAid                            |       | 332,573        |       | 211,456        |       | 203,792        |       |
| Pathogens                           |       | 321,375        |       | 134,333        |       | 141,069        |       |
| Genomic Matching Technique (note 1) |       | 1,956,425      |       | 1,232,535      |       | 689,940        |       |
| Addictive States (note 2)           |       | 41,164         |       | 189,304        |       | 96,754         |       |
| Other general R&D               |       | 331,084        |       | 156,335        |       | 159,327        |       |
| Total R&D expense               |       | $              | 3,836,583  |           | $          | 2,815,804      |       | $ | 1,830,932 |   |
| Other expenditure                   |       | 9,152,636      |       | 9,106,536      |       | 11,311,201     |       |
| Total expenditure                   |       | $              | 12,989,219 |           | $          | 11,922,340     |       | $ | 13,142,133 |   |
| R&D as a % of total expenditure |       | 30             | %          | 24             | %          | 14             | %          |

 

----

| (a)  Converted at AUD1.00=$0.7899 |
|----------------------------------------|
| (b)  Converted at AUD1.00=$0.7475 |
| (c)  Converted at AUD1.00=$0.7564 |

 

Notes:    1.  The figure for 2007 of $1,956,425 includes animpairment loss of $908,416.

 

2.  The addictive states project was terminatedduring the 2007 fiscal year.

 

Due tothe 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**

 

**The Direction of GeneticResearch**

 

Following upon the original non-codinginventions made by GeneType AG and the publication and dissemination of thiswork in the early 1990’s, research groups world-wide increasingly have soughtto investigate and, if possible, establish non-coding associations in a greatnumber of diseases which were hitherto unexplained.  In 2002, Nature Publishing Group produced asummary of some 284 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.

 

52

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All of these projects dependsignificantly on the basic inventions owned by our Company.  It remains our corporate objective toencourage all such research which we expect will, in time, lead to a greatnumber of new commercial licensing opportunities for Genetic Technologies.  Such opportunities are also not limited tohuman applications, given the recent expansion of interest in the genetics of animals, plants and lower forms of life,including parasites and many organisms that contribute to either disease or torecuperative 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 they develop into commercial operations willdetermine the level of revenue in the future.

 

**The Direction ofGenetic Testing**

 

Further to the completed first phase ofthe Human Genome 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 riskfactors.  In addition, genetic testingwill be applied more and more to help identify specific animal and plant traitsthat are either desirable or undesirable, in order to help breeders betterselect their future seed stock.  Webelieve the demand for an expansion of genetic testing will grow substantiallyin the coming years.

 

**Item 5E**.         Off-balance sheet arrangements

** **

We haveno off-balance sheet arrangements that have or are reasonably likely to havecurrent or future effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources that are material to investors.

 

**Item 5F**.         Information about ContractualObligations

** **

Thetable below shows the contractual obligations and commercial commitments as at June 30,2007:

 
| ** **                                                                | ** ** | **0-1 year** | ** ** | **>1-<3  years** | ** ** | **>3-<5  years** | ** ** | **>5  years** | ** ** |
|---------------------------------------------------------------------------|------------|--------------|------------|------------------------|------------|------------------------|------------|------------------|------------|
| Minimum research and development payments                                 |       | $            | 1,550,922  |                   | $          | 1,168,827              |       | $                | —     |   | $ | — |   |
| Operating lease and hire purchase commitments                             |       | $            | 760,085    |                   | $          | 780,283                |       | $                | 370,197    |   | $ | — |   |
| Other long-term liabilities reflected on the Company’s balance sheet |       | $            | 42,860     |                   | $          | 594,370                |       | $                | —     |   | $ | — |   |

 

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

 

**Item 6.            Directors, Senior Management and Employees**

** **

**Item 6.A         Directorsand Senior Management**

** **

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

 

**Henry Bosch AO**, BA (Hons), MA *(Chairman)*

 

Mr. Bosch,76, was appointed to the Board on June 24, 2005 and was appointedNon-Executive Chairman of the Board on November 23, 2005.  He also serves as Chairman of the Company’sCorporate Governance Committee and as a member of its Audit Committee.  He is a former Chairman of the NationalCompanies and Securities Commission, the predecessor of the AustralianSecurities and Investments Commission, Australia’s principal corporateregulator.  He has also served asChairman of the Working Group on Corporate Practices and Conduct and Chairmanof the committee which produced the Australian Standard on corporategovernance.  He has been chairman, or adirector, of over thirty companies and other organisations operating in boththe government and private sectors.  Hehas served on a number of audit committees and is an Honorary Fellow of theInstitute of Internal Auditors.  Hisextensive business career has spanned the aluminium, steel, man-made fibers andplastics industries in Canada, UK and Australia and included the positions ofMarketing Director of John Lysaght (Australia) Ltd. and Managing Director ofNylex Corporation.  He was made an Officer of the Order of Australia in January 1991.

 

53

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** **

**MichaelB. Ohanessian**, BEng, MBA *(Chief Executive Officer)*

 

Mr. Ohanessian,43, was appointed as Chief Executive Officer of Genetic Technologies Limited onSeptember 24, 2007.  Prior tojoining the Company, he served for seven years as CEO of Vision Biosystems, adivision of former ASX-listed Vision Systems Limited.  During this period, Mr. Ohanessian led astrategic restructure of the Vision Biosystems business, involving theacquisition of a large UK-based reagents operation, and played a key part insuccessfully transforming it into a world leader in the immunohistochemistrymarket.  In late 2006, VisionBiosystems  was acquired by a competitorin a transaction which established an enterprise value for the business ofapproximately $600 million.  Prior to hisrole at Vision Biosystems, Mr. Ohanessian worked for the Boston ConsultingGroup where, over a period of four years, he gained considerable experience ina variety of industries, finally focusing on biotechnology.  Before that, he worked at Mobil Oil for nineyears after completing a Bachelor of Engineering degree with honors at theUniversity of Melbourne.  He also holdsan MBA from Melbourne Business School and serves on the Company’s CorporateGovernance Committee.

 

**Fred Bart**, *(Non-Executive)*

 

Mr. Bart, 52, has been involved inthe textile industry for the last 25 years as well as being a significantinvestor in the resource and property sectors in Australia and overseas.  He brings to the Company extensive commercialexperience from his involvement in the manufacturing and textileindustries.  He is also Chairman ofElectro Optic Systems Holdings Limited and Global Properties Limited and is amember of the Australian Institute of Company Directors. He was appointed tothe Board on 26 October 1996 and alsoserves as a Director of the Company’s Canadian-listed subsidiary, GtechInternational Resources Limited.

 

**David Carruthers**, BCom, CA, CFTP (Snr), MAICD Dip  *(Non-Executive)*

 

Mr. Carruthers, 59, was appointed to the Board on February 26,2007 and serves as Chairman of the Company’s Audit Committee.  He has acted as Chief Financial Officer of BPFinance for the global operations based in London and as the European RegionalChief Executive Officer based in Brussels. On returning to Australia, he was Managing Director of TreasuryCorporation of Victoria and coordinated the management of $29 billion ofprivatization proceeds.  More recently, Mr. Carruthershas provided advisory services in financial risk management to clients in theAsia-Pacific region and is currently Head of Corporate Finance, TristarCorporate Advisors and Chief Financial Officer, Olympus Funds Management.  He also serves as a Non-Executive Directorand Audit Committee Chairman for Ceramic Fuel Cells Ltd. and as a Non-ExecutiveDirector for India Equities Fund Limited, both ASX-listed companies.

 

**John S. Dawkins AO**, Dip Ag, BEc*(Non-Executive)*

 

Mr. Dawkins,60, was appointed to the Board on November 24, 2004 and serves on both theCorporate Governance and Audit Committees. Mr. Dawkins holds degrees in Agriculture from Roseworthy College and Economics from theUniversity of Western Australia and, for 18 years, served in the AustralianHouse of Representatives for the Australian Labor Party.  Between 1983 and 1993, he served in the Hawkeand Keating Governments as Finance Minister, Trade Minister, EmploymentEducation and Training Minister and finally Treasurer.  He serves and has served on the Boards ofseveral companies including Chairman of Elders Rural Bank and Retail EnergyMarket Company.  He has consulted to avariety of international organisations including The World Bank Group, theOECD, UNDP, and UNESCO.  He is a Patronof the Menzies School of Health Research and for three years was Treasurer ofthe International Agency for the Prevention of Blindness and for nine years amember of the Board of the Fred Hollows Foundation.  He was made an Officer of the Order ofAustralia in June 2000 and awarded the Centenary Medal in January 2000.

 

**Dr. Mervyn Jacobson**, MBBS *(Non-Executive)*

 

Dr. Jacobson, 65, is a legally qualified Medical Practitioner and,until September 24, 2007, served as the Company’s Chief ExecutiveOfficer.  He has more than 35 yearsexperience in developing new medical technology and in bringing new medical andbiomedical goods and services to the market, working with biotechnologyenterprises in Australia, UK, Switzerland, USA, Canada, Mexico and China.  In 1989, he co-founded GeneType AG, theresearch start-up that subsequently led to the formation of Genetic Technologies Limited.  In 2000, he was appointed by the Governor ofColorado to the Governor’s Advisory Council in Biotechnology.  He wasalso a founding Director of the Colorado Biotechnology Association and XY, Inc.,a biotechnology company in Colorado.  In June 2004,Dr. Jacobson was appointed Chief Technology Officer of the ScientificAdvisory Board of the China National Animal Breeding Stock Export/ImportCorporation Limited (CABS) in Tianjin, China. He was appointed to the Company’s Board of Directors in May 2000,and served as its Executive Chairman from August 2000 until November 2005.  He also serves on the Company’s Corporate Governance Committee andis Chairman of its Canadian-listed subsidiary, Gtech International ResourcesLimited.  Dr. Jacobson is also a memberof the Australian Institute of Company Directors.

 

Duringthe 2007 year, Prof. Deon Venter served as a Director until his resignation on August 23,2006 and Mr. Robert Edge also served as a Director until his retirement onNovember 17, 2006.

 

54

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**SeniorManagement**

 

We have a professional team of qualifiedand experienced research and development scientists and technicians.  The Companycurrently employees 52 people, of which five have PhD qualifications.

 

The members of Senior Management, and abrief summary of their relevant experience, is as follows:

 

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

 

Mr. Howitt, 43, was appointed asthe group’s first full-time Chief Financial Officer on 1 June 2004 and asCompany Secretary on 30 June 2005. During his 20 year career, he has served as CFO and Company Secretaryfor a number of companies, listed on both the ASX and foreign stockexchanges.  His wide experience coversall facets of financial management and control across a variety of industries,including resources and technology (domestic and international), having beeninstrumental in the successful development, patenting and commercialisation ofseveral innovative technologies.  He hasplayed key roles in the raising of bank debt and equity capital and themanagement of complex due diligence programs and has worked as a seniorTaxation Consultant for Ernst & Young and in the investment bankingindustry.  He also serves as President of the Company’s Canadian-listed subsidiary,Gtech International Resources Limited.

 

**Dr. Gary S. Cobon**, BSc, PhD *(Chief Scientific Officer)*

 

Dr. Cobon, 57, was appointedas Chief Scientific Officer in November 2005 and is a biochemist with morethan 25 years experience managing commercially oriented research anddevelopment projects in the biotechnology area. He was with Biotech Australia for 15 years as Senior Project Managerresponsible for the development of innovative recombinant products to themarketplace including TickGARD.  He wassubsequently Adjunct Professor, Biological Sciences Macquarie University,responsible for managing the major university spin-off companies.  Concurrently, he was CEO of the AustralianProteome Analysis Facility where he obtained Major National Research Facilitygrants for AUD19.25 million.  In additionto understanding the technical issues required for such projects, he hasexpertise in the evaluation of academic project proposals for commercial application,management of collaborative commercially focused projects, intellectualproperty management, regulatory affairs required for the manufacture, qualitycontrol and registration of novel products and adopting lateral approaches tomarket new products and concepts.

 

**W. Ian Smith**, BEc *(General Manager - DNAProfiling)*

 

Mr. Smith,44, was appointed General Manager - DNA Profiling in 2005 after six years asthe Company’s Financial Controller. Prior to joining the Company, he had an extensive career in corporatebanking, having worked for National Australia Bank Corporate Banking Divisionand, later, as a domestic money market dealer. Subsequently, a move to Barclays Bank Australia Limited as CorporateBanking Manager saw him focus on new business development and management ofmedium-to-large corporate customers. Prior to joining Genetic Technologies, he was involved in the customerretention and acquisition of high net wealth individuals as a Manager ofCorporate Banking for the State Bank of NSW. While at Genetic Technologies, he has overseen the merger andintegration of a number of acquisitions.

 

**Jonathan S. Whitty**, BSc, GradDip Genetic Counseling*(General Manager - Medical Diagnostics)*

 

Mr. Whitty,32, was appointed General Manager - Medical Diagnostics in April 2007after working in business development for the division since July 2004.  He has previously worked for five years inMolecular Pathology at the Peter MacCallum Cancer Institute where, ascoordinator of molecular testing for gastrointestinal disease, he gainedextensive experience and technical knowledge in diagnostic laboratoryoperations.  Subsequently trained inGenetic Counseling and employed by Genetic Health Services Victoria in thedivision of Rural & Regional services, he has broad experience in thesocial and ethical aspects of clinical genetics services.  Having served as Secretary of the HumanGenetics Society of Australasia - Victorian Branch from 2004 to 2006, and as acurrent member of the Hereditary Bowel Cancer Group in Victoria, he hasin-depth knowledge of genetic testing policy in Australia.

 

**M. Luisa Ashdown**, MSc *(General Manager -Licensing)*

 

Ms. Ashdown,51, is a Senior Scientist and currently serves as the Company’s General Manager- Licensing.  She has extensive experiencegained in over 20 years combined employment at Royal Women’s Hospital and RoyalMelbourne Hospital and at Genetic Technologies. Areas of expertise include molecular genetics, immunology, tissuetyping, DNA profiling and now intellectual property management.  After joining the Company in 1989, she wasresponsible for building the laboratory’s capability and managing the DNAservice testing including fulfilling government statutory regulatoryrequirements.  In addition to Laboratory Manager, she wasResearch Project Manager, author on various company publications and a Directorof several subsidiary companies. In addition to managing its licensing activities, she is currentlyactively contributing to the Company’s business development and research activities.

 

55

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

 

Mrs. Barclay,40, was appointed as General Manager - Human Resources in December 2007.  During her 20 year career, she has served ina variety of management roles, including managing human resources, customerservice and accounting support functions, in both Australia and NewZealand.  Her experience covers allaspects of human resources including organizational development, employee andindustrial relations, change management and development and implementation ofhuman resources policies and processes. She has been responsible from a human resources perspective foracquisitions and divestitures and has played a key role in developing corporateHR strategy whilst working for AXA Asia Pacific Holdings Ltd.

 

**Scientific Advisors**

 

Itis vital to the success of a company seeking to commercialize research, such asGenetic Technologies, to have access to pre-eminent scientists to advise andcritically review its research projects and the progress it makes overtime.  As such, in August 2003, weestablished an outstanding Scientific Advisory Committee, consisting ofindependent scientists with expertise and reputations for excellence in theirrespective fields of endeavor that complement the major projects beingundertaken by the Company.  However,due to external time commitments of the members, we decided during 2007 todisband the formal Committee and, instead, avail ourselves of the services ofeach former Committee member on an “as needs” basis.  We believe that this approach will provideall concerned with a more efficient use of everyone’s available time.

 

**Item 6.B         Compensation**

 

Details of the nature and amount of eachmajor element of the compensation of each director of the Company and each ofthe named officers of the Company and its subsidiaries, for services in allcapacities to us during fiscal year 2007 are listed below.  All figures are stated in Australian dollars(AUD).

 
| ** **                                               | ** ** | **Short-term  Salary/fees** | ** ** | **Post-employment  Superannuation** | ** ** | **Long-term  Long service   leave** | ** ** | **Share-based  Options** | ** ** | **Totals** | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|--------------------------|------------|------------|------------|
| **Name and title of Director**                           | ** ** | **AUD**                     | ** ** | **AUD**                             | ** ** | **AUD**                             | ** ** | **AUD**                  | ** ** | **AUD**    | ** ** |
|                                                     |       |                        |       |                                |       |                                |       |                     |       |       |       |
| Henry Bosch AO  Non-Executive Chairman                   |       | 90,000                      |       | —                              |       | —                              |       | 74,025                   |       | 164,025    |       |
|                                                     |       |                        |       |                                |       |                                |       |                     |       |       |       |
| Dr. Mervyn Jacobson (note)  Chief Executive Officer |       | 300,000                     |       | —                              |       | —                              |       | —                   |       | 300,000    |       |
|                                                     |       |                        |       |                                |       |                                |       |                     |       |       |       |
| Fred Bart  Non-Executive Director                        |       | 30,000                      |       | 2,700                               |       | —                              |       | —                   |       | 32,700     |       |
|                                                     |       |                        |       |                                |       |                                |       |                     |       |       |       |
| John S. Dawkins AO  Non-Executive Director               |       | 30,000                      |       | 2,700                               |       | —                              |       | 74,025                   |       | 106,725    |       |
|                                                     |       |                        |       |                                |       |                                |       |                     |       |       |       |
| David Carruthers (note)  Non-Executive Director          |       | —                      |       | 18,795                              |       | —                              |       | —                   |       | 18,795     |       |
|                                                     |       |                        |       |                                |       |                                |       |                     |       |       |       |
| Robert J. Edge (note)  Non-Executive Director            |       | 11,414                      |       | 1,027                               |       | —                              |       | —                   |       | 12,441     |       |
|                                                     |       |                        |       |                                |       |                                |       |                     |       |       |       |
| Prof. Deon J. Venter (note)  Executive Director          |       | 17,500                      |       | 399                                 |       | —                              |       | —                   |       | 17,899     |       |
|                                                     |       |                        |       |                                |       |                                |       |                     |       |       |       |
| Sub-totals for Directors                                 |       | 478,914                     |       | 25,621                              |       | —                              |       | 148,050                  |       | 652,585    |       |

 

56

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| ** **                                                                | ** ** | **Short-term  Salary/fees** | ** ** | **Post-employment  Superannuation** | ** ** | **Long-term  Long service  leave** | ** ** | **Share-based  Options** | ** ** | **Totals** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|------------------------------------|------------|--------------------------|------------|------------|------------|
| **Name and title of Executive**                                           | ** ** | **AUD**                     | ** ** | **AUD**                             | ** ** | **AUD**                            | ** ** | **AUD**                  | ** ** | **AUD**    | ** ** |
| ** **                                                                | ** ** | ** **                  | ** ** | ** **                          | ** ** | ** **                         | ** ** | ** **               | ** ** | ** ** | ** ** |
| Thomas G. Howitt  Chief Financial Officer and Company Secretary           |       | 190,000                     |       | 17,100                              |       | 3,881                              |       | 35,050                   |       | 246,031    |       |
|                                                                      |       |                        |       |                                |       |                               |       |                     |       |       |       |
| Geoffrey E. Newing (note)  Chief Operating Officer                        |       | 275,833                     |       | 16,630                              |       | —                             |       | —                   |       | 292,463    |       |
|                                                                      |       |                        |       |                                |       |                               |       |                     |       |       |       |
| Dr. Gary Cobon  Chief Scientific Officer                             |       | 93,741                 |       | 80,659                              |       | 877                                |       | 50,512                   |       | 225,789    |       |
|                                                                      |       |                        |       |                                |       |                               |       |                     |       |       |       |
| Ian N. Christensen (note)  Group General Manager -  Intellectual Property |       | 23,358                      |       | 1,380                               |       | —                             |       | —                   |       | 24,738     |       |
|                                                                      |       |                        |       |                                |       |                               |       |                     |       |       |       |
| Sub-totals for Executives                                                 |       | 582,932                     |       | 115,769                             |       | 4,758                              |       | 85,562                   |       | 789,021    |       |
|                                                                      |       |                        |       |                                |       |                               |       |                     |       |       |       |
| Total remuneration of Directors and Executives                            |       | 1,061,846                   |       | 141,390                             |       | 4,758                              |       | 233,612                  |       | 1,441,606  |       |

 

Notes:            Dr. Jacobson serves as the Company’s CEO.  His remuneration is included under theheading of Directors.

 

Mr. Carrutherswas appointed as a Director of the Company on February 26, 2007.

 

Mr. Edge retired as a Director of the Company on November 17,2006.

 

Prof. Venter resigned as a Director of the Company on August 23,2006.

 

Mr. Newingwas appointed as Chief Operating Officer on August 24, 2006 and resignedon July 1, 2007.  The salaries andfees paid to Mr. Newing of $275,833 include a termination payment of$87,500.

 

Mr. Christensen resigned as Group General Manager -Intellectual Property on 12 August 2006.

 

Executive officers are those officerswho were involved during the year in the strategic direction, generalmanagement or control of the business at a company or operating division levelwho received the 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 with their respective levelsof experience and responsibility.

 

**Options**

 

We introduced a Staff Share Plan on November 30,2001.  The Plan establishes the eligibilityof our employees and those of any subsidiaries, and of consultants andindependent contractors to a participating company who are declared by theBoard to be eligible, to participate.  Broadlyspeaking, the Plan permits us, at the discretion of the Board, to issuetraditional options (with an exercise price). The Plan conforms with the IFSA Executive Share and Option SchemeGuidelines and, where participation is to be made available to staff who resideoutside Australia, there may have to be modifications to the terms of grant tomeet or better comply with local laws or practice.

 

**Indemnification andInsurance with Respect to Directors**

 

We are obligated pursuant to anindemnity agreement, to indemnify the current Directors and executive officersand former Directors against all liabilities to third parties that may arisefrom their position as Directors or officers of the Company and oursubsidiairies, except where to do so would be prohibited by law.  Under the terms of this agreement, we areobligated to meet the full amount of any such liabilities, including costs andexpenses.  In connection with theGeneType AG acquisition, Fred Bart and Ian Dennis provided counter-indemnitiesto us and to GeneType AG shareholders in respect of the existence of undisclosedliabilities as at May 15, 2000.  These counter-indemnities lapsed on May 15,2005.

 

In addition, we currently carryinsurance in respect of Directors’ and officers’ liabilities for current andformer Directors, Company Secretary and executive officers or employees.

 

57

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**Item 6.C         BoardPractices**

** **

**The Board 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)                  Reviewing and makingrecommendations in remuneration packages and policies applicable to directors,senior executives and consultants.

 

(b)                 Nomination of externalauditors and reviewing the adequacy of external audit arrangements.

 

(c)                  Establishing the overallinternal control framework over financial reporting, quality and integrity ofpersonnel and investment appraisal.  Inestablishing an appropriate framework, the board recognized that no cost effectiveinternal control systems will preclude all errors and irregularities.

 

(d)                 Establishing andmaintaining appropriate ethical standards in dealings with business associates,suppliers, advisers and regulators, competitors, the community and otheremployees.

 

(e)                  Identifying areas ofsignificant business risk and implementing corrective action as soon aspracticable after a risk is identified.

 

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

 

The Board meets to discuss businessregularly throughout the year, with additional meetings being held whencircumstances warrant.  Included in thetable below are details of the meetings of the Board and the committees of theBoard that were held during the 2007 financial year.

 
| ** **               | ** ** | ** **                    | ** ** | **Committees  of the Board** | ** ** |
|--------------------------|------------|-------------------------------|------------|------------------------------|------------|
| ** **               | ** ** | **Directors’  meetings** | ** ** | **Audit**                    | ** ** | **Corporate  Governance** | ** ** |
| ** **               | ** ** | **Eligible**                  | ** ** | **Attended**                 | ** ** | **Eligible** | ** ** | **Attended** | ** ** | **Eligible** | ** ** | **Attended** | ** ** |
| ** **               | ** ** | ** **                    | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Henry Bosch AO           |       | 12                            |       | 12                           |       | 10 |   | 10 |   | 3 |   | 3 |   |
| Dr. Mervyn Jacobson |       | 12                            |       | 12                           |       | — |   | — |   | 3 |   | 2 |   |
| Fred Bart                |       | 12                            |       | 12                           |       | — |   | — |   | — |   | — |   |
| David Carruthers         |       | 5                             |       | 5                            |       | 2 |   | 2 |   | — |   | — |   |
| John S. Dawkins AO       |       | 12                            |       | 11                           |       | 10 |   | 10 |   | 3 |   | 2 |   |
| Robert J. Edge           |       | 4                             |       | 4                            |       | 2 |   | 2 |   | 2 |   | 2 |   |
| Prof. Deon J. Venter     |       | 1                             |       | 1                            |       | — |   | — |   | — |   | — |   |

 

Notes:            During the year ended 30 June 2007, a total of fourUnanimous Consent Resolutions of the Directors were also passed.

 

Mr. Carrutherswas appointed as a Director of the Company on 26 February 2007.

 

Prof.Venter resigned as a Director of the Company on 23 August 2006.

 

Mr. Edgeretired as a Director of the Company on 17 November 2006.

 

Inaccordance with the charter, the auditor attended 3 meetings of the AuditCommittee at the Committee’s request.

 

**Committees of the Board**

 

The Board has established an Audit Committee whichoperates under a specific Charter approved by the Board.  It is the Board’s responsibility to ensurethat an effective internal control framework exists within the entity.  This includes internal controls to deal withboth the effectiveness and efficiency of significant business processes, thesafeguarding of assets, the maintenance of proper accounting records, and thereliability of financial information as well as non-financial considerationssuch as the benchmarking of operational key performance indicators.

 

The Board has delegated the responsibility for theestablishment and maintenance of a framework of internal control and ethicalstandards for the management of the Group to the Audit Committee.  The Audit Committee also provides the Boardwith assurance regarding the reliability of financial information for inclusionin the financial reports.  All members ofthe Audit Committee are independent Non-Executive Directors.

 

58

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

 

David Carruthers *(Chairman)*

**Henry Bosch AO

John S. Dawkins AO

 

During the 2005 financial year, the Board established aNomination and Remuneration Committee, which meets at least three timesannually to ensure that the Board continues to operate within the establishedguidelines including selecting candidates for the position of Director.  During the 2006 financial year, the role ofthe Committee was expanded to include matters related to the Company’sCorporate Governance affairs and its name changed to the Corporate GovernanceCommittee to reflect that additional role. The members of the Committee have the right to appoint an independentconsultant to attend meetings of the Committee, as appropriate.

 

As of the date of this Statement, the members of theCorporate Governance Committee were:

 

HenryBosch AO *(Chairman)*

JohnS. Dawkins AO

 Dr. Mervyn Jacobson

MichaelB. Ohanessian

 

**Compliance with NASDAQ Rules**

 

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

 

Majorityof Independent Directors:  We followhome country practice 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. Our Board of Directors is not currently comprised of a majority ofindependent directors, a practice which is not prohibited  by the laws of Australia.  The ASX does not have a requirement that eachissuer’s Board be comprised of a majority of independent directors.  Furthermore, no law, rule or regulationof the Australian Securities and Investments Commission (“ASIC”), the publicauthority which exercises securities law jurisdiction over the Company, hassuch a requirement nor does the Corporations Act (the “Act”), which is theapplicable corporate law legislation.

 

Compensationof Officers:  We follow homecountry practice rather than NASDAQ’s requirement in Marketplace Rule 4350(c)(3) thatchief executive compensation be determined or recommended to the Board by themajority of independent 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 and it is not comprised of amajority of independent directors.  TheASX does not have a requirement that each listed issuer have a remunerationcommittee or otherwise follow the procedures embodied in NASDAQ’s MarketplaceRule.  Furthermore, no law, rule orregulation of the 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 thanNASDAQ’s requirement in Marketplace Rule 4350(c)(4) that director nomineesbe selected or recommended by a majority of the independent directors or by anominations committee comprised of independent directors.  These decisions are made by the nominationand remuneration committee and it is not comprised of a majority of independentdirectors.  The ASX does not have arequirement that each listed issuer have a nominations committee or otherwisefollow the procedures embodied in NASDAQ’s Marketplace Rule.  Furthermore, no law, rule or regulationof ASIC has such a requirement nor does the applicable corporate lawlegislation.  Accordingly, selections orrecommendations of director nominees by a committee that is notcomprised of a majority of directors that are not independent is not prohibitedby the laws of Australia.

 

Quorum:  We follow home country practice rather thanNASDAQ’s requirement in Marketplace Rule 4350(f) that each issuerprovide for a quorum of at least 33 1/3 percent of the outstanding shares ofthe issuer’s ordinary stock (voting stock). Pursuant to our Constitution we are currently required to have a quorumfor a general meeting of three persons holding at least 10% of our OrdinaryShares.  The practice followed by us isnot prohibited by Australian law.

 

**Item 6.D         Employees**

** **

The Company currently employees 52people, including executive Directors. The number of employees as at the end of each respective financial yearended June 30 are as follows:

 
| 2007 | 54 |
|------|----|
| 2006 | 49 |
| 2005 | 49 |

** **

59

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**Item 6.E         ShareOwnership**

** **

The relevant interest of each directorin the share capital of the Company as notified by the directors to theAustralian Securities Exchange in accordance with section 205G(1) of theCorporations Act 2001 as of December 13, 2007 is as follows:

 
| **Director**             | ** ** | **Ordinary shares** | ** ** | **Percentage of Capital held** | ** ** |
|--------------------------|------------|---------------------|------------|--------------------------------|------------|
| ** **               | ** ** | ** **          | ** ** | ** **                     | ** ** |
| Henry Bosch AO           |       | 245,406             |       | 0.07                           | %          |
| Michael B. Ohanessian    |       | —              |       | N/A                            |       |
| Fred Bart (note)         |       | 25,918,214          |       | 7.15                           | %          |
| David Carruthers         |       | 150,000             |       | 0.04                           | %          |
| John S. Dawkins AO       |       | —              |       | N/A                            |       |
| Dr. Mervyn Jacobson |       | 150,931,900         |       | 41.65                          | %          |

 

Note:      Mr. Bartalso controls 88,500 ordinary shares in Gtech International Resources Limited.

 

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

 

**Item 7.            Major Shareholders and Related PartyTransactions**

 

**Item 7.A         MajorShareholders**

** **

The table below sets forth thebeneficial owners of 5% or more of our voting securities as of December 13,2007:

 
| **Name**                 | ** ** | **Number of Ordinary Shares held** | ** ** | **Percentage of Capital held** | ** ** |
|--------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------|------------|
|                     |       |                                                   |       |                                          |       |
| Dr. Mervyn Jacobson |       | 150,931,900                                            | (a)        | 41.65                                         | %          |
| Mr. Fred Bart       |       | 25,918,214                                             | (b)        | 7.15                                          | %          |

 

----

(a)                                  includes shares held by MervynJacobson ApS and JGT ApS.

 

(b)                                 shares registered in the name ofSecurity & Equity Resources Limited.

 

The number of Ordinary Shares onissue in Genetic Technologies as of the date of this Annual Report was362,389,899.  The number of holders ofOrdinary Shares in Genetic Technologies as of the date of this Annual Reportwas approximately 3,280.

 

The Company is not aware of any director indirect ownership or control of it by another corporation(s), by anyforeign government or by any other natural or legal person(s) severally orjointly.  Principal shareholders do notenjoy any special or different voting rights from those to which other holdersof Ordinary Shares are entitled.

 

The Company does not know of anyarrangements, the operation of which may result in a change in control of theCompany.

 

**Item 7.B         RelatedParty Transactions**

 
| ** **                                                                                                                                                                                                                                                                                                                          | ** ** | **Years ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                          | ** ** | **2007**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| 4F Investments Pty. Ltd.  is associated with Mr. Fred Bart (director in common) and provided  management services to the Company at a cost of                                                                                                                                                                                  |       | $—                       |       | $— |   | $27,231 |   |
| Bankberg Pty. Ltd. is  associated with the Company’s Chief Executive Officer, Dr. Mervyn  Jacobson (director in common), and provided the office and laboratory  premises in Fitzroy to GeneType Pty. Ltd., a wholly-owned subsidiary. During  the respective periods, GeneType Pty. Ltd. paid Bankberg Pty. Ltd. rent of |       | $351,822                      |       | $298,457 |   | $293,100 |   |

 

Asstated in the 2006 Financial Statements, the Company formerly held a total of30,189 ordinary shares in XY, Inc. (at that time a director-relatedentity) representing approximately 0.42% of the issued ordinary shares of XY, Inc.  On May 15, 2007, the Company sold all ofits shares in XY, Inc.  The totalproceeds received from the sale were $274,418. The former CEO of the Company was also the former CEO and Chairman of XY, Inc.

 

Premises previously leased by theCompany are subleased to director-related entities.  Rental recoveries are netted against rentexpenses in the consolidated statement of operations.  Total rental recoveries received by theCompany from its director-related entities during the 2007 and 2006 yearstotaled $nil (2005: $46,053, 2004: $56,271, 2003: $30,995, 2002: $3,173; and2001: $nil).

 

All transactions with directorsare undertaken on normal commercial terms and conditions.  Allmanagement fees were disclosed as general and administrative expenses in therespective years.

 

60

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**Item 7.C         Interestsof Experts and Counsel**

 

Not applicable.

 

**Item 8.            Financial Information**

** **

**Item 8.A         ConsolidatedStatements and Other Financial Information**

** **

The information included in Item 18 ofthis Annual Report is referred to and incorporated by reference into this Item8.A.

 

**Item 8.B         Litigationand Other Legal Proceedings**

** **

**GEHealthcare Bio-Sciences Corp.**

 

On November 9,2006, GE Healthcare Bio-Sciences Corp. (“GE”) took action against the Company,seeking a declaration of non-infringement and invalidity of U.S. Patent Nos.5,612,179 and 5,851,762.  GE did notserve the Complaint until March 2, 2007. Since that time, the parties have been discussing possible resolution ofthe issues that gave rise to the Complaint.

 

Theparties have agreed to engage in mediation through use of Judicial Arbitrationand Mediation Services (“JAMS”), and have agreed to procedures that will beused in the mediation proceeding. Further, the parties have recently appointed Mr. David Geronemus asmediator and confirm that the expedited mediation is scheduled to occur on December 12,2007 (US time).  The Company believesthere is a reasonable chance that the dispute will be resolved through thismediation process.

 

Ifthe dispute is not resolved amicably, the Company will pursue all remediesavailable through the Federal Court system. At this point, no investigation has been conducted to determine theviability or strength of any such avenue of resolution and no analysis has beenconducted as to the strength or viability of the parties’ respective positionsin this dispute.

 

**Bioscentia Institut fur Medizinische Diagnostik GmbH**

 

Anullification action was filed in the German Federal Patent Court for GermanPatent No. 69029018.7, assigned to the Company, in the name of BioscentiaInstitut fur Medizinische Diagnostik GmbH of Ingelheim.  Dr. Christof Keussen of Glawe Delfs Mollin Hamburg has been engaged by the Company to defend the action.

 

Wedo not express an opinion as to the probable outcome of any of the pending orthreatened litigation or disputes referred to above or to estimate thepotential amount or range of any loss, but do not believe any amounts to bematerial to the Company.

 

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

 

**Item 8.C         Dividends**

** **

Until our businesses are profitablebeyond our expected research and development needs, our Directors will not beable to 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 operation of our business.

 

**Item 8.D         Significant Changes**

 

On March 8, 2007, the Companyannounced that the Australian Securities and Investments Commission (“ASIC”)had sought information from the Company regarding certain past trading in itsshares.  The Company has cooperated fullywith ASIC.  The Company later clarifiedto the Market that, whilst the information being sought by ASIC did not relateto any suspected wrongdoing by the Company itself, it did relate to theactivities of certain individuals who were Executives of the Company at thetime.  As at the date of this Report, theCompany understands that the investigation is continuing but it is not awarewhether any further action will be taken by ASIC in relation to this matter.

 

Since June 30, 2007, there has notbeen any matter or circumstance, other than as referred to elsewhere in thisAnnual Report, the Financial Statements or thenotes thereto, that has arisen that has significantly affected, or maysignificantly affect our operations, results of those operations or the stateof our affairs in future years.

 

61

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**Item 9.            TheOffer and Listing**

 

**Item 9.A         Offerand Listing Details**

** **

The Company’s Ordinary Shares werelisted on the Australian Securities Exchange Limited (the “ASX”) in July 1987(under the name of Concord Mining NL). In August 2000, the Company acquired GeneType AG and, as a result,changed its activities from mining to biotechnology.  The following table sets forth, for theperiods indicated, the highest and lowest market quotations for the OrdinaryShares reported on the Daily Official List of the ASX since that acquisition.

 
| **Financial Year** | ** ** | **Period Covered**                     | ** ** | **High**         | ** ** | **Low**    | ** ** |
|--------------------|------------|----------------------------------------|------------|------------------|------------|------------|------------|
| ** **         | ** ** | ** **                             | ** ** | **(in AUD0.00)** | ** ** |
| ** **         | ** ** | ** **                             | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Yearly data**    | ** ** | ** **                             | ** ** | ** **       | ** ** | ** ** | ** ** |
| 2003               |       | Year ended June 30,  2003         |       | 0.53             |       | 0.18       |       |
| 2004               |       | Year ended June 30,  2004         |       | 0.87             |       | 0.34       |       |
| 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       |       |
|               |       |                                   |       |             |       |       |       |
| **Quarterly data** | ** ** | ** **                             | ** ** | ** **       | ** ** | ** ** | ** ** |
| 2006               |       | Quarter ended  September 30, 2005 |       | 0.49             |       | 0.335      |       |
|               |       | Quarter ended  December 31, 2005  |       | 0.595            |       | 0.38       |       |
|               |       | Quarter ended  March 31, 2006     |       | 0.435            |       | 0.34       |       |
|               |       | Quarter ended  June 30, 2006      |       | 0.38             |       | 0.315      |       |
|               |       |                                   |       |             |       |       |       |
| 2007               |       | Quarter ended  September 30, 2006 |       | 0.37             |       | 0.33       |       |
|               |       | Quarter ended  December 31, 2006  |       | 0.42             |       | 0.31       |       |
|               |       | Quarter ended  March 31, 2007     |       | 0.  35           |       | 0.14       |       |
|               |       | Quarter ended  June 30, 2007      |       | 0.30             |       | 0.12       |       |
|               |       |                                   |       |             |       |       |       |
| **Monthly data**   | ** ** | ** **                             | ** ** | ** **       | ** ** | ** ** | ** ** |
| 2007 and 2008      |       | Month ended June 30,  2007        |       | 0.195            |       | 0.12       |       |
|               |       | Month ended July 31,  2007        |       | 0.185            |       | 0.135      |       |
|               |       | Month ended  August 31, 2007      |       | 0.17             |       | 0.13       |       |
|               |       | Month ended  September 30, 2007   |       | 0.17             |       | 0.13       |       |
|               |       | Month ended  October 31, 2007     |       | 0.26             |       | 0.15       |       |
|               |       | Month ended  November 30, 2007    |       | 0.19             |       | 0.155      |       |

 

As of the date of this Annual Report, wehad 362,389,899 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 “AmericanDepositary Receipts” for a description of the rights attaching to the AmericanDepositary Shares.

 

The Company’s securities are also listedon NASDAQ Global Market (under the ticker GENE) in the form of American Depositary Shares.  Each AmericanDepositary Share evidences thirty Ordinary Shares.  Since listing on the NASDAQ Global Market on September 2, 2005, the ADRs have traded in a range from a lowof $3.50 to a high of $13.85.  The mostrecent sale of the ADRs occurred at a price of $4.59.

 

Following the listing of the Company’sADRs in September 2005, our Ordinary Shares are registered under Section 12of the Securities Exchange Act of 1934 and we file an Annual Report with theSecurities and Exchange Commission on Form 20-F.   As a foreign private issuer, we are not besubject to the proxy rules under Section 14 of the SecuritiesExchange Act of 1934, and our officers, Directors and principal stockholdersare not be subject to the insider short-swing profit disclosure and recoveryprovisions of Section 16 of that Act.

 

Starting in January 14, 2002, theADSs have traded 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 the National Quotations Bureau, Inc.  Commencing   on September 2, 2005, our ADSs were listed on the NASDAQ GlobalMarket under the ticker “GENE”.

 

The Company has registered one class ofAmerican Depositary Shares (ADSs) on Form F-6 pursuant to the U.S.Securities Act of 1933, as amended.  OneADS represents thirty Ordinary Shares without par value.  As of June 30, 2007, there were 266,440ADSs outstanding.

 

62

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The table below sets forth the high andlow sales prices for the ADSs during the periods indicated:

 
| **Financial Year** | ** ** | **Period Covered**                     | ** ** | **High**   | ** ** | **Low**        | *** *** |
|--------------------|------------|----------------------------------------|------------|------------|------------|----------------|--------------|
| ** **         | ** ** | ** **                             | ** ** | ** ** | ** ** | **(in $0.00)** | ** **   |
| **Yearly data**    | ** ** | ** **                             | ** ** | ** ** | ** ** | ** **     | ** **   |
| 2003               |       | Year ended June 30,  2003         |       | 4.26       |       | 4.26           |         |
| 2004               |       | Year ended June 30,  2004         |       | —     |       | —         |         |
| 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           |         |
|               |       |                                   |       |       |       |           |         |
| **Quarterly data** | ** ** | ** **                             | ** ** | ** ** | ** ** | ** **     | ** **   |
| 2006               |       | Quarter ended  September 30, 2005 |       | 13.15      |       | 9.00           |         |
|               |       | Quarter ended  December 31, 2005  |       | 13.85      |       | 8.00           |         |
|               |       | Quarter ended  March 31, 2006     |       | 11.40      |       | 7.34           |         |
|               |       | Quarter ended  June 30, 2006      |       | 10.00      |       | 7.25           |         |
|               |       |                                   |       |       |       |           |         |
| 2007               |       | Quarter ended  September 30, 2006 |       | 9.00       |       | 6.50           |         |
|               |       | Quarter ended  December 31, 2006  |       | 10.00      |       | 6.65           |         |
|               |       | Quarter ended  March 31, 2007     |       | 8.15       |       | 3.75           |         |
|               |       | Quarter ended  June 30, 2007      |       | 8.99       |       | 3.50           |         |
|               |       |                                   |       |       |       |           |         |
| **Monthly data**   | ** ** | ** **                             | ** ** | ** ** | ** ** | ** **     | ** **   |
| 2007 and 2008      |       | Month ended June 30,  2007        |       | 4.72       |       | 3.50           |         |
|               |       | Month ended July 31,  2007        |       | 4.29       |       | 3.55           |         |
|               |       | Month ended  August 31, 2007      |       | 4.02       |       | 3.55           |         |
|               |       | Month ended  September 30, 2007   |       | 4.10       |       | 3.55           |         |
|               |       | Month ended  October 31, 2007     |       | 5.21       |       | 3.75           |         |
|               |       | Month ended  November 30, 2007    |       | 5.00       |       | 3.90           |         |

 

As of June 30,2007, there was a total of 3,344 holders of our Ordinary Shares, of which21,400,369 shares (representing 5.9% of the total Ordinary Shares issued andoutstanding) were held by 51 U.S. residents (based solely on their address).  These figures do not include any OrdinaryShares which may held by U.S. residents in the form of American DepositaryReceipts (ADRs).

 

**Item 9.B         Planof Distribution**

** **

Not applicable.

 

**Item 9.C         Markets**

** **

Effective September 2, 2005, ourADSs were listed on the NASDAQ National Market under the ticker “GENE”.  Our Ordinary Shares are listed and trade onthe ASX under the code “GTG”.

 

**Item 9.D         SellingShareholders**

** **

Not applicable.

 

**Item 9.E         Dilution**

 

Not applicable.

 

**Item 9.F         Expensesof the Issue**

** **

Notapplicable.

 

**Item 10.            Additional Information**

** **

**Item 10.A      ShareCapital**

** **

As of June 30, 2007, we had a totalof 362,389,899 Ordinary Shares on issue. With the exception of 6,666,667 such Shares which were subject to a voluntary escrow arrangement, all of these OrdinaryShares were listed on the Australian Securities Exchange and were freely tradable.  As ofthe date of this Annual Report, we also had a total of 362,389,899 OrdinaryShares on issue.

 

63

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Based on our review ofshareholder records (based solely on the addresses), as of June 30, 2007there are 48 U.S. resident shareholders of our Ordinary Shares holding8,354,062 shares representing 2.3% of the total issued and outstanding OrdinaryShares.  Our Ordinary Shares do not havea par value.  These figures do notinclude any Ordinary Shares which may held by U.S. residents in the form ofAmerican Depositary Receipts (ADRs).

 

During the last four years, our capitalhas increased, in connection with acquisition transactions and the exercise ofoptions.  In 2001, we issued 9,754,080Ordinary Shares to owners of shares of Cytomation Inc. resulting in a total of257,793,804 Ordinary Shares being on issue as of June 30, 2001.  On July 30, 2001, we acquired the businessof DNA-Id Labs of Perth, Western Australia, by payment of consideration thatincluded 94,340 Ordinary Shares, with further consideration being paid on August 1,2002, following fulfillment of performance warranties.  On September 4, 2000, our shares weretransferred from the mining board of the ASX to the industrial board under thenew symbol of “GTG”.

 

Between July 1, 2001 and June 30,2003, we issued a total of 4,440,621 Ordinary Shares resulting from theexercise of vendor options, the exercise of options granted under the StaffShare Plan, a small placement for cash of 1,000,000 shares, two exchanges ofour shares for shares in XY, Inc., and the issuance of shares in lieu oflegal fees to our counsel, all of which resulted in 262,234,425 Ordinary Sharesbeing outstanding 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 atAUD0.75 each, raising AUD10,000,000.  Aspart of the placement, we also issued 6,666,667 options to the subscribers tothe placement with an exercise price of AUD1.00 on or before September 30,2005.

 

On June 15, 2004, we issued16,666,667 Ordinary Shares to the C.Y. O’Connor ERADE Village Foundation,  as considerationunder our licensing agreement with thatFoundation (see point 17).  During theyear ended June 30, 2005, we issued a further 65,561,338 Ordinary Shares resulting from the exercise of vendor options and asmall number 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 yearended June 30, 2007.

 

As of June 30, 2007, a total of4,050,000 options had been granted to Executives of the Company as part oftheir compensationarrangements.  Since that date, a further 5,950,602 optionshad been granted to Executives of the Company as part of their compensationarrangements and a total of 2,600,000options which had previously been granted to Executives were forfeited orexpired.  See Item 6B “Compensation” for a description of the terms of options granted asexecutive compensation.  See also Note 13to the Financial Statements for a description of other options granted by us.

 

As at June 30, 2007 and 2006, thefollowing outstanding unlisted options, together with their respective ASXcodes and expiry dates, were convertible into Ordinary Shares.  The exercise prices are quoted in Australiandollars.

 
| ** **                                | ** ** | **2007**   | ** ** | **Weighted ave.  exercise price** | ** ** | **2006**  | ** ** | **Weighted ave.  exercise price** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------------------------|------------|-----------|------------|-----------------------------------|------------|
| GTGAA (expiring  September 6, 2010)  |       | 750,000    |       | $                                 | 0.48       |      | 750,000    |                              | $          | 0.48 |   |
| GTGAB (expiring  September 7, 2007)  |       | 600,000    |       | $                                 | 0.70       |      | 600,000    |                              | $          | 0.70 |   |
| GTGAC (expiring  November 25, 2010)  |       | —     |       | —                            |       | 500,000   |       | $                                 | 0.48       |   |
| GTGAD (expiring  August 12, 2011)    |       | 850,000    |       | $                                 | 0.43       |      | 950,000    |                              | $          | 0.43 |   |
| GTGAE (expiring  August 12, 2011)    |       | 1,000,000  |       | $                                 | 0.53       |      | 1,000,000  |                              | $          | 0.53 |   |
| GTGAF (expiring  November 23, 2011)  |       | 1,000,000  |       | $                                 | 0.56       |      | 1,000,000  |                              | $          | 0.56 |   |
| GTGAG (expiring  February 1, 2012)   |       | 750,000    |       | $                                 | 0.46       |      | 750,000    |                              | $          | 0.46 |   |
| GTGAH (expiring  May 31, 2012)       |       | 700,000    |       | $                                 | 0.40       |      | 700,000    |                              | $          | 0.40 |   |
| GTGAI (expiring  November 30, 2007)  |       | 1,750,000  |       | $                                 | 0.56       |      | 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       |      | 2,500,000  |                              | $          | 0.61 |   |
| GTGAO (expiring  November 30, 2007)  |       | 802,500    |       | $                                 | 0.49       |      | 902,500    |                              | $          | 0.49 |   |
| GTGAP (expiring  May 20, 2009)       |       | —     |       | —                            |       | 1,000,000 |       | $                                 | 0.48       |   |
| GTGAQ (expiring  May 20, 2009)       |       | 700,000    |       | $                                 | 0.44       |      | 1,400,000  |                              | $          | 0.44 |   |
| GTGAS (expiring  May 20, 2009)       |       | 175,000    |       | $                                 | 0.38       |      | 175,000    |                              | $          | 0.38 |   |
| GTGAU (expiring  January 17, 2012)   |       | 200,000    |       | $                                 | 0.45       |      | 200,000    |                              | $          | 0.45 |   |
| GTGAZ (expiring  February 27, 2010)  |       | 200,000    |       | $                                 | 0.56       |      | 400,000    |                              | $          | 0.56 |   |
| GTGAZ (expiring  February 27, 2010)  |       | 400,000    |       | $                                 | 0.49       |      | 500,000    |                              | $          | 0.49 |   |
|                                      |       |       |       |                              |       |      |       |                              |       |
| Balance at the end of the  financial year |       | 12,577,500 |       | $                                 | 0.52       |      | 15,277,500 |                              | $          | 0.52 |   |

** **

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**Item 10.B      OurConstitution**

** **

At the AnnualGeneral Meeting of the Company held on November 23, 2005, the shareholdersresolved to replace the existing Constitution with a revised version.  A copy of the new Constitution has beenposted on the Company’s website: www.gtg.com.au.  Theprincipal changes which have been implemented in the new Constitution may besummarized as follows:

 

·                  General changes –general changes are proposed to make the Constitution consistent with bestpractice, update legal matters under the existing Constitution consistent withlegislative and regulatory developments and to address certain content andlanguage aspects.

 

·                  ASX Listing Rules –it provides that the Listing Rules prevail in the event of anyinconsistency.

 

·                  Shares – it allowsthe Directors to issue shares subject to the Corporations Act and the ListingRules.

 

·                  Proportionatetakeover power – the existing Constitution has a clause in it requiringshareholder approval to be obtained before any proportionate takeover ismade.  However, that clause isineffective because it needs to have been renewed at least every three years inaccordance with the requirements of the Corporations Act.  The new Constitution does not include thisclause on the basis that it offers no real benefit.

 

·                  Unmarketable parcels– the new Constitution permits the Company to sell holdings of less than amarketable parcel in accordance with the procedural and timing requirements ofthe Listing Rules.  This only applies ifa shareholder has an opportunity to opt out of any proposed sale arrangementand does not do so.

 

·                  Notice ofshareholders’ meetings – the new Constitution enables notice of shareholders’meetings to be given by electronic means.

 

·                  Changes to generalmeetings – the new Constitution enables the Directors to change the venue for,and postpone or cancel a general meeting if such meeting is unnecessary,in the interests of shareholders, if the venue would be unreasonable or impractical, orfor reasons of efficiency.  This does notapply in the event  of a meetingrequisitioned by shareholders.

 

·                  Quorum forshareholders’ meetings – a quorum of three shareholders represents a quorum forshareholders’ meetings, whether by way of being personally present, attorney,proxy or corporate representative.

 

·                  Casting vote – theChairman of a shareholders’ meeting does not have a casting vote.

 

·                  Number of Directors –it contemplates that the number of Directors need to be not less than three normore than the number determined by the Directors which, until otherwisedetermined, is ten.

 

·                  Share qualification –a Director need not hold any shares in the Company in order to be a Director.

 

·                  Alternate directors –there are no provisions entitling the Directors to appoint alternate directors,on the basis that this is an outdated and undesirable approach.

 

·                  Directors’ tenure ofoffice – a Director must retire from office or seek re-election by no laterthan the third Annual General Meeting following his or her appointment orre-election or three years, whichever is longer (other than the ManagingDirector).

 

·                  Vacation of office –the office of a Director is automatically vacated if the Director is anExecutive Director under an employment agreement and that agreement terminates,unless the Board otherwise determines.

 

·                  Powers of Directors –the Directors have a general power to manage the Company’s business.

 

·                  Meetings ofDirectors – the Directors may meet in person or by electronic means.

 

·                  Quorum for Directors’meetings – the quorum for Directors’ meetings is three, unless otherwisedetermined.

 

·                  Casting vote – theChairman has a casting vote at Directors’ meetings.

 

·                  Indemnity – the newConstitution contains an updated indemnity clause in favour of the current andformer Directors, Secretaries indemnifying them from liability consistent withthe Corporations Act provisions and to the maximum extent permitted by law.

 

·                  Insurance – theCompany must maintain and pay insurance premiums with respect to its currentand former Directors, Secretaries and other officers to the extent permitted bylaw.

 

·                  Access – current andformer Directors may access the financial and other records of the Company forthe purposes of legal proceedings involving the person.

 

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**Item 10.C         MaterialContracts**

** **

There were no material contracts enteredinto during the two years preceding the date of this Annual Report which wereoutside the ordinary course of business. See also Item 4B “Our Licenses and Commercial Collaborations”.

 

**Item 10.D      ExchangeControls and Other Limitations Affecting Security Holders**

** **

Under existing Australian legislation,the Reserve Bank of Australia does not inhibit the import and export of funds,and, generally, no permission is required tobe given to Genetic Technologies for the movement of funds in and out ofAustralia.  However, payments to or from (or relating to) Iraq, its agencies or nationals,the government or a public authority of Libya, or certain Libyan undertakings,the authorities in the Federal Republic of Yugoslavia (Serbia and Montenegro)or their agencies, the Taliban (also referred to as the Islamic Emirate ofAfghanistan), or the National  Union forthe Total Independence of Angola (also known as UNITA), its senior officials orthe adult members of their immediate families, may**notbe made without the specific approval of the Reserve Bank of Australia.

 

Accordingly, at the present time,remittances of any dividends, interest or other payment by Genetic Technologiesto non-resident holders of Genetic Technologies’ securities in the US are not,subject to the above, restricted by exchange controls or other limitations.

 

**Takeovers Act**

 

There are no limitations, either underthe laws of Australia or under the Company’s Constitution, to the right ofnon-residents to hold or vote Genetic Technologies Ordinary Shares other thanthe Commonwealth Foreign Acquisitions and Takeovers Act 1975 (the “TakeoversAct”).  The Takeovers Act may affect theright of non-Australian residents, including US residents, to hold OrdinaryShares but does not affect the right to vote, or any other rights associatedwith, any Ordinary 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 5.8% of the outstanding Ordinary Shares in theCompany were held by shareholders whose registered addresses were locatedoutside Australia.  In addition to theTakeovers Act, there are statutory limitationsin Australia on foreign ownership of certain businesses, such as banks andairlines, 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.

 

**Corporations Act 2001**

 

As applied to Genetic Technologies, theCorporations Act 2001 (the “Corporations Act 2001”) prohibits any legal person(including a corporation) from acquiring a relevant interest in Ordinary Sharesif after the acquisition that person or any other person’s voting power inGenetic Technologies increases from 20% or below to more than 20%, or from astarting point that is above 20% and below 90%.

 

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

 

In general terms, a person is consideredto have a “relevant interest” in a share in Genetic Technologies if that personis the holder of that share, has the power to exercise, or control the exerciseof, a right to vote attached to that share, or has the power to dispose of, orto control the exercise of a power to dispose of that share.

 

It does not matter how remote therelevant interest is or how it arises. The concepts of “power” and “control” are given wide and extendedmeanings in this context in order to deem certain persons to hold a relevantinterest.  For example, each person who has voting power above 20% in a company or a managed investmentscheme which in turn holds shares in Genetic Technologies is deemed to have a relevant interest in those Genetic Technologiesshares.  Certain situations (set out insection 609 of the Corporations Act 2001) which would otherwise constitute theholding of a relevant interest are excluded from the definition.

 

A person’s voting power in GeneticTechnologies is that percentage of the total votes attached to Ordinary Sharesin which that person and its associates (as defined in the Corporations Act2001) holds a relevant interest.

 

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**Item 10.E       Taxation**

 

This summaryof material tax consequences is based on the tax laws of theUnited 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 datehereof.  In addition, this summary isbased on the income tax convention between theUnited States and Australia (the “Treaty”). The foregoing laws and legal authorities as well as the Treaty  are subject to change (or changes ininterpretation), possibly with retroactive effect.  Finally, this summary is based in part upon therepresentations of our ADR Depositary and the assumption that each obligationin the Deposit Agreement and any related agreement will be performed inaccordance 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 toparticular investors in light of their individual investment circumstances orinvestors subject to special tax regimes, like broker-dealers,insurance companies, banks or other financial institutions, tax-exemptorganizations, regulated investment companies, real estate investment trusts orfinancial asset securitization investment trusts, persons who actually orconstructively own 10% or more of our ADRs or Ordinary Shares, persons who holdADRs or Ordinary Shares as part of a straddle, hedge, conversion orconstructive sale transaction or other integrated transaction, persons who haveelected mark-to-market accounting, U.S. holders whose functional currency isnot the U.S. dollar, U.S. expatriates, investors liable for the alternativeminimum tax, partnerships and other pass-through entities, or persons whoacquired their ADRs or Ordinary Shares through the exercise of options orsimilar derivative securities or otherwise as compensation.  Prospective investors are urged to consulttheir tax advisers regarding the U.S. and Australian federal, state and localtax consequences and any other tax consequences of owning and disposing of ADRsand 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 held bya U.S. holder will be treated for Australian taxation purposes as being held undera “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 person beneficiallyentitled to those dividends.  Therefore,in the following analysis, we discuss the tax consequences to non-Australianresident holders of Ordinary Shares which, for Australian taxation purposes,will be the same as to U.S. holders of ADRs.

 

**Taxation of Dividends**

 

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 or otherDispositions of Shares - Capital Gains Tax**

 

Non-Australian resident stockholders will not be subject to Australiancapital gains tax on the gain made on a sale or other disposal of our shares,unless they, together with their associates, hold 10% or more of our issuedcapital at any time during the five years before the disposal of theshares.  If a non-Australian residentstockholder did, together with his or her associates, own a 10% or moreinterest, that stockholder would be subject to Australian capital gains tax tothe same extent as Australian resident stockholders.  The Australian Taxation Office maintains theview that the Double Taxation Convention between the United States andAustralia does not limit Australian capital gains tax. Australian capital gainstax applies to net capital gains charged at a taxpayer’s marginal tax rate but,for certain stockholders, a discount of the capital gain may apply if theshares have 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.

 

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**Tax on Sales or otherDispositions 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 income provisions of theincome tax law, if the gains are sourced in Australia.  Non-Australian resident stockholders assessable under theseordinary income provisions in respect of gains made on shares held on revenueaccount would be assessed for those gains at the Australian tax rates fornon-Australian residents, which start at a marginal rate of 29%.  Some relief from the Australian income taxmay be available to non-Australian resident stockholders under the DoubleTaxation Convention between    the UnitedStates and Australia, for example, because the stockholder does not have apermanent establishment in Australia.

 

To theextent an amount would be included in a non-Australian resident stockholder’sassessable income under both the capital gains tax provisions and the ordinaryincome provisions, the capital gain amount would generally be reduced, so thatthe stockholder would not be subject to double tax on any part of the incomegain 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 specialist taxationadvice in these circumstances.

 

**Stamp Duty**

 

Any transferof shares through trading on the Australian Securities Exchange, whether byAustralian residents or foreign residents, is not subject to stamp duty withinAustralia.

 

**Australian Death Duty**

 

Australiadoes not have estate or death duties.  Nocapital gains tax liability is realized upon the inheritance of   a deceased person’s shares.  The subsequent disposal of inherited sharesby beneficiaries, may, however, give rise to a capital gains tax liability.

 

**Goods and ServicesTax**

 

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

 

**United States Federal Income Taxation**

 

As used below, a “U.S. holder”is a beneficial 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 the incomeof which is subject to U.S. federal income tax without regard to its source or (iv) atrust if (1) a court within the United States isable to exercise primary supervision over the administration of the trust, andone or more United States persons have the authority to control all substantialdecisions of the trust, or (2) the trust has a valid election in effectunder applicable U.S. Treasury Regulations to be treated as a United Statesperson.  For purposes of this discussion,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.

 

GIVENTHE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANYPARTICULAR INVESTOR MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN,PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECTTO THE SPECIFIC TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITIONOF ADRs, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S.TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS.

 

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TOENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE IRS UNDER TREASURY CIRCULAR230, WE INFORM YOU THAT (1) ANY DISCUSSION OF U.S. FEDERAL INCOME TAXISSUES CONTAINED HEREIN (INCLUDING ANY ATTACHMENTS), UNLESS OTHERWISESPECIFICALLY STATED, WAS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BEUSED, FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE UNITED STATES INTERNALREVENUE CODE, AND (2) EACH U.S. HOLDER SHOULD SEEK ADVICE BASED UPON THEIRPARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

 

**Nature of ADRs for U.S. FederalIncome Tax Purposes**

 

In general, for U.S. federal income tax purposes, aholder of an ADR will be treated as the owner of the underlying shares.  Accordingly, except as specifically notedbelow, the tax consequences discussed below with respect to ADRs will be thesame as for shares in the Company, and exchanges of shares for ADRs, and ADRs forshares, generally will not be subject to U.S. federal income tax.

 

**Taxation of 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 any dividend on an ADR (whichwill include the amount of any Australian taxes withheld) generally will besubject to U.S. federal income tax as foreign source dividend income, and willnot be eligible for the corporate dividends received deduction.  The amount of a dividend paid in Australiandollars will be its value in U.S. dollars based on the prevailing spot marketexchange rate in effect on the day the U.S. holder receives the dividend or, inthe case of a dividend received in respect of an ADR, on the date theDepositary receives it, whether or not the dividend is converted into U.S.dollars.  A U.S. holder will have a taxbasis in any distributed Australian dollars equal to its U.S. dollar amount onthe date of receipt, and any gain or loss realized on a subsequent conversionor other disposition of Australian dollars generally will be treated as U.S.source ordinary income or loss.  Ifdividends paid in Australian dollars are converted into U.S. dollars on thedate they are received by a U.S. holder, the U.S. holder generally should notbe required to recognize foreign currency gain or loss in respect of thedividend income.

 

Subject to certain exceptions for short-term andhedged positions, a dividend that a non-corporate holder receives on an ADR ina taxable year beginning before January 1, 2011 will be subject to amaximum tax rate of 15% if the dividend is a “qualified dividend.”  A dividend on an ADR will be a qualifieddividend if (i) either (a) the ADRs are readily tradable on anestablished market in the United States or (b) we are eligible for thebenefits of a comprehensive income tax treaty with the United States that the Secretary of the Treasury determines is satisfactory for purposes ofthese rules and that includes an exchange of information program, and (ii) we were not, in the year prior to the year the dividendwas paid, and are not, in the year the dividend is paid, a passive foreigninvestment company (“PFIC”).  The ADRsare listed on the Nasdaq Global Market, which should qualify them as readilytradable on an established securities market in the United States.  In any event, the Treaty satisfies therequirements of clause (i)(b), and we are a resident of Australia entitled tothe benefits of the Treaty.  Based on ouraudited financial statements and relevant market and shareholder data, webelieve we were not a PFIC for U.S. federal income tax purposes for our taxableyears ended June 30, 2006 and June 30, 2007, nor do we anticipatebeing classified as a PFIC in future taxable years.  However, asdescribed 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 that rule will applyfor purposes of determining whether an ADR is an interest  in a PFIC in the year a dividend is paid orin the prior year, even if we do not satisfy the tests to be a PFIC in eitherof those years.  Moreover, even if wehave not been a PFIC in any prior year and we are not currently a PFIC, becausethe composition of our income and assets will vary over time, there can be noassurance that we will not be considered a PFIC for any future taxableyear.  TheU.S. Treasury has announced its intention to promulgate rules pursuant towhich non-corporate holders of stock of non-U.S. corporations, andintermediaries though whom the stock is held, will be permitted to rely oncertifications from 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.

 

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Even if dividends on the ADRs would otherwise beeligible for qualified dividend treatment, in order to qualify for the reducedqualified dividend tax rates, a non-corporate holder must hold the ordinaryshare on which a dividend is paid for more than 60 days during the 120-dayperiod beginning 60 days before the ex-dividend date, disregarding for thispurpose any period during which the non-corporate holder has an option to sell,is under a contractual obligation to sell or has made (and not closed) a shortsale of substantially identical stock or securities, is the grantor of an optionto buy substantially identical stock or securities or, pursuant to Treasuryregulations, has diminished their risk of loss by holding one or more otherpositions with respect to substantially similar or related property. Inaddition, to qualify for the reduced qualified dividend tax rates, thenon-corporate holder must not be obligated to make related payments withrespect to positions in substantially similar or related property. Payments inlieu of dividends from short sales or other similar transactions will notqualify for the reduced qualified dividend tax rates. A non-corporate holderthat receives an extraordinary dividend eligible for the reduced qualifieddividend rates must treat any loss on the sale of the stock as a long-termcapital loss to the extent of the dividend. For purposes of determining theamount of a non-corporate holder’s deductible investment interest expense, adividend is treated as investment income only if the non-corporate holderelects to treat the dividend as not eligible for the reduced qualified dividendtax rates. Special limitations on foreign tax credits with respect to dividendssubject to the reduced qualified dividend tax rates apply to reflect thereduced rates of tax.

 

Non-corporate holders of ordinary shares are urgedto consult their own tax advisers regarding the availability of the reduced qualified dividend tax rates with respect to dividends receivedon the ADRs in the light of their own particular circumstances.

 

Any Australian withholding tax imposed on dividendsreceived with respect to the ADRs will be treated as a foreign income taxeligible for credit against a U.S. holder’s U.S. federal income tax liability,subject to generally applicable limitations under U.S. federal income tax law.For purposes of computing those limitations separately under current law forspecific categories of income, a dividend generally will constitute foreignsource “passive income” or, in the case of certain holders, “financial servicesincome” for purposes 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 servicesincome” generally will be treated as “general category income.”  A U.S. holder will be denied a foreign taxcredit with respect to Australian income tax withheld from dividends receivedwith respect to the ADRs to the extent the U.S. holder has not held the ADRsfor at least 16 days of the 30-day period beginning on the date which is 15days before the ex-dividend date or to the extent the U.S. holder is under anobligation to make related payments with respect to substantially similar orrelated property.  Any days during whicha U.S. holder has substantially diminished its riskof loss on the ADRs are not counted toward meeting the 16-day holding periodrequired by the statute. The rules relating tothe determination of the foreign tax credit are complex, and U.S. holders areurged to consult with their own tax advisersto determine whether and to what extent they will be entitled to foreign taxcredits as well as with respect to the determinationof the foreign tax credit limitation (including changes in the rules fortaxable years beginning after December 31, 2006). Alternatively, any Australian withholding tax may be taken as a deduction againsttaxable income, provided the U.S. holder takes a deduction and not a credit forall foreign income taxes paid or accrued in the same taxable year. In general,special rules will apply to the calculation of foreign tax credits inrespect of dividend income that is subject to preferential rates of U.S.federal income tax.

 

**Non-U.S. holders****.**  A dividendpaid to a non-U.S. holder of an ADR will not be subject to U.S. federal incometax unless the dividend is effectively connected with the conduct of trade orbusiness by the non-U.S. holder within the United States (and is attributableto a permanent establishment or fixed base the non-U.S. holder maintains in theUnited States if an applicable income tax treaty so requires as a condition forthe non-U.S. holder to be subject to U.S. taxation on a net income basis onincome from the ADR).  A non-U.S. holdergenerally will be subject to tax on an effectively connected dividend in thesame manner as a U.S. holder.  Acorporate non-U.S. holder under certain circumstances may also be subject to anadditional “branch profits tax,” the rate of which may be reduced pursuant toan applicable income tax treaty.

 

**Taxation of Capital Gains**

 

**U.S. holders.**  Subject to the passiveforeign investment company rules discussed below, on a sale or othertaxable disposition of an ADR, a U.S. holder will recognize capital gain orloss in an amount equal to the difference between the U.S. holder’s adjustedbasis in the ADR and the amount realized on the sale or other disposition, eachdetermined in U.S. dollars.  Such capitalgain or loss will be long-term capital gain or loss if at the time of the saleor other taxable disposition 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 issubject to a maximum tax rate of 15%.  Inlater years, the maximum tax rate on the net capital gain of an individual willbe 20%.  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.

 

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Any gain a U.S. holder recognizes generally will beU.S. source income for U.S. foreign tax credit purposes, and, subject tocertain exceptions, any loss will generally be a U.S. source loss. If anAustralian tax is paid on a sale or other disposition of an ADR, the amountrealized will include the gross amount of the proceeds of that sale ordisposition before deduction of the Australian tax. The generally applicablelimitations under U.S. federal income tax law on crediting foreign income taxesmay preclude a U.S. holder from obtaining a foreign tax credit for anyAustralian 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 the sale or other disposition of anADR may be taken as a deduction against taxable income, provided the U.S.holder takes a deduction and not a credit for all foreign income taxes paid oraccrued in the same taxable year.

 

**Non-U.S. holders****.**  A non-U.S.holder will not be subject to U.S. federal income tax ongain recognized on a sale or other disposition of an ADR unless (i) thegain is effectively connected with the conduct of trade or business by thenon-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 subjectunder certain circumstances to an additional “branch profits tax,” the rate ofwhich may be reduced pursuant to an applicable income tax treaty.

 

**Passive Foreign Investment Company Rules**

 

A special set of U.S. federal income tax rules appliesto a foreign corporation that is a PFIC for U.S. federal income taxpurposes.  As noted above, based on our audited financial statements and relevant market and shareholderdata, we believe we were not a PFIC for U.S. federal income tax purposes forour taxable years ended June 30, 2006 and June 30, 2007, nor do weanticipate being classified as a PFIC in future taxable years.

 

In general, a foreign corporation is a PFIC if atleast 75% of its gross income for the taxable year is passive income or if atleast 50% of its assets for the taxable year produce passive income or are heldfor the production of passive income.  Ingeneral, passive income for this purpose means, with certain designatedexceptions, dividends, interest, rents, royalties (other than certain rents androyalties derived in the active conduct of trade or business), annuities, netgains from dispositions of certain assets, net foreign currency gains, incomeequivalent to interest, income from notional principal contracts and paymentsin lieu of dividends.  The determinationof whether a foreign corporation is a PFIC is a factual determination madeannually and is therefore subject to change. Subject to exceptions pursuant to certain elections that generallyrequire the payment of tax, once stock in a foreign corporation is stock in aPFIC in the hands of a particular shareholder that is a United States person, itremains stock in a PFIC in the hands of that shareholder.

 

If we are treated as a PFIC, contrary to the taxconsequences described in “U.S. federal Income Tax Considerations—Taxation ofDividends” and “—U.S. federal Income Tax Considerations—Taxation of CapitalGains” above, a U.S. holder that does not make an election described in thesucceeding two paragraphs would be subject to special rules with respectto (i) any gain realized on a sale or other disposition of an ADR (forpurposes of these rules, a disposition of an ADR includes many transactions onwhich gain or loss is not realized under general U.S. federal income tax rules)and (ii) any “excess distribution” by the Company to the U.S. holder(generally, any distribution during a taxable year in which distributions tothe U.S. holder on the ADR exceed 125% of the average annual taxabledistributions (whether actual or constructive and whether or not out ofearnings and profits) the U.S. holder received on the ADR during the precedingthree taxable years or, if shorter, the U.S. holder’s holding period for theADR).

 

Under those rules, (i) the gain or excessdistribution would be allocated ratably over the U.S. holder’s holding periodfor the ADR, (ii) the amount allocated to the taxable year in which thegain or excess distribution is realized would be taxable as ordinary income inits entirety and not as capital gain, would be ineligible for the reducedqualified dividend rates, and could not be offset by any deductions or losses,and (iii) the amount allocated to each prior year, with certainexceptions, would be subject to tax at the highest tax rate in effect for thatyear, and the interest charge generally applicable to underpayments of taxwould be imposed in respect of the tax attributable to each of thoseyears.  A U.S. holder who owns an ADRduring any year we are a PFIC may have to file IRS Form 8621.

 

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The special PFIC rules described above will notapply to a U.S. holder if the U.S. holder makes a timely election, whichremains in effect, to treat the Company as a “qualified electing fund” (“QEF”)in the first taxable year in which the U.S. holder owns an ADR and the Companyis a PFIC and if the Company complies with certain reporting requirements.  Instead, a shareholder of a QEF generally iscurrently taxable on a pro rata share of the Company’s ordinary earnings andnet capital gain as ordinary income and long-term capital gain,respectively.  Neither that ordinaryincome nor any actual dividend from the Company would qualify for the 15%maximum tax rate on dividends described above if the Company is a PFIC in thetaxable year the ordinary income is realized or the dividend is paid or in thepreceding taxable year.  We have not yetdetermined whether, if we are a PFIC, we would make the computations necessaryto supply U.S. holders with the information needed to report income and gainpursuant to a QEF election.  It is,therefore, possible that U.S. holders would not be able to make or retain thatelection in any year we are a PFIC. Although a QEF election generally cannot be revoked, if a U.S. holdermade a timely QEF election for the first taxable year it owned an ADR and theCompany is a PFIC (or is treated as having done so pursuant to any of certainelections), the QEF election will not apply during any later taxable year inwhich the Company does not satisfy the tests to be a PFIC.  If a QEF election is not made in that firsttaxable year, an election in a later year generally will require the payment oftax and interest.

 

In lieu of a QEF election, a U.S. holder of stock ina PFIC that is considered marketable stock could elect to mark the stock tomarket annually, recognizing as ordinary income or loss each year an amountequal to the difference as of the close of the taxable year between the fairmarket value of the stock and the U.S. holder’s adjusted basis in thestock.  Losses would be allowed only tothe extent of net mark-to-market gain previously included in income 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-market election may beavailable to U.S. holders of ADRs because the ADRs are listed on the NasdaqGlobal Market, which constitutes a qualified exchange, although there can be noassurance that the ADRs will be “regularly traded” for purposes of themark-to-market election.

 

Given the complexities of the PFIC rules and theirpotentially adverse tax consequences, U.S. holders of ADRs are urged  to consult their own tax advisers about thePFIC rules, including the consequences to them of making a QEF election or amark-to-market election with respect to the ordinary shares in the event thatthe Company is classified as a PFIC for any taxable year.

 

**Information Reporting and Backup Withholding**

 

Dividendspaid on, and proceeds from the sale or other disposition of, an ADR to aU.S. holder generally may be subject to information reporting requirements andmay be subject to backup withholding at the rate of 28% unless the U.S. holderprovides an accurate taxpayer identification number orotherwise establishes an exemption.  Theamount of any backup withholding collected from a payment to a U.S. holder willbe allowed as a credit against the U.S. holder’s U.S. federal income taxliability and may entitle the U.S. holder to a refund, provided certainrequired 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.

 

**THEDISCUSSION ABOVE IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAXCONSIDERATIONS APPLICABLE TO AN INVESTMENT IN ADRs.  HOLDERS AND POTENTIAL HOLDERS ARE URGED TOCONSULT THEIR OWN TAX ADVISERS CONCERNING THE TAX CONSEQUENCES RELEVANT TO  THEM IN THEIR PARTICULAR SITUATION.**

 

**Item 10.F       Dividendsand Paying Agents**

 

No dividends have been paid by theCompany or recommended by the directors since the end of the previous financialyear.

 

**Item 10.G      Statementby Experts**

** **

Not applicable.

 

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**Item 10.H      Documents on Display**

 

The documents concerning the Companywhich are referred 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.gtg.com.au.  Informationon our website, and websites linked to it, do not constitute a part of thisAnnual Report.

 

**Item 10.I        SubsidiaryInformation**

** **

The following is a list of the Company’ssubsidiaries as at the date of this Annual Report:

 
| GeneType AG                                 |   | Switzerland         |   | 100  | % |
|---------------------------------------------|--------|---------------------|--------|------|---|
| GeneType Corporation                        |   | California,  U.S.A. |   | 100  | % |
| GeneType Pty. Ltd.                          |   | Australia           |   | 100  | % |
| Genetic Technologies  Corporation Pty. Ltd. |   | Australia           |   | 100  | % |
| RareCellect Pty. Ltd.                       |   | Australia           |   | 100  | % |
| ImmunAid Pty. Ltd.                          |   | Australia           |   | 68.2 | % |
| Gtech International  Resources Limited      |   | Canada              |   | 75.8 | % |
| AgGenomics Pty. Ltd.                        |   | Australia           |   | 50.1 | % |

 

On June 30,2006, two of the Company’s former subsidiaries, Silbase Scientific ServicesPty. Ltd. and Simons GeneType Diagnostics Pty. Ltd. ceased operations.  On July 15, 2007, formal advice wasreceived advising that both companies had been deregistered.  As part of this transaction, the shares inGenetic Technologies Corporation Pty. Ltd. that were previously owned by SimonsGeneType Diagnostics Pty. Ltd. were transferred to Genetic TechnologiesLimited.  The shares were transferred atcost.

 

**Item 11.         Quantitative And Qualitative Disclosures About Market Risk**

** **

Genetic Technologies has exposure tochanges in foreign currency exchange rates and interest rates.

 

We invest excess cash ininterest-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, foreigncurrency exchange rates, commodity prices, equity prices or other marketchanges that affect market risk sensitive instruments.  Since we invest in locationsoutside Australia, we are subject to certain cross-border risks.

 

We operate in Australia, and we will besubject to certain 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 rate relationships between theAustralian dollar and the U.S. dollar.  Asignificant amount of our license revenue is denominated in U.S. dollars.

 

Credit risk represents the accountingloss that would be recognized at the reporting date if counterparties failedcompletely to perform as contracted. Concentrations of credit risk (whether on or off-balance sheet) thatarise from financial instruments exist for groups of customers orcounterparties when they have similar economic characteristics that would causetheir ability to meet contractual obligations to be similarly affected bychanges in economic or other conditions. Financial instruments on the balance sheet that potentially subject theCompany to concentration of credit risk consist principally of cash and cashequivalents and trade accounts receivable. The Company places its cash and cash equivalents with qualityinstitutions holding superior credit ratings in order to limit the degree ofcredit exposure.  The Company hasestablished guidelines relative to credit ratings, diversification andmaturities that seek to maintain safety and liquidity.  The Company does not require collateral toprovide credit.  In addition, themajority of the Company’s licensing customers are large, reputableorganizations, which also reduces the risk of credit exposure.  The Company has not entered into anytransactions that would qualify as a financial derivative instrument.

 

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At June 30, 2007, one customer accounted for 29%($134,786) of accounts receivable, which related to the licensing segment inAustralia, and one customer accounted for 14% ($64,404) of accounts receivable,which related to the testing segment in Australia.  At June 30, 2006, one customer accountedfor 72% ($637,934) of accounts receivable, which related to the licensingsegment in Australia.

 

At June 30, 2007, one supplier accounted for 23%($301,402) of accounts payable, which related to the licensing segment inAustralia.  At June 30, 2006, onesupplier accounted for 10% ($102,969) of accounts payable, which related to thetesting segment in Australia.

 

In 2007, one customer accounted for 41%($4,656,508) of the Company’s revenue. In 2006, one customer accounted for 38% ($2,788,232) of the Company’srevenue.  In 2005, one customer accountedfor 46% ($3,782,000) of the Company’s revenue.    All revenues attributable to thesecustomers relate to the licensing segment in Australia.

 

Export sales, mainly to the USA, were $8,914,261,$4,864,001 and $4,560,862 in 2007, 2006 and 2005, respectively.

 

**Item 12.         Description Of Securities Other Than Equity Securities**

** **

**Item 12.A      DebtSecurities**

** **

Not applicable.

 

**Item 12.B      Warrantsand Rights**

** **

Not applicable.

 

**Item 12.C      OtherSecurities**

** **

Not applicable

 

**Item 12.D      AmericanDepositary Shares**

** **

Not applicable.

 

**PART II**

 

**Item 13.         Defaults, Dividend Arrearages and Delinquencies**

** **

Notapplicable.

 

**Item 14.         Material Modifications to The Rights Of Security Holders andUse Of Proceeds**

** **

Notapplicable.

 

**Item 15.         Controls and Procedures**

 

**Item 15A.      Controlsand Procedures**

 

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in the reports that we file or submitunder the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in the rules and forms of theSecurities and Exchange Commission. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed inour reports filed or submitted under the Securities Exchange Act of 1934 isaccumulated and communicated to management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regardingrequired disclosure.

 

OurManagement, under the supervision and with the participation of our Chief Executive Officer and ChiefFinancial Officer, have evaluated the effectiveness of our disclosurecontrols and procedures as of June 30, 2007 and, based on that evaluation,our Chief ExecutiveOfficer and Chief Financial Officer have concluded that suchdisclosure controls and procedures were effective as of such date.

 

**Item15****B.      Management’sannual report on internal control over financial reporting**

 

Not applicable.

 

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**Item15****C.      Attestationreport of the registered public accounting firm**

 

Not applicable.

 

**Item15****D.      Changes ininternal control over financial reporting**

 

Inconnection with the audits of our fiscal yearsended June 30, 2007, 2006 and 2005, Ernst & Young, theCompany’s independent registered public accounting firm, informed our AuditCommittee that they consider that the following matters represent materialweaknesses in the operation of our internal control over financial reporting:

 

·                  The financial statement close process and knowledge of USGAAP; and

 

·                  Adequate segregation of duties which are incompatiblewith effective control.

 

Inorder to address any potential weaknesses in our knowledge of US GAAP, oursenior finance staff are committed to attending targeted US GAAP and SECreporting courses and subscribing to additional information publications andupdates of SEC and US GAAP releases and rule changes and of informationabout the requirements of the Public Company Accounting Oversight Board.  Our CFO has also recently become an International Associate of the AmericanInstitute of Certified Public Accountants (AICPA) which will assist him inkeeping abreast of technical accounting developments in the US.  We will also consider mitigating anyweakness by conferring and/or hiring outside accounting advisers with respectto the technical requirements applicable to our financial statements.

 

OurManagement and Audit Committee continually assess the level of segregation ofduties existing within the financial reporting function and are committed tosegregating duties where practically possible. Given the number of staff employed in our finance department it issometimes not practicable to segregate all duties.

 

**Item15****E.       Limitationson the effectiveness of controls**

 

OurManagement, including our Chief Executive Officer and Chief Financial Officer, does not expectthat our disclosure controls and procedures or our internal control overfinancial reporting will assure that all appropriate information will, in fact,be communicated to management to allow timely decisions to be made or preventall error and fraud.  A control system,no matter 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 all controlsystems, no evaluation of controls can provide absolute assurance that allcontrol 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 16A.      Audit Committee Financial Expert**

 

Followingthe resignation of Mr. Robert Edge at the 2006 Annual General Meeting, wedid not have an audit committee financial expert within themeaning of the Sarbanes-Oxley Act and related regulations.  However, on February 26, 2007, weappointed Mr. David Carruthers as a Non-Executive Director who replaced Mr. Edgeas Chairman of the Company’s Audit Committee and who we believe qualifies as afinancial expert within the meaning of the Sarbanes-Oxley Act and related regulations.

 

**Item 16B.      Code Of Ethics**

** **

We have adopted a Code of Ethics (styled Code ofConduct) that applies to all of our Directors employees, including ourprincipal executive officer, principal financial officer, principal accountingofficer or controller.  The Code  can be downloaded at our website(www.gtg.com.au).  Additionally, anyperson, upon request, can ask for a hard copy or electronic file of such Code. If we make any substantive amendment to the Code of Ethics or grant anywaivers, including any implicit waiver, from a provision of the Code of Ethics,we will disclose the nature of such amendment or waiver on our website.  During the year ended June 30, 2007, nosuch amendment was made or waiver granted. Our Board of Directors is responsible for the corporate governance ofthe consolidated entity and guides and monitors the business and affairs of Genetic Technologies Limited on behalf ofthe shareholders by whom they are elected and to whom they are accountable.  We are required to publish a CorporateGovernance Statement annually that accords with the introduction last year ofthe Australian Securities Exchange Corporate Governance Council’s (the “Council’s”)“Principles of Good Corporate Governance and Best Practice Recommendations”.  In accordance with the Council’srecommendations, the Corporate Governance Statement must now contain certainspecific information and must disclose the extent to which we have followed theguidelines during the period.  Where arecommendation has not been followed, that fact must be disclosed, togetherwith the reasons for the departure.  TheCompany’s Corporate Governance Statement is now structured with reference tothe Corporate Governance Council’s principles and recommendations.  Below is an extract from the Company’s mostrecent Corporate Governance Statement:

 

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As at the date of this Annual Report, the following twelveCorporate Governance documents had been adopted by the Board, in addition tothe Company’s Constitution which was revised and approved by the shareholdersof the Company in November 2005. All of these documents are available on the Company’s website: www.gtg.com.au

 

·                  BoardCharter which defines the role of the Board and that of Management;

 

·                  AuditCommittee Charter;

 

·                  CorporateGovernance Committee Charter;

 

·                  BoardProtocol which clarifies the responsibilities of Directors and the Company’sexpectations of them;

 

·                  Code of Conduct,including a Document Retention Policy;

 

·                  Board PerformanceEvaluation Policy;

 

·                  Risk and CompliancePolicy;

 

·                  ContinuousDisclosure Policy;

 

·                  Securities TradingPolicy;

 

·                  Foreign ExchangeManagement Policy;

 

·                  ShareholderCommunications Policy; and

 

·                  WhistleblowerPolicy.

 

**Item 16C.      PrincipalAccountant Fees And Services**

 

The following table sets forth the fees billed to us byour Independent Registered Public Accounting Firm, Ernst & Young,during the fiscal years ended June 30, 2007 and 2006, respectively:

 
| ** ** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------|------------|----------|------------|----------|------------|
| Audit fees |       | $        | 324,088    |     | $          | 301,929 |   |
| Tax fees   |       | 43,521   |       | 59,142   |       |
| Total      |       | $        | 367,609    |     | $          | 361,071 |   |

 

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.

 

*AuditCommittee Pre-Approval Policies and Procedures*

 

Our Board of Directors has established pre-approval andprocedures for the engagement of its Independent Registered Public AccountingFirm for audit and non-audit services.

 

The Board of Directors reviews the scope of the servicesto be provided, before their commencement, in order to ensure  that there are no independence issues and theservices are not prohibited services, as defined by the Sarbanes-Oxley Act of2002.

 

**Item 16D.      ExemptionsFrom The Listing Standards For Audit Committees**

** **

Notapplicable.

 

**Item 16E.       PurchasesOf Equity Securities By The Issuer And Affiliated Purchasers**

** **

Notapplicable.

 

**PART III**

 

**Item 17.         Financial Statements**

** **

The Company has responded to Item 18 in lieu ofresponding to this Item.

 

**Item 18.         Financial Statements**

** **

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**GENETIC TECHNOLOGIES LIMITED**

** **

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| ** **                                                                                                                                             | **Page** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Genetic Technologies Limited - Report of Independent  Registered Public Accounting Firm.                                                               | F-1      |
|                                                                                                                                                   |     |
| Genetic  Technologies Limited - Consolidated Balance Sheets as of June 30, 2007  and 2006.                                                        | F-2      |
|                                                                                                                                                   |     |
| Genetic  Technologies Limited - Consolidated Statements of Operations for the years  ended June 30, 2007, 2006 and 2005.                          | F-3      |
|                                                                                                                                                   |     |
| Genetic  Technologies Limited - Consolidated Statements of Changes in Shareholders’  Equity for the years endedJune 30, 2007, 2006 and 2005. | F-4      |
|                                                                                                                                                   |     |
| Genetic  Technologies Limited - Consolidated Statements of Cash Flows for the years  ended June 30, 2007, 2006 and 2005.                          | F-5      |
|                                                                                                                                                   |     |
| Genetic  Technologies Limited - Notes to Consolidated Financial Statements.                                                                            | F-6      |

** **

**Item 19.         Exhibits**

** **

The following documents are filed asexhibits to this Annual Report on Form 20-F:

 

1.1           Constitution of theRegistrant. #

 

2.1           Deposit Agreement,dated as of January 14, 2002, by and among Genetic Technologies Limited,The Bank of New York,  as Depositary, andthe Owners and Holders of American Depositary Receipts (such agreement isincorporated 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 totalindebtedness authorized under any instrument relating to long term debt of theCompany does not exceed 10% of our total consolidated assets.  Any instrument relating to indebtedness willbe supplied to the Commission upon its request.

 

4.1           Consulting contractwith Dr. Stephen Kent for Technical Review Committee for ImmunAid Pty.Ltd., dated September 14, 2001.+

 

4.2           Staff Share Plan2001 dated November 30, 2001. +

 

4.3           License agreementwith an effective date of 7 March 2003 between Genetic TechnologiesLimited and Pyrosequencing AB. +

 

4.4           Research licensedated as of July 22, 2003 between Genetic Technologies Limited andUniversity of Sydney, and Agreement to Assign Intellectual Property dated September 4,2003. +

 

4.5           License agreementdated as of August 1, 2003 between Genetic Technologies Limited and QuestDiagnostics Inc. +

 

4.6           License Agreementdated as of December 31, 2003 between Genetic Technologies Limited and TMBioscience Corporation. +

 

4.7           License Agreementdated as of February 5, 2004 between Genetic Technologies Limited andLaboratory Corporation of America Holdings.* ++

 

4.8           Settlement andLicense Agreement dated as of  June 15,2004 between Genetic Technologies Limited and C.Y. O’Connor ERADE VillageFoundation (incorporating the Immunogenetics Research Foundation and theInstitute of Molecular Genetics and Immunology Incorporated). +

 

4.9           Sponsored ResearchAgreement dated as of June 15, 2004 between Genetic Technologies Limitedand the C.Y. O’Connor ERADE Village Foundation. +

 

77

----

 

4.10         IP Sale and RoyaltyAgreement dated as of June 15, 2004 between Genetic Technologies Limitedand C.Y. O’Connor ERADE Village Foundation. +

 

4.11         License Agreementdated as of September 17, 2004 between the Company and GenzymeCorporation.* ++

 

4.12         License Agreementdated as of September 17, 2004 between the Company and MetaMorphix, Inc.+

 

4.13         License Agreementdated as of September 27, 2004 among the Company, MetaMorphix, Inc.and MMI Genomics, Inc. +

 

4.14         Patent LicenseAgreement with an effective date of December 1, 2006 between GeneticTechnologies Limited and Genosense Diagnostic GMBH.*

 

4.15         Settlement andLicense Agreement with an effective date of June 20, 2007 between GeneticTechnologies Limited and Monsanto Company.*

 

4.16         LicenseAgreement and Release with an effective date of June 29, 2007 between GeneticTechnologies Limited and Thermo Fisher Scientific Inc.*

 

4.17         LicenseAgreement with an effective date of August 22, 2007 between GeneticTechnologies Limited and Monsanto Company.*

 

4.18         LicenseAgreement with an effective date of September 28, 2007 between GeneticTechnologies Limited and Syngenta Crop Protection AG.*

 

4.19         LicenseAgreement with an effective date of September 30, 2007 between GeneticTechnologies Limited and BioSearch Technologies Inc.*

 

12.01       Section 302Certification 

 

12.02       Section 302Certification 

 

13.01       Section 1350Certification

 

13.02       Section 1350Certification

 

----

*  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.

 

+  Previously filedwith 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.

 

++ Previously filed with Amendment No. 1 to theCompany’s Registration Statement on Form 20-F (File No. 0-51504),filed with the Commission on August 29, 2005 and incorporated herein byreference.

 

#  Previouslyfiled with the Company’s Annual Report on Form 20-F (File No. 0-51504), filedwith the Commission on December 30, 2005 and incorporated herein by reference.

 

78

----

 

**SIGNATURES**

** **

The registrant hereby certifies that itmeets all of the requirements for filing on Form 20-F and that it has dulycaused and authorized the undersigned to sign this Annual Report on its behalf.

 
|                           | GENETIC  TECHNOLOGIES LIMITED |
|--------------------------------|-------------------------------|
|                           |                          |
|                           |                          |
| Dated:  December 18, 2007 | By:                           | /s/  Michael B. Ohanessian  |   |
|                           |                          | Name:  Michael B. Ohanessian |
|                           |                          | Title:  Chief Executive Officer |

 

79

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

The Board of Directors and Shareholders of Genetic Technologies Limited

 

We have audited the accompanying consolidated balance sheets of Genetic Technologies Limited and subsidiaries as of June 30, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Genetic Technologies Limited and subsidiaries at June 30, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2007, in conformity with U.S. generally accepted accounting principles.

 

 
| /s/ ERNST & YOUNG     |
|--------------------------------|
| Melbourne, Victoria, Australia |
| 13 December 2007          |

# ** **

# ****

# ** **

# **CONSOLIDATED BALANCE SHEETS                                                                (U.S. DOLLARS)**

 
| ** **                                                                                                  | ** ** | **June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                  | ** ** | **Note**          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ***Assets***                                                                                                |       |              |       |   |   |   |   |
| **Current assets**                                                                                          |       |              |       |   |   |   |   |
| Cash and cash equivalents                                                                                   |       |              |       | $ | 10,568,085 |   | $ | 7,904,399 |   |
| Trade accounts receivable #                                                                                 |       |              |       | 464,099 |   | 892,113 |   |
| GST receivable                                                                                              |       |              |       | 84,843 |   | 147,237 |   |
| Other current assets                                                                                        |       |              |       | 380 |   | 959 |   |
| Prepayments                                                                                                 |       |              |       | 461,275 |   | 436,463 |   |
|                                                                                                        |       |              |       |   |   |   |   |
| **Total current assets**                                                                                    |       |              |       | $ | 11,578,682 |   | $ | 9,381,171 |   |
| ** **                                                                                                  |       |              |       |   |   |   |   |   |   |
| **Non-current assets**                                                                                      |       |              |       |   |   |   |   |
| Prepayments                                                                                                 |       |              |       | $ | 7,385 |   | $ | 31,624 |   |
| Restricted security deposits                                                                                |       |              |       | 1,200,991 |   | 981,830 |   |
| Cost-method investments *                                                                                   |       | 3                 |       | 198,121 |   | 500,010 |   |
| Property, plant and equipment, net of  accumulated depreciation of $3,760,480 (2006: $2,346,643)            |       | 4                 |       | 1,650,972 |   | 1,681,894 |   |
| Patents, net                                                                                                |       | 5                 |       | 2,840,947 |   | 3,819,752 |   |
| Goodwill, net                                                                                               |       | 6                 |       | 293,770 |   | 256,819 |   |
|                                                                                                        |       |              |       |   |   |   |   |
| **Total non-current assets**                                                                                |       |              |       | $ | 6,192,186 |   | $ | 7,271,929 |   |
| ** **                                                                                                  |       |              |       |   |   |   |   |   |   |
| **Total assets**                                                                                            |       |              |       | $ | 17,770,868 |   | $ | 16,653,100 |   |
| ** **                                                                                                  |       |              |       |   |   |   |   |   |   |
| ***Liabilities and Shareholders’ equity***                                                             |       |              |       |   |   |   |   |
| **Current liabilities**                                                                                     |       |              |       |   |   |   |   |
| Trade accounts payable                                                                                      |       |              |       | $ | 1,327,697 |   | $ | 1,046,924 |   |
| Provision for tax                                                                                           |       | 7                 |       | 275,819 |   | 445,726 |   |
| Provision for rehabilitation liabilities                                                                    |       |              |       | 66,653 |   | — |   |
| Provision for employee entitlements                                                                         |       |              |       | 410,514 |   | 305,315 |   |
| Deferred revenue                                                                                            |       | 8                 |       | 272,830 |   | 25,000 |   |
| Hire purchase finance liability                                                                             |       | 11                |       | 405,011 |   | 364,008 |   |
|                                                                                                        |       |              |       |   |   |   |   |
| **Total current liabilities**                                                                               |       |              |       | $ | 2,758,524 |   | $ | 2,186,973 |   |
| ** **                                                                                                  |       |              |       |   |   |   |   |   |   |
| **Non-current liabilities**                                                                                 |       |              |       |   |   |   |   |
| Unsecured loan                                                                                              |       | 9                 |       | $ | 594,370 |   | $ | 519,610 |   |
| Provision for employee entitlements                                                                         |       |              |       | 42,860 |   | 27,337 |   |
| Hire purchase finance liability                                                                             |       | 11                |       | 39,889 |   | 365,010 |   |
|                                                                                                        |       |              |       |   |   |   |   |
| **Total non-current liabilities**                                                                           | ** ** | ** **        |       | $ | 677,119 |   | $ | 911,957 |   |
| ** **                                                                                                  | ** ** | ** **        |       |   |   |   |   |   |   |
| **Total liabilities**                                                                                       | ** ** | ** **        |       | $ | 3,435,643 |   | $ | 3,098,930 |   |
| ** **                                                                                                  | ** ** | ** **        |       |   |   |   |   |
| **Commitments and contingencies**                                                                           |       |              |       | $ | — |   | $ | — |   |
| ** **                                                                                                  |       |              |       |   |   |   |   |
| **Minority interest**                                                                                       |       |              |       | $ | 123,135 |   | $ | 130,033 |   |
| ** **                                                                                                  |       |              |       |   |   |   |   |
| **Shareholders’ equity**                                                                               |       |              |       |   |   |   |   |
| Ordinary shares, no par value, issued and  outstanding – 362,389,899 shares (2006: 362,369,899 shares) |       | 12                |       | $ | 28,571,883 |   | $ | 28,192,441 |   |
| Accumulated deficit                                                                                         |       |              |       | (18,415,225 | ) | (17,002,436 | ) |
| Accumulated other comprehensive income                                                                      |       |              |       | 4,055,432 |   | 2,234,132 |   |
|                                                                                                        |       |              |       |   |   |   |   |
| **Total shareholders’ equity**                                                                         |       |              |       | $ | 14,212,090 |   | $ | 13,424,137 |   |
| ** **                                                                                                  |       |              |       |   |   |   |   |
| **Total liabilities and shareholders’ equity**                                                         |       |              |       | $ | 17,770,868 |   | $ | 16,653,100 |   |

 

----

#    Includes aprovision for diminution of $67,928 (2007) and $nil (2006).

 

*    Includes sharesin XY, Inc. (a related party, see Notes 3 and 10) carried at cost of $nil(2007) and $301,890 (2006).

 

See accompanying notes to consolidated financialstatements.

 

F1

----

# ** **

# **CONSOLIDATED STATEMENTS OFOPERATIONS                                        (U.S.DOLLARS)**

 
| ** **                                                   | ** ** | **Years ended June 30,** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                   | ** ** | **Note**                                | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Revenues**                                                 |       |                                    |       |   |   |   |   |   |   |
| License revenues                                             |       |                                    |       | $ | 8,955,467 |   | $ | 4,997,223 |   | $ | 4,970,007 |   |
| Service testing revenues                                     |       |                                    |       | 2,463,886 |   | 1,906,290 |   | 1,809,301 |   |
| Grant income                                                 |       |                                    |       | 249,211 |   | 426,574 |   | 437,278 |   |
| Other income                                                 |       |                                    |       | 1,330 |   | 14,915 |   | 3,469 |   |
|                                                         |       |                                    |       |   |   |   |   |   |   |
| **Total revenues**                                           |       |                                    |       | $ | 11,669,894 |   | $ | 7,345,002 |   | $ | 7,220,055 |   |
| ** **                                                   |       |                                    |       |   |   |   |   |   |   |
| **Total operating income**                                   |       |                                    |       | $ | 11,669,894 |   | $ | 7,345,002 |   | $ | 7,220,055 |   |
| ** **                                                   |       |                                    |       |   |   |   |   |   |   |
| **Operating expenses**                                       |       |                                    |       |   |   |   |   |   |   |
| Service testing expenses                                     |       |                                    |       | $ | 4,489,906 |   | $ | 4,547,437 |   | $ | 3,510,444 |   |
| Research and development #                                   |       |                                    |       | 3,836,583 |   | 2,815,804 |   | 1,830,932 |   |
| Patent and license fees                                      |       |                                    |       | 1,078,191 |   | 1,438,345 |   | 4,632,617 |   |
| Sales and marketing                                          |       |                                    |       | 916,696 |   | 846,808 |   | 570,498 |   |
| General and administrative                                   |       |                                    |       | 2,667,843 |   | 2,273,946 |   | 2,597,642 |   |
|                                                         |       |                                    |       |   |   |   |   |   |   |
| **Total operating expenses**                                 |       |                                    |       | $ | 12,989,219 |   | $ | 11,922,340 |   | $ | 13,142,133 |   |
| ** **                                                   |       |                                    |       |   |   |   |   |   |   |
| **Loss from operations**                                     |       |                                    |       | $ | (1,319,325 | ) | $ | (4,577,338 | ) | $ | (5,922,078 | ) |
|                                                         |       |                                    |       |   |   |   |   |   |   |
| **Other income (expenses)**                                  |       |                                    |       |   |   |   |   |   |   |
| Interest income                                              |       |                                    |       | $ | 386,259 |   | $ | 601,803 |   | $ | 484,286 |   |
| Rental recovery                                              |       |                                    |       | 25,234 |   | — |   | — |   |
| Net profit on sale of assets                                 |       |                                    |       | (6,562 | ) | 1,735 |   | 97,809 |   |
| Net foreign exchange gains (losses)                          |       |                                    |       | (250,657 | ) | 92,403 |   | (140,861 | ) |
| Interest expense                                             |       |                                    |       | (52,442 | ) | (63,316 | ) | (31,750 | ) |
|                                                         |       |                                    |       |   |   |   |   |   |   |
| **Total other income (expenses)**                            |       |                                    |       | $ | 101,832 |   | $ | 632,625 |   | $ | 409,484 |   |
| ** **                                                   |       |                                    |       |   |   |   |   |   |   |
| **Net loss before income taxes**                             |       |                                    |       | $ | (1,217,493 | ) | $ | (3,944,713 | ) | $ | (5,512,594 | ) |
| ** **                                                   |       |                                    |       |   |   |   |   |   |   |
| Income taxes                                                 |       | 7                                       |       | (208,850 | ) | (67,649 | ) | (195,339 | ) |
|                                                         |       |                                    |       |   |   |   |   |   |   |
| **Net loss before minority interest**                        |       |                                    |       | $ | (1,426,343 | ) | $ | (4,012,362 | ) | $ | (5,707,933 | ) |
| ** **                                                   |       |                                    |       |   |   |   |   |   |   |
| Minority interest                                            |       |                                    |       | 13,554 |   | (7,961 | ) | (35,016 | ) |
|                                                         |       |                                    |       |   |   |   |   |   |   |
| **Net loss**                                                 |       |                                    |       | $ | (1,412,789 | ) | $ | (4,020,323 | ) | $ | (5,742,949 | ) |
| ** **                                                   |       |                                    |       |   |   |   |   |   |   |
| **Net loss per ordinary share (basic and  diluted)**         |       |                                    |       | $ | (0.004 | ) | $ | (0.01 | ) | $ | (0.02 | ) |
| ** **                                                   |       |                                    |       |   |   |   |   |   |   |
| **Weighted average shares outstanding (basic  and diluted)** |       |                                    |       | 362,389,899 |   | 362,386,940 |   | 315,264,068 |   |

 

----

#    Includes animpairment loss of $908,416 (2007), $nil (2006) and $nil (2005) (see Note 5).

 

Seeaccompanying notes to consolidated financial statements.

 

F2

----

# ** **

# **CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY                                                                 (U.S.DOLLARS)**

 
| ** **                                                            | ** ** | **Note** | ** ** | **Number of  Ordinary Shares** | ** ** | **Paid in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated Other  Comprehensive  Income** | ** ** | **Totals** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|------------------------------------------|------------|---------------------------|------------|--------------------------|------------|---------------------------------------------------|------------|------------|------------|
| ** **                                                            |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |   |   |   |   |
| **Balance - July 1, 2004**                                       |       |     |       | 296,808,561                              |       | $                         | 17,291,502 |                     | $          | (7,239,164                                        | )          | $          | 1,798,992  |   | $ | 11,851,330 |   |
| ** **                                                            |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Issuance of ordinary shares at 16 cents on exercise of Vendor options |       | 13       |       | 65,418,838                               |       | 10,228,372                |       | —                   |       | —                                            |       | 10,228,372 |       |
| Issuance of ordinary shares at 40 cents on exercise of Staff options  |       | 13       |       | 75,000                                   |       | 29,959                    |       | —                   |       | —                                            |       | 29,959     |       |
| Issuance of ordinary shares at 37 cents on exercise of Staff options  |       | 13       |       | 67,500                                   |       | 25,271                    |       | —                   |       | —                                            |       | 25,271     |       |
| Other comprehensive income (loss), net of tax of $nil:                |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Foreign Currency Translation adjustment                               |       |     |       | —                                   |       | —                    |       | —                   |       | 832,732                                           |       | 832,732    |       |
| Net loss                                                              |       |     |       | —                                   |       | —                    |       | (5,742,949               | )          | —                                            |       | (5,742,949 | )          |
| Comprehensive loss                                                    |       |     |       |                                     |       |                      |       |                     |       |                                              |       | (4,910,217 | )          |
|                                                                  |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| **Balance - June 30, 2005**                                      |       |     |       | 362,369,899                              |       | $                         | 27,575,104 |                     | $          | (12,982,113                                       | )          | $          | 2,631,724  |   | $ | 17,224,715 |   |
| ** **                                                            |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Issuance of ordinary shares at 32 cents to acquire patents            |       | 5        |       | 20,000                                   |       | 6,494                     |       | —                   |       | —                                            |       | 6,494      |       |
| Stock options issued as compensation                                  |       |     |       | —                                   |       | 610,843                   |       | —                   |       | —                                            |       | 610,843    |       |
| Other comprehensive loss, net of tax of $nil:                         |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Foreign Currency Translation adjustment                               |       |     |       | —                                   |       | —                    |       | —                   |       | (397,592                                          | )          | (397,592   | )          |
| Net loss                                                              |       |     |       | —                                   |       | —                    |       | (4,020,323               | )          | —                                            |       | (4,020,323 | )          |
| Comprehensive loss                                                    |       |     |       |                                     |       |                      |       |                     |       |                                              |       | (4,417,915 | )          |
|                                                                  |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| **Balance - June 30, 2006**                                      |       |     |       | 362,389,899                              |       | $                         | 28,192,441 |                     | $          | (17,002,436                                       | )          | $          | 2,234,132  |   | $ | 13,424,137 |   |
| ** **                                                            |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Stock options issued as compensation                                  |       |     |       | —                                   |       | 379,442                   |       | —                   |       | —                                            |       | 379,442    |       |
| Other comprehensive loss, net of tax of $nil:                         |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Foreign Currency Translation adjustment                               |       |     |       | —                                   |       | —                    |       | —                   |       | 1,821,300                                         |       | 1,821,300  |       |
| Net loss                                                              |       |     |       | —                                   |       | —                    |       | (1,412,789               | )          | —                                            |       | (1,412,789 | )          |
| Comprehensive loss                                                    |       |     |       |                                     |       |                      |       |                     |       |                                              |       | 408,511    |       |
|                                                                  |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| **Balance - June 30, 2007**                                      |       |     |       | 362,389,899                              |       | $                         | 28,571,883 |                     | $          | (18,415,225                                       | )          | $          | 4,055,432  |   | $ | 14,212,090 |   |
|                                                                       |            |          |            |                                          |            |                           |            |                          |            |                                                   |            |            |            |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated financialstatements.

 

F3

----

# ** **

# **CONSOLIDATED STATEMENTS OF CASHFLOWS                         (U.S. DOLLARS)**

 
| ** **                                                    | ** ** | **Years ended June 30,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Operating activities**                                      |       |                                    |       |   |   |   |   |
| Net loss                                                      |       | $                                       | (1,412,789 | ) | $ | (4,020,323 | ) | $ | (5,742,949 | ) |
|                                                          |       |                                    |       |   |   |   |   |   |   |   |
| Depreciation                                                  |       | 515,960                                 |       | 521,966 |   | 550,477 |   |
| Amortization of patents                                       |       | 513,453                                 |       | 492,304 |   | 491,669 |   |
| Amortization of leased assets                                 |       | 424,456                                 |       | 390,700 |   | 138,920 |   |
| Net gain from sale of assets                                  |       | 6,562                                   |       | (1,735 | ) | (97,809 | ) |
| Impairment losses and other write-downs                       |       | 1,032,407                               |       | 81,851 |   | — |   |
| Stock-based compensation                                      |       | 379,442                                 |       | 610,843 |   | — |   |
| Net unrealized foreign exchange (gains)  losses               |       | 228,061                                 |       | (37,968 | ) | (45,565 | ) |
| Net drawdown under Applera settlement                         |       | (590,499                                | )          | (479,644 | ) | — |   |
| Minority interest                                             |       | (13,554                                 | )          | 7,961 |   | 35,016 |   |
|                                                          |       |                                    |       |   |   |   |   |
| Net changes in operating assets and  liabilities              |       |                                    |       |   |   |   |   |
|                                                          |       |                                    |       |   |   |   |   |
| (Increase) decrease in trade accounts  receivable             |       | 454,404                                 |       | (509,855 | ) | (138,727 | ) |
| (Increase) decrease in GST receivable                         |       | 77,754                                  |       | (93,076 | ) | (54,161 | ) |
| (Increase) decrease in other current assets                   |       | 667                                     |       | 92,728 |   | (69,003 | ) |
| (Increase) decrease in prepayments                            |       | 62,120                                  |       | (26,419 | ) | (441,668 | ) |
| (Increase) decrease in restricted security  deposits          |       | (72,470                                 | )          | (8,971 | ) | (633,146 | ) |
|                                                          |       |                                    |       |   |   |   |   |
| Increase (decrease) in trade accounts  payable                |       | 121,075                                 |       | (1,242,051 | ) | 887,873 |   |
| Increase (decrease) in provisions                             |       | (87,936                                 | )          | 27,064 |   | 211,084 |   |
| Increase (decrease) in deferred revenue                       |       | 227,214                                 |       | (341,790 | ) | (96,141 | ) |
|                                                          |       |                                    |       |   |   |   |   |
| **Net cash provided by / (used in) operating  activities**    |       | $                                       | 1,866,327  |   | $ | (4,536,415 | ) | $ | (5,004,130 | ) |
| ** **                                                    |       |                                    |       |   |   |   |   |
| **Investing activities**                                      |       |                                    |       |   |   |   |   |
| Payment for plant and equipment                               |       | $                                       | (134,750   | ) | $ | (119,388 | ) | $ | (467,689 | ) |
| Proceeds from the sale of assets #                            |       | 274,418                                 |       | 3,341 |   | 448,413 |   |
|                                                          |       |                                    |       |   |   |   |   |
| **Net cash provided by / (used in) investing  activities**    |       | $                                       | 139,668    |   | $ | (116,047 | ) | $ | (19,276 | ) |
| ** **                                                    |       |                                    |       |   |   |   |   |
| **Financing activities**                                      |       |                                    |       |   |   |   |   |
| Proceeds from stock options exercised                         |       | $                                       | —     |   | $ | — |   | $ | 10,283,602 |   |
| Repayment of hire purchase principal                          |       | (396,944                                | )          | (337,042 | ) | (215,676 | ) |
|                                                          |       |                                    |       |   |   |   |   |
| **Net cash provided by / (used in) financing  activities**    |       | $                                       | (396,944   | ) | $ | (337,042 | ) | $ | 10,067,926 |   |
| ** **                                                    |       |                                    |       |   |   |   |   |   |   |   |
| **Net change before the effect of exchange  rate changes**    |       | $                                       | 1,609,051  |   | $ | (4,989,504 | ) | $ | 5,044,520 |   |
| ** **                                                    |       |                                    |       |   |   |   |   |
| Effect of exchange rate changes on cash and  cash equivalents |       | 1,054,635                               |       | (227,704 | ) | 490,167 |   |
|                                                          |       |                                    |       |   |   |   |   |
| **Net change in cash and cash equivalents**                   |       | $                                       | 2,663,686  |   | $ | (5,217,208 | ) | $ | 5,534,687 |   |
| Cash and cash equivalents, beginning of  year                 |       | 7,904,399                               |       | 13,121,607 |   | 7,586,920 |   |
|                                                          |       |                                    |       |   |   |   |   |
| **Cash and cash equivalents, end of year**                    |       | $                                       | 10,568,085 |   | $ | 7,904,399 |   | $ | 13,121,607 |   |
| ** **                                                    |       |                                    |       |   |   |   |   |
| **Supplemental disclosure of  cashflow information**          |       |                                    |       |   |   |   |   |
| Cash interest received                                        |       | $                                       | 386,259    |   | $ | 694,531 |   | $ | 409,422 |   |
| Cash interest paid                                            |       | $                                       | 52,442     |   | $ | 63,316 |   | $ | 31,750 |   |

 

----

#    Includesproceeds from the sale of cost-method investments of $274,418 (2007), $nil(2006) and $nil (2005) (see Note 3).

 

Refer Note 14 for non-cash investing and financingtransactions.

 

# **See accompanying notes to consolidated financialstatements.**

 

F4

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# ** **

# **NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS**

*** ***

***1.     The Company and its operations***

 

*Organization and nature of operations*

 

GeneType AG (“GeneType”) was incorporated inSwitzerland on February 13, 1989 as an enterprise engaged in research anddevelopment in the area of genetics and the licensing of its patented genetictechnologies.  In August 2000, anAustralian company, Duketon Goldfields Ltd. (“Duketon”), acquired GeneType as awholly-owned subsidiary.  Underaccounting principles generally accepted in the United States of America (“USGAAP”), the company whose former shareholders retain the majority of the votingrights in the combined business must be treated as the acquirer for accountingpurposes.  Accordingly, this transactionwas accounted for as a reverse acquisition for financial reporting purposes,with GeneType identified as the accounting acquirer.

 

Concurrent with the reverse acquisition, thecombined company changed its name to Genetic Technologies Limited (“GeneticTechnologies” or the “Company”).  Sincethe reverse acquisition, the Company’s activities have focused primarily onbiotechnology, particularly in the area of genetics.

 

TheCompany is a public company incorporated in Australia and listed on theAustralian Securities Exchange (“ASX”). On September 2, 2005, the Company also completed a Level II listingof its American Depositary Receipts (“ADRs”) on the NASDAQ Global Market (“NASDAQ”).  Genetic Technologies operates in Australia,Canada and Europe and owns patents in the areas of human, animaland plant genetic diagnostics and genomics. The Company is pursuing commercial opportunities in three main areas ofactivity:

 

(i)         licensingof its non-coding patents globally;

 

(ii)        expandingits genetic service-testing business throughout the Asia-Pacific Region; and

 

(iii)       supportingcertain research projects in various fields of biotechnology, particularlygenetics and genomics.

 

The Company generates revenue from twoprincipal sources: firstly, by entering into licensing agreements withcompanies wishing to use Genetic Technologies’ intellectual property relatingto non-coding DNA; and secondly, from the provision of a wide range of genetictests on a fee-for-service basis.  Inaddition, the Company performs research in other areas relating to genetics andgenomics and receives funds from grants made by the private and governmentsectors.

 

*Registered Officeand Principal Place of Business*

 

60-66 Hanover Street

Fitzroy Victoria   3065

Australia

 

***2.      Basis of presentation and summary ofsignificant accounting policies***

 

***Basis of presentation***

 

The Company’s principalactivities include the licensing of its patented genetic technologies, theprovision of genetic tests and the conducting of various research anddevelopments projects in the fields of genetics and genomics.  Revenues are principally generated fromlicense fees and genetic testing.  Theconsolidated financial statements are presented in United States dollars andhave been prepared in accordance with US GAAP.

 

***Principles of consolidation***

 

The accompanying consolidatedfinancial statements include the accounts of the Company and its subsidiaries,including those in which the Company has less than 100% ownership interest, allof which are controlled by the Company. All significant intercompany balances and transactions have beeneliminated on consolidation.  Theconsolidated financial statements include information and results of eachsubsidiary from the date on which the Company obtains control and until suchtime as the Company ceases to control such entities.  The entities whose financial statements areconsolidated by the Company and which the Company’s ownership in them is lessthan 100% are AgGenomics Pty. Ltd., ImmunAid Pty. Ltd. and Gtech InternationalResources Limited.  These entities areconsolidated by the Company as it has effective control over them.  AgGenomics Pty. Ltd. is treated as a VariableInterest Entity in accordance with FASB Interpretation No. 46: *Consolidation of Variable Interest Entities,*for which theCompany is the primary beneficiary.

 

F5

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*** ***

***Foreign currency translation***

 

Theaccounts of the Company are translated to the reporting currency in accordancewith Statement of Financial Accounting Standards (SFAS) No. 52: *Foreign Currency Translation*.  The Company’s Management has elected topresent these consolidated financial statements in U.S. dollars (“USD”), the reportingcurrency.  The Australian dollar (“AUD”)is the functional currency for the Company.  Themethod of foreign exchange translation adopted for foreign subsidiaries dependson the functional currency of such entities.  In all cases for the Company, the functionalcurrency of foreign, self-sustaining subsidiaries is their foreign currency,being the currency of the primary environment in which they operate.  The financial statements of these entitiesare translated into AUD and consolidated into the parent company.  The consolidated financial statements arethen translated into USD, the reporting currency.  Accordingly;

 

(i)         assets and liabilities are translatedusing the current rate on the balance sheet date;

 

(ii)        revenues and expenses are translated atthe weighted-average exchange rates prevailing throughout the period; and

 

(iii)       equity accounts are translated athistorical exchange rates.

 

(iv)       Any resulting translation adjustment ispresented as a separate component of accumulated other comprehensive income(loss) in the consolidated financial statements and is included in earningsonly upon sale or liquidation of the underlying foreign subsidiary orassociated company.

 

Receivablesand liabilities denominated in foreign currencies are remeasured at period-endexchange rates.  Gains and lossesresulting from foreign currency transactions are reported in the consolidatedstatements of operations.

 

The rates used to translate AUD to USD for assetsand liabilities were:

 
| **June 30,** | ** ** |
|-------------------|------------|
| **2007**          | ** ** | **2006** | ** ** |
| $0.8491           |       | $0.7423 |   |

 

Revenues and expenses are translated at theaverage exchange rate during the year. The rates used to translate revenues and expenses were:

 
| **June 30,** | ** ** |
|-------------------|------------|
| **2007**          | ** ** | **2006** | ** ** | **2005** | ** ** |
| $                 | 0.7899     |   | $ | 0.7475 |   | $ | 0.7564 |   |
|                   |            |  |  |  |  |  |  |  |

 

Commitments,contingencies and expected future income detailed in the notes have beentranslated into U.S. currency at the rate of exchange at June 30, 2007 ofAUD1.00 = $0.8491.

 

##### ***Accounting estimates***

##### ** **

The preparation of financial statements requiresManagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported results of operationsduring the reporting period.  Inpreparing these consolidated financial statements, accounting estimates havebeen applied to calculate the provisions for tax and employee entitlements anddetermining the useful lives of the property, plant and equipment, whileassumptions have been used for computing stock options.  Actual results may vary from those estimates.

 

***Cash and cash equivalents***

 

Cash and cash equivalents primarily are comprised of cashon deposit and short-term, highly liquid investments with original maturitydates of three months or less.

 

***Receivables***

 

Trade accounts receivable andother receivables are recorded at amounts due less any estimate for doubtfuldebts.  Bad debts are charged offdirectly to accounts receivable.  Amountsare charged off when Management has deemed them to be uncollectible.  In determining whether amounts areuncollectible, Management considers multiple factors including the aging of theaccounts, historical bad debt experience, and the general economicenvironment.  The Company has recorded nobad debt expenses during the yearsended June 30, 2007, 2006 and 2005, respectively.  A provision for diminution related to otherreceivables of $67,928 (2006: $nil)was recorded during the year.

 

F6

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*** ***

***Goods and services tax***

 

Revenues, expenses and assets are recognized netof the amount of goods and services tax (“GST”), except where the amount of GSTincurred is not recoverable from the Australian Taxation Office (“ATO”).  In these circumstances, the GST is recognizedas part of the cost of acquisition of the asset or as part of an item ofrevenue or expense.  Receivables andpayables are stated with the amount of GST included.  The net amount of GST recoverable from, orpayable to, the ATO is included as a current asset or a liability in theconsolidated balance sheet.

 

***Restricted security deposits***

 

Restricted security deposits include cash deposits heldas security for the Company’s hire purchase agreements, certain researchcommitments and performance bonds in respect of its passive interest in amining joint venture.

 

***Cost-method investments***

 

Investments in which the Company doesnot have significant influence, generally represented by an ownership interestof less than 20%, are recorded using the cost-method of accounting.  Such investments are periodically reviewedfor impairment, with fair values determined based on the latest round of fundraising.  If a decline in value is judgedto be other than temporary, the cost basis of the investment is written down tothe recoverable amount.  The resultingrealized loss is included in the consolidated statements of operations in theperiod in which the decline was deemed to be other than temporary.  The fair value of the cost-method investmentsis not estimated as there are no identified events or changes in circumstancesthat may have a significant adverse effect on the fair value of the investmentand it is not practicable to do so.

 

***Marketable securities***

 

The securities consist of equity securities, which arestated at fair value.  Unrealized gainsor losses on the changes in the fair value of the securities are recorded inthe consolidated statements of operations. Dividends on securities classified as trading are included in dividendincome when declared.

 

***Property, plant and equipment***

 

Property,plant and equipment are measured at cost, net of accumulated depreciation.  Expenditures for upgrades, maintenance andrepairs are expensed as incurred. Depreciation is provided, using both the straight-line and decliningbalance methods, on all property, plant and equipment.  Major depreciation and amortisation periodsare:

 
| **Asset category**       | ** ** | **Straight-line method   (useful lives)** | ** ** | **Declining balance method  (depreciation rates)** | ** ** |
|-------------------------------|------------|----------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| Laboratory equipment          |       | 3 to 5 years                                             |       | 20%                                                               |       |
| Computer equipment            |       | 2 to 5 years                                             |       | 20 to 40%                                                         |       |
| Office equipment              |       | 2.5 years                                                |       | 13 to 40%                                                         |       |
| Equipment under hire purchase |       | 3 years                                                  |       | 40%                                                               |       |
| Leasehold improvements        |       | 5 to 8 years                                             |       | N/A                                                               |       |

 

Pursuant to guidance established in SFAS No. 144: *Accounting for the Impairment or Disposal ofLong-Lived Assets* (“SFAS 144”) the Company evaluates therecoverability of its long-lived assets whenever events or changes incircumstances indicate that the carrying amount of such assets may not berecoverable.  Management considers thecarrying value not to be recoverable if it exceeds the future projected cashflows (undiscounted and without interest charges) from the use of the asset andits eventual disposition.

 

Management also re-evaluates the periods of amortizationto determine whether subsequent events and circumstances warrant revisedestimates of useful lives.  An impairmentloss is recognized when the carrying amount of the asset exceeds its fairvalue.  The resulting impairment loss isclassified as a component of loss from operations.  During 2007, the Company did not record  any impairment losses. However, a write-off of $60,793 in respect of idle laboratory equipmentwas recognized during the year (2006: $nil).

 

***Reclassifications***

 

As described in Note 19, certain reclassifications havebeen made to the consolidated financial statements for the years ended       June 30, 2006 and 2005 to conformto the presentation of the consolidated financial statements for the year endedJune 30, 2007.

 

F7

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*** ***

***Patents***

 

External costs incurred in filing, defendingand protecting patent applications for which no future benefit is reasonablyassured are expensed as patent fees as incurred.  As of June 30, 2007 and 2006, none ofthese external costs have been capitalized. Acquired patents, for which a future benefit is reasonably assured, arecapitalized and amortized using the straight-line method over their usefullife, being 10 years.

 

The Company assesses at each reporting date whether there is anindication that an asset may be impaired. If any such indication exists, assets, other than goodwill, are testedfor impairment based on undiscounted cash flows and, if impaired, are writtendown to fair value****based oneither discounted cash flows or appraised values.

 

In assessing fair value, the estimated futurecash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money.  Risks specific to the recoverability of theasset is reflected in the future cash flow estimates through the use of an expected present value approachbased upon weighted average probability outcomes.  Impairment losses relating to operations are recognized in those expensecategories consistent with the function of the impaired asset.  The Company recorded an impairment loss of$908,416 for the 2007 fiscal year (see Note 5).

 

***Goodwill***

 

Goodwill represents the excessof the cost of businesses acquired over the fair value of the identifiable netassets acquired.  Prior to the adoptionof SFAS No. 142:*Goodwill and Other Intangible Assets*(“SFAS 142”), through June 30, 2002, goodwill was amortized on a straight-line basis over a period of between10 to 20 years.  Subsequent to theadoption of SFAS 142 on July 1, 2002, amortization of goodwill ceased.  Goodwill attributable to purchased businesscombinations completed subsequent to June 30, 2001 was never amortizedpursuant to SFAS 142.

 

Goodwill is tested annually for impairment, or sooner whencircumstances indicate that an impairment may exist, using a two step approachat the reporting unit level prescribed in SFAS 142.  The first step is a comparison of the fairvalue of the reporting unit with its carrying amount, including goodwill.  If this step reflects impairment, then theloss is measured as the excess of the recorded goodwill over its implied fairvalue.  Implied fair value is the excessof the fair value of the reporting unit over the fair value of all identifiedassets and liabilities.

 

Discrete financial information is prepared and regularly reviewed byManagement at the segment level thus a reporting unit represents the operatingsegment.

 

Since the adoption of SFAS 142, no impairment losses have beenrecognized.  However, during fiscal year2006, the Company recorded a write-off of goodwill amounting to $81,851.

 

***Exchanges of nonmonetary assets***

 

In December 2004, the FASB issued SFAS No. 153:*Exchanges of Nonmonetary Assets*(“SFAS153”), which is applicable for fiscal periods beginning after June 15,2005.  The Company adopted SFAS 153 on July 1,2005.  SFAS 153 amends AccountingPrinciples Board Opinion No. 29: *Accounting for NonmonetaryTransactions* (“APB 29”), by eliminating the exception fornonmonetary exchanges of similar productive assets and replaces it with a generalexception for exchanges of nonmonetary assets that do not have commercialsubstance.  A nonmonetary exchange hascommercial substance if the future cash flows of the entity are expected tochange significantly as a result of the exchange.  SFAS 153 requires entities to measureexchanges of monetary assets based on the fair values of the assetsexchanged.  Prior to July 1, 2005,the Company applied APB 29, which required that the accounting for an exchangeof a productive asset for a similar productive asset should be based on therecorded amount of the asset relinquished. Certain of the Company’s licensing arrangements involve the exchange ofnon-monetary assets.  Refer furtherdisclosure under the heading *Revenue Recognition*.

 

***Accruals for employee entitlements***

 

The Company accrues compensated absences andrelated benefits as current charges to earnings when the following criteria aremet: (1) the employee’s right to receive compensation for future absencesis attributable to services already performed by the employee; (2) theemployee’s right to receive the compensation for the future absences is vested,or accumulates; (3) it is probable that the compensation will be paid; and(4) the amount of compensation is reasonably estimable.

 

F8

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*** ***

***Finance leases and hirepurchase agreements***

 

Leases and hire purchase agreements which effectively transfersubstantially all of the risks and benefits incidental to ownership of  the leased item to the group are capitalized at the present value of theminimum lease payments and disclosed as laboratory equipment.  A leaseor hire purchase liability of equal value is also recognised.  Capitalized lease and hire purchase assetsare amortized over the term of the respective agreement.  Minimum lease or hire purchase payments areallocated between interest expense and reduction of the lease or hire purchaseliability, with the interest expense calculated using the interest rateimplicit in the lease and recognised directly in net profit.  The cost of improvements to or on leaseholdproperty is capitalized, disclosed as leasehold improvements, and amortizedover the unexpired period of the lease or the estimated useful lives of theimprovements, whichever is the shorter.

 

***Incometaxes***

 

The Company accounts for income taxes underthe provisions of SFAS No. 109: *Accounting for IncomeTaxes* (“SFAS 109”).   SFAS 109requires recognition of deferred tax assets and liabilities for the estimatedfuture tax consequences of events attributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases as well asoperating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled.  The effect on deferred tax assets andliabilities of a change in tax rates is recognized in the consolidated statementof operations in the period that includes the enactment date.  Valuation allowances are established when itis more likely than not that some or all of the deferred tax assets will not berealized.

 

***Revenuerecognition***

 

Revenues are recognized at the fair value of the consideration received net of the amounts of goods and services tax (GST).

 

*License fee income*

 

When the Company has no future obligations in relation to its license agreements that do not have fixed terms and renewal options, license fee income is recorded on the execution of a binding agreement, because the Company has no future obligations, income is fixed and determinable, and collection is reasonably assured.  Income under license arrangements with fixed terms and renewal options is deferred and recognized on a straight-line basis over the license period.  The Company has no other arrangements with its licensees to provide services besides the license agreement.  Revenues are recognized at the fair value of the consideration received net of the amounts of goods and services tax (GST).  Any securities received as a component of the upfront license fees are recorded as revenue, based on the market price of the securities at the date of signing the license agreement in the case of listed securities, and the price at which securities were most recently issued by the licensee in the case of unlisted securities.  Equipment and supplies received as part of licensing arrangements are recognized at their respective fair values on the date they are received.  The Company grants no refunds to its customers.

 

*Royalties*

 

The Company licenses the use of its patentedgenetic technologies.  Royalties fromthese licenses are recognized when earned and no future performance is requiredby the Company, and collection is reasonably assured.

 

*Rendering of services*

 

The Company generates revenue principallyfrom the licensing of patents and the provision of genetic testingservices.  Revenue is recognized when thefour basic criteria of revenue recognition are met: (1) a contractualagreement exists; (2) services have been rendered; (3) the fee isfixed or determinable; and (4) collectibility is reasonably assured.  For each source of revenue, the Companycomplies with the above revenue recognition criteria in the following manner:

 

·      A saleis recorded when services have been rendered to and accepted by the customerpursuant to a fixed price sales order, collectibility of the selling price isreasonably assured, and the associated risks have passed to the customer.  The Company grants no refund or returnrights.

 

·      Revenuesfrom services rendered are recognized as the service is performed, and noadditional services are required to be provided.

 

F9

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*** ***

*Research and development grants*

 

The Companyreceives non-refundable grants that assist the Company to fund research anddevelopment projects.  These grantsgenerally provide for reimbursement of approved costs incurred as defined inthe various agreements.  Government grantsare recorded as revenue when key milestones set in each agreement are achievedand accepted by all parties, no performance obligation remains andcollectibility is reasonably assured. Grant funds received in advance of the Company completing its performanceobligations are deferred.  When the Company isrequired to make cash payments or purchases from the issuer of the grant as arequirement for the grant to be issued, the income is recorded net of theconsideration payable by the Company.

 

*Interest income*

 

Interest income is recognized as earned and when collectibility is assured.  Interest income is recognized as interest accrued using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

 

***Sales andmarketing expenses***

 

Sales and marketingexpenses, including advertising expenses, are expensed as incurred.  Total advertising expenses incurred duringthe years ended June 30, 2007, 2006 and 2005 were $97,450, $126,736 and$101,522, respectively.

 

***Research and development***

 

Research and development costs are charged to expense asincurred.  Such costs include directsalaries, laboratory expenses, contractor fees, rent, utilities, and certainrelated administrative expenses.

 

***Operating leases***

 

The Company has operating leases in respect ofbusiness premises.  The minimum leasepayments of operating leases, where the lessor effectively retainssubstantially all of the risks and benefits of ownership of the leased item,are recognised as an expense.

 

***Stock-based compensation***

 

The Company currently sponsors stock option plans.  Prior to July 1, 2005, the Companyaccounted for its stock option plans in accordance with Accounting PrinciplesBoard Opinion No. 25: *Accounting for StockIssued to Employees* and related interpretations (“APB 25”) andadopted the disclosure-only provisions of SFAS No. 123: *Accounting for Stock-Based Compensation* (“SFAS 123”).  Under APB 25, the Company recognizedcompensation expense for stock option grants on the date of the grant only ifthe current market price of the underlying stock exceeded the exerciseprice.  Unearned compensation expense wascharged against operations ratably over the vesting period of the options.  For disclosure purposes under SFAS 123, stockoptions were valued at the measurement date using the Black-Scholes optionvaluation model and compensation costs were recognized ratably over the vestingperiod.

 

Effective from July 1, 2005, the Company adopted therequirements of SFAS 123 (revised 2004): *Share-Based Payments*(“SFAS 123R”) using the “modified prospective” method thereby recognising thecompensation cost in the financial statements for all share-based payments grantedafter that date and, based on the requirements of SFAS 123, for all unvestedawards granted prior to the effective date of SFAS 123R.

 

As a result of adopting SFAS 123R on July 1, 2005,the Company’s loss before income taxes and net loss for the year ended June 30,2006 are both $610,843 higher than if it had continued to account forshare-based compensation under APB 25. Basic and diluted loss per share for the year ended June 30, 2006was $0.002 higher than if the Company had continued to account for theshare-based compensation under APB 25. The adoption of SFAS 123R had no effect on the cash flow statement.

 

The Company utilizes a Black-Scholes option pricing modelto measure the fair value of stock options granted to employees.

 

Options granted to consultants and other non-employees are accounted for in accordance with Emerging Issues Task Force consensus No 96-18: *Accounting for Equity Instruments that are issued to Other than Employees for Acquiring, or in Connection with Selling Goods or Services*, and valued using the Black-Scholes option pricing model.  Compensation cost for stock options granted to non-employees is measured at the fair value of stock options as calculated using the Black-Scholes option valuation model and are expensed over the period in which the options vest.

 

F10

*** ***

Pro forma information regarding net loss is required bySFAS 123, as amended by SFAS 148, and has been determined as if the Company hadaccounted for its employee stock options under the fair value method of SFAS123 as of its effective date.  The fairvalue of the options issued to employees was estimated at the date of grantusing the Black-Scholes option-pricing model with the followingweighted-average assumptions:

 
| ** **              | ** ** | **June 30,** | ** ** |
|-------------------------|------------|-------------------|------------|
| ** **              | ** ** | **2007 ***   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Risk Free Interest Rate |       | N/A               |       | 5.62 | % | 5.21 | % |
| Expected Dividend Yield |       | N/A               |       | — |   | — |   |
| Expected Volatility     |       | N/A               |       | 0.53 |   | 0.55 |   |
| Expected Lives (years)  |       | N/A               |       | 5.0 |   | 5.0 |   |

 

----

*  No options weregranted during the year ended June 30, 2007.

 

Had the Company elected to adopt the fair valuerecognition provisions of SFAS 123, pro forma net loss would be as follows:

 
| ** **                                                                                                    | ** ** | **Year ended**     | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                    | ** ** | **June 30,  2005** | ** ** |
| Net loss as reported                                                                                          |       | $                       | (5,742,949 | ) |
|                                                                                                          |       |                    |       |   |
| Employee stock-based compensation, net of  taxes, as calculated under APB 25 included in net loss as reported |       | 591                     |       |
|                                                                                                          |       |                    |       |
| Employee stock-based compensation, net of  taxes, as calculated under SFAS 123                                |       | (606,418                | )          |
|                                                                                                          |       |                    |       |
| Pro forma net loss                                                                                            |       | $                       | (6,348,776 | ) |
|                                                                                                          |       |                    |       |
| Net loss per Ordinary share (basic and  diluted) as reported                                                  |       | $                       | (0.02      | ) |
|                                                                                                          |       |                    |       |
| Pro forma net loss per Ordinary share  (basic and diluted) as reported                                        |       | $                       | (0.02      | ) |

 

Refer to Note 13 for further details regarding theCompany’s stock options plans.

 

##### ***Net loss per share***

##### ** **

Basic net loss per share is calculated by dividing net loss by the weighted-average number of ordinary shares outstanding during the period.  The computation of diluted net loss per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue ordinary shares were exercised or converted into ordinary shares or resulted in the issue of ordinary shares that then shared in the net loss of the Company.  All of the ordinary shares for which the options were exercisable were excluded from the computation of diluted loss per share because their inclusion would have had an antidilutive effect on loss per share in all periods.

 

***Comprehensive income***

 

SFAS No. 130: *ReportingComprehensive Income* establishes standards for reporting and displayof comprehensive income and its components in financial statements.  It requires that all items that are requiredto be recognized under accounting standards as components of comprehensiveincome be reported in a financial statement that is displayed with the sameprominence as other financial statements. For the Company, comprehensive income consists of net gains and lossesand foreign currency translation adjustments, and is presented in theconsolidated statements of changes in shareholders’ equity.

 

***Tax consolidation system***

 

Legislationto allow groups, comprising a parent entity and its Australian resident whollyowned entities, to elect to consolidate and be treated as a single entity forincome tax purposes, was substantively enacted on October 21, 2002.  The legislation, which includes bothmandatory and elective elements, is applicable to the Company.  Effective July 1, 2003, for the purposesof income tax, Genetic Technologies and its wholly-owned subsidiaries haveformed a tax consolidation group.  Membersof the group propose to enter into a tax sharing arrangement in order toallocate income tax expense to the wholly-owned Australian subsidiaries on apro-rata basis when they lodge the income tax return.  In addition, the agreement will provide forthe allocation of income tax liabilities between the entities should theCompany default on its tax payment obligations.

 

F11

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*** ***

***Variable interest entities***

 

In January 2003, the FASB issuedInterpretation No. 46: *Consolidation of VariableInterest Entities*(“FIN 46”), which addresses the consolidation ofbusiness enterprises (variable interest entities) to which the usual conditionof consolidation, a controlling financial interest, does not apply.  FIN 46 requires an entity to assess itsbusiness relationships to determine if they are variable interest entities.  As defined in FIN 46, variable interests arecontractual, ownership or other interests in an entity that change with changesin the entity’s net asset value. Variable interests in an entity may arise from financial instruments,service contracts, guarantees, leases or other arrangements with the variableinterest entity.  An entity that willabsorb a majority of the variable interest entity’s expected losses or expectedresidual returns, as defined in FIN 46, is considered the primary beneficiaryof the variable interest entity.  Theprimary beneficiary must include the variable interest entity’s assets,liabilities and results of operations in its consolidated financialstatements.  FIN 46 was immediatelyeffective for all variable interest entities created after January 31,2003.  For variable interest entitiescreated prior to this date, the provisions of FIN 46 were originally requiredto be applied no later than the Company’s first quarter of Fiscal 2004.  In December 2003, the FASB issued FASBStaff Position (FSP) FIN 46-6, Effective Date of FASB Interpretation No. 46:*Consolidation of Variable Interest Entities*.  The FSP provided a limited deferral (untilthe end of the Company’s second quarter of 2004) of the effective date of FIN 46for certain interests of a public entity in a variable interest entity or apotential variable interest entity.  TheCompany adopted FIN 46 for the year ended June 30, 2003.

 

During 2002, the Company formed an incorporated jointventure with Agriculture Victoria Services Pty. Ltd. (“AVS”) for the purpose ofusing ultra-high throughput genomic technologies and facilities to acceleratebreeding programs in both the plant and animal agricultural industries.  The shares in the joint venture companyAgGenomics Pty. Ltd. (“AgGenomics”) are owned as to 50.1% by the Company’swholly-owned subsidiary, GeneType Pty. Ltd. Under the terms of the agreement, the Company is required  to provide working capital to AgGenomics tohelp fund AgGenomics’ operations.  TheCompany’s maximum exposure to loss as a result of its involvement in AgGenomicsis the balance of the working capital loans provided to AgGenomics.  At June 30, 2007 and 2006, AgGenomicshas outstanding loans payable to the Company in the amount of $336,749 and$325,616, respectively.  These amountswere eliminated for consolidation purposes. The Company also receives a management fee for various services providedto AgGenomics.  AVS is not required toprovide funding in addition to its capital contribution of $28.  The Company is the primary beneficiary ofAgGenomics and, accordingly consolidates AgGenomics in the accompanyingfinancial statements.  The total assetsand net liabilities of AgGenomics as of June 30, 2007 (net of eliminatingbalances) were $25,680 and $131,794, respectively.

 

***Recent pronouncements***

 

*Uncertainty in Income Taxes*

 

In July 2006, the FASB issued FASB Interpretation (“FIN”)No. 48, *Accounting for Uncertainty in Income Taxes*,an interpretation  of FASB No. 109, *Accounting for Income Taxes* (“FIN 48”).  FIN 48 creates a single model to addressuncertainty in tax positions and clarifies the accounting for income taxes byprescribing the minimum recognition threshold a tax position is required tomeet before being recognized in the financial statements.  FIN 48 also provides guidance onderecognition, measurement, classification, interest and penalties, accountingin interim periods, disclosure, and transition. In addition, FIN 48 clearly scopes out income taxes from SFAS No. 5, *Accounting for Contingencies*.  FIN 48 applies to all tax positions relatedto income taxes subject to SFAS No. 109.  Thisincludes tax positions considered to be “routine” as well as those with a highdegree of uncertainty.  The guidancecontained in FIN 48 is also applicable to pass-through entities, non-taxableentities, and entities whose tax liability is subject to 100% credit for dividends paid.  FIN 48 utilizes the following two-stepapproach for evaluating tax positions: recognition (step one) and measurement (step two).  Step one occurs when an enterprise concludesthat a tax position, based solely on its technical merits, ismore-likely-than-not to be sustained on examination.  Step two is only addressed if step one hasbeen satisfied.  Under step two, the taxbenefit is measured as the largest amount of benefit, determined on acumulative probability basis, which is more-likely-than-not to be realized onultimate settlement.  Derecognition of atax position that was previously recognized would occur when a companysubsequently determines that a tax position no longer meets themore-likely-than-not threshold of being sustained.  FIN 48 specifically prohibits the use of avaluation allowance as a substitute for derecognition of  tax positions.  FIN 48 requires expanded disclosures,including a tabularroll forward of the beginning and ending aggregate unrecognized tax benefits aswell as specific detail related to tax uncertaintiesfor which it isreasonably possible the amount of unrecognized tax benefit will significantlyincrease or decrease within twelve months.  Thesedisclosures are required at each annual reporting period, unless a significantchange occurs in an interim period.  FIN48 is effective for fiscal years beginning after December 15, 2006.  The Company plans to adopt this pronouncementin fiscal year beginning July 1, 2007 and does not believe the adoption ofFIN 48 will have a material effect on the financial statements.

 

F12

----

*** ***

*Fair Value Measurements*

 

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements* (“SFAS 157”).  SFAS 157 provides enhanced guidance for usingfair value to measure assets and liabilities and also responds to investors’requests for expanded information about the extent to which companies measureassets and liabilities at fair value, the information used to measure fairvalue, and the effect of fair value measurements on earnings.  SFAS 157 applies whenever other standardsrequire (or permit) assets or liabilities to be measured at fair value and doesnot expand the use of fair value in any new circumstances.  Under SFAS 157, fair value  refers to the price that would be received tosell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants in the market in which the reporting entity transacts.  SFAS 157 clarifies the principle that fairvalue should be based on the assumptions market participants would use whenpricing the asset or liability.  Insupport of this principle, SFAS 157 establishes a fair value hierarchy thatprioritizes the information used to develop those assumptions.  The fair value hierarchy gives the highestpriority to quoted prices in active markets and the lowest priority tounobservable data.  Under SFAS 157, fairvalue measurements would be separately disclosed by level within the fair valuehierarchy.  SFAS 157 is effective forfinancial statements issued for fiscal years beginning after November 15,2007.  The Company plans to adopt thispronouncement in fiscal years beginning July 1, 2008 and  does not believe the adoption of SFAS 157will have a material effect on the financial statements.

 

*Payment for Goods or Services for Research*

 

In June 2007, the FASB issued EITF Issue No. 07-3“Accounting for Non-refundable Advance Payments for Goods or Services Receivedfor Use in Future Research and Development Activities” (“EITF 07-3”).  EITF 07-3 requires that non-refundable advancepayments for goods or services that will be used or rendered for futureresearch and development activities should be deferred and capitalized.  Amounts that have been deferred andcapitalized should be recognised as an expense as the related goods are deliveredor the related services are performed. It is a requirement that the Company should continue to evaluate whetherit expects the goods to be delivered or services to be rendered.  If at any point that expectation ceases toexist, the capitalized advance payment should be charged to expense.  EITF 07-3 is effective for financialstatement issued for fiscal years beginning after December 15, 2007, andinterim periods within those fiscal years. The Company plans to adopt this pronouncement in fiscal year beginning July 1,2008 and does not believe the adoption of EITF 07-3 will have a material effecton the financial statements.

 

*Fair Value Option for Financial Assets and Financial Liabilities*

 

In February 2007, the FASB issued SFAS No. 159 “TheFair Value Option for Financial Assets and Financial Liabilities, including anamendment of FASB Statement No. 115” (“SFAS 159”).  SFAS 159 permits entities to measure eligiblefinancial assets, financial liabilities and firm commitments at fair value, onan instrument-by-instrument basis, that are otherwise not permitted to beaccounted for at fair value under other generally accepted accountingprinciples.  The fair value measurementis irrevocable and subsequent changes in fair value must be recorded in earnings.  SFAS 159 is effective for financialstatements issued for fiscal years beginning after November 15, 2007.  The Company plans to adopt this pronouncementin fiscal year beginning July 1, 2008 and does not believe the adoption ofSFAS 159 will have a material effect on the financial statements.

 

***3.      Cost-method investments***

 

On December 13, 2001, the Company acquired 12,689ordinary shares, or approximately 1% of the outstanding share capital, of XY, Inc.,an unlisted company based in Fort Collins, Colorado.  This acquisition was financed by the issuanceof 507,560 ordinary shares of the Company valued at $138,407.  On May 12, 2003, the Company increasedits holding in XY, Inc. by acquiring 17,500 ordinary shares through theissuance of 700,000 ordinary shares of the Company, valued at $171,676.  As of June 30, 2006, the Company owned atotal of 30,189 ordinary shares in XY, Inc. (representing approximately0.42% and 0.42% of the issued ordinary shares of XY, Inc., respectively),valued at $301,890 (2005: $301,890).  On May 15,2007, the Company sold all of its shares in XY, Inc.  The total proceeds received from the salewere $274,418, which resulted in a net loss on sale of shares of $27,472, beingrecorded as other income/(expense).  Asof June 30, 2007, the CEO of the Company was also the former CEO andChairman of XY, Inc.

 

In September 2002, the Company issued a limitedlicense to Perlegen Sciences, Inc. (“Perlegen”), at which time Perlegenpaid $860,000 in up-front fees.  Thesefees were satisfied by the payment of cash and the issuance of 127,000 Series Bshares, giving the Company an insignificant share holding in Perlegen.  As of June 30, 2007 and 2006, theCompany owned a total of 127,000 Series B shares in Perlegen, valued at$198,121 (2006: $198,121).

 

F13

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*** ***

***4.      Property, plant and equipment***

 

Property, plant and equipment consists of the following:

 
| ** **                                         | ** ** | **June 30,** | ** ** |
|----------------------------------------------------|------------|-------------------|------------|
| ** **                                         | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Laboratory equipment, at cost                      |       | $                 | 3,232,829  |   | $ | 2,244,493 |   |
| Accumulated depreciation                           |       | (2,172,094        | )          | (1,486,140 | ) |
|                                               |       |              |       |   |   |
| Net laboratory equipment                           |       | $                 | 1,060,735  |   | $ | 758,353 |   |
|                                               |       |              |       |   |   |
| Computer equipment, at cost                        |       | $                 | 587,535    |   | $ | 443,215 |   |
| Accumulated depreciation                           |       | (440,406          | )          | (277,543 | ) |
|                                               |       |              |       |   |   |
| Net computer equipment                             |       | $                 | 147,129    |   | $ | 165,672 |   |
|                                               |       |              |       |   |   |
| Office equipment, at cost                          |       | $                 | 126,325    |   | $ | 94,863 |   |
| Accumulated depreciation                           |       | (78,215           | )          | (57,558 | ) |
|                                               |       |              |       |   |   |
| Net office equipment                               |       | $                 | 48,110     |   | $ | 37,305 |   |
|                                               |       |              |       |   |   |
| Laboratory equipment under hire purchase,  at cost |       | $                 | 1,386,468  |   | $ | 1,182,141 |   |
| Accumulated depreciation                           |       | (1,042,239        | )          | (512,282 | ) |
|                                               |       |              |       |   |   |
| Net laboratory equipment under hire  purchase      |       | $                 | 344,229    |   | $ | 669,859 |   |
|                                               |       |              |       |   |   |
| Leasehold improvements, at cost                    |       | $                 | 78,295     |   | $ | 63,825 |   |
| Accumulated depreciation                           |       | (27,526           | )          | (13,120 | ) |
|                                               |       |              |       |   |   |
| Net leasehold improvements                         |       | $                 | 50,769     |   | $ | 50,705 |   |
|                                               |       |              |       |   |   |
| Total net property, plant and equipment            |       | $                 | 1,650,972  |   | $ | 1,681,894 |   |

 

Depreciation expense for 2007, 2006 and 2005 was$515,960, $521,966 and $550,477, respectively. Amortization of leased assets expense was $424,456, $390,700 and$138,920, respectively.

 

***5.      Patents, net***

 

On June 15, 2004, the Company acquired asuite of intellectual property from the C.Y. O’Connor ERADE Village Foundation(“CYO”) in Perth, Western Australia. Consideration for the acquisition was satisfied via the issue by theCompany of 16,666,667 ordinary shares with a market value of $0.27 (AUD0.39)each on the date of issue, or $4,524,000 (AUD6,500,000) in total.

 

Patents consist of the following:

 
| ** **                    | ** ** | **June 30,** | ** ** |
|-------------------------------|------------|-------------------|------------|
| ** **                    | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Patents                       |       | $                 | 5,447,517  |   | $ | 4,831,334 |   |
| Accumulated amortization      |       | (1,630,106        | )          | (1,011,582 | ) |
| Accumulated impairment losses |       | (976,464          | )          | — |   |
| Patents, net                  |       | $                 | 2,840,947  |   | $ | 3,819,752 |   |

 

Patents are reported entirely by the Australiansegment of the Company.  The change inthe carrying value of patents is represented by:

 
| ** **                             | ** ** | **June 30,** | ** ** |
|----------------------------------------|------------|-------------------|------------|
| ** **                             | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Patents, opening cost                  |       | $                 | 4,831,334  |   | $ | 4,951,700 |   |
| Purchases                              |       | —            |       | 6,494 |   |
| Foreign currency exchange fluctuations |       | 616,183           |       | (126,860 | ) |
| Patents, closing cost                  |       | $                 | 5,447,517  |   | $ | 4,831,334 |   |

 

14

----

 
| ** **                             | ** ** | **June 30,** | ** ** |
|----------------------------------------|------------|-------------------|------------|
| ** **                             | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Accumulated amortization, opening      |       | $                 | 1,011,582  |   | $ | 536,434 |   |
| Amortization expense                   |       | 513,453           |       | 492,304 |   |
| Foreign currency exchange fluctuations |       | 105,071           |       | (17,156 | ) |
|                                   |       |              |       |   |   |
| Accumulated amortization, closing      |       | $                 | 1,630,106  |   | $ | 1,011,582 |   |
|                                   |       |              |       |   |   |   |   |
| Accumulated impairment losses, opening |       | $                 | —     |   | $ | — |   |
| Impairment loss                        |       | 908,416           |       | — |   |
| Foreign currency exchange fluctuations |       | 68,048            |       | — |   |
|                                   |       |              |       |   |   |
| Accumulated impairment losses, closing |       | $                 | 976,464    |   | $ | — |   |

 

**Impairment notes**

 

The impairment loss arose in respect of patents heldwithin the research operating segment resulting from slower than expectedprogress with research and development related to the potentialcommercialisation of the genetic testing technology covered by  these patents, combined with increasedcompetition in this marketplace within the past year.  Specifically, events during the year contributedto a change in the following key assumptions:

 

1.     Reduction in the expected future marketpenetration of developed products (e.g. bone marrow testing kits);

 

2.     Reduction in the expected underlying marketprice;

 

3.     Refinement of market size parameters basedon actual, rather than estimated, data;

 

4.     Revision of expected overhead costs relatedto the ongoing research and future commercialisation of these products; and

 

5.     Exclusion of Europe as a potential market,as it was decided, based on the Company’s limited resources, increasedcompetition, the remaining patent life and the delays mentioned previously,that it would focus initially on the US market (being the world’s largestmarket).

 

In conjunction with work performed by an independentvaluation expert, an impairment charge of $908,416 was calculated by Managementand recorded against the carrying value of the respective patents.  The recoverable amount of the patents isbased on value-in-use calculations.  Theestimated risk adjusted cashflows were discounted by the risk free rate of6.5%.  The risks specific to therecoverability of the asset are reflected in the future cash flow estimatesthrough the use of an expected present value approach as discussed in Note 2.

 

Cashflow forecasts associated with the impairmentassessment of the patents have been projected to 2012, being the year in whichthe first of the respective patents is due to expire, using the weightedaverage outcomes arising from different scenarios varying the success rate inpenetrating the US market as the key assumption to which the recoverable amountassessment is most sensitive.  Theforecasts and associated recoverable amount has been determined by anindependent valuation expert, taking into account the Company’s contractualfuture research funding obligations, the current market prices for bone marrowtesting kits and the estimated bone marrow transplant market size based on theUS national bone marrow registry database.

 

With regards to the assessment of the value-in-use of thepatents in the research operating segment, Management believes that there are no reasonablypossible changes in any of the above key assumptions that would cause thecarrying value of the patents to materially exceed their recoverable amount.

 

No other class of asset was impaired following from thisexercise and no change in the useful economic life of the patents wasnoted.  Below is a schedule of estimatedaggregate amortization expense for patents for all succeeding years, as at June 30,2007:

 
| **Year ending June 30,** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|
| 2008                                    |       | 405,850    |       |
| 2009                                    |       | 405,850    |       |
| 2010                                    |       | 405,850    |       |
| 2011                                    |       | 405,850    |       |
| 2012 and  thereafter                    |       | 1,217,547  |       |
| Total  estimated amortization           |       | $          | 2,840,947  |   |
|                                         |            |            |            |  |

 

F15

----

 

***6.      Goodwill, net***

 

Goodwill consists of the following:

 
| ** **               | ** ** | **June 30,** | ** ** |
|--------------------------|------------|-------------------|------------|
| ** **               | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Goodwill                 |       | $                 | 303,988    |   | $ | 265,752 |   |
| Accumulated amortization |       | (10,218           | )          | (8,933 | ) |
| Goodwill, net            |       | $                 | 293,770    |   | $ | 256,819 |   |

 

Goodwillis reported entirely by the Australian segment of the Company.  The change in the carrying value of goodwillis represented by:

 
| ** **                             | ** ** | **June 30,** | ** ** |
|----------------------------------------|------------|-------------------|------------|
| ** **                             | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Goodwill, opening cost                 |       | $                 | 265,752    |   | $ | 364,150 |   |
| Goodwill written-off                   |       | —            |       | (81,851 | ) |
| Foreign currency exchange fluctuations |       | 38,236            |       | (16,547 | ) |
| Goodwill, closing cost                 |       | $                 | 303,988    |   | $ | 265,752 |   |
|                                   |       |              |       |   |   |   |   |
| Accumulated amortization, opening      |       | $                 | 8,933      |   | $ | 17,167 |   |
| Accumulated amortization written back  |       | —            |       | (8,970 | ) |
| Foreign currency exchange fluctuations |       | 1,285             |       | 736 |   |
| Accumulated amortization, closing      |       | $                 | 10,218     |   | $ | 8,933 |   |

 

Inprior years, the Company had acquired several businesses providing genetictesting services.  As part of theseacquisitions, amounts of goodwill were ascribed to the value of the variousbrand names acquired.  During 2006, theCompany restructured its genetic testing business to streamline itsoperations.  As part of this restructure,two of these brand names were abandoned. Accordingly, goodwill related to these names amounting to $81,851waswritten off.

 

**Impairment notes**

 

Goodwill is allocated to the Company’s testing segment onthe basis of the appropriate operating segment to which it relates.  Discrete financial information is preparedand regularly reviewed by Management at the segment level and thus a reportingunit represents the operating segment. The recoverable amount of the reporting unit is determined based on the value-in-usecalculations.  There is no carryingamount of intangible assets with indefinite useful lives allocated to thissegment.  These calculations use cashflow projections based on financial budgets approved by the Board.  In performing the value-in-use calculations,the Directors have assumed that the testing business will begin to generatean operating profit in the next 2 to 3 years based on projected revenue growth.  Should this time period be extended beyond 3years, there is a possibility that the value-in-use may fall below the carryingvalue of the goodwill.

 

The cashflow projections assume revenues of $3.8 millionin 2008 based on Management forecasts. As a key assumption, constant revenue growth of 18% is assumed beyond2008 based on the historical five-year average growth rate applicable to thetesting business.  Expenses are assumedto be relatively constant over time given that significant capacity isavailable with the existing laboratory equipment and the testing business isrelatively capital-intensive.  Managementhas assessed the future cashflows using discount rates ranging between 10% and25% which result in the recoverable amount exceeding the carrying value ofgoodwill.

 

F16

----

*** ***

***7.      Income taxes***

 

Loss before income taxes for the years ended June 30,2007, 2006 and 2005 was realized in the following jurisdictions:

 
| ** **               | ** ** | **Years ended June 30,** | ** ** |
|--------------------------|------------|-----------------------------------------|------------|
| ** **               | ** ** | **2007**                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| Australia                |       | $                                       | (1,129,606 | ) | $ | (3,889,194 | ) | $ | (5,477,481 | ) |
| Switzerland              |       | (14,665                                 | )          | (15,043 | ) | (16,902 | ) |
| Canada                   |       | (71,058                                 | )          | (38,569 | ) | (18,211 | ) |
| USA                      |       | (2,164                                  | )          | (1,907 | ) | — |   |
| Loss before income taxes |       | $                                       | (1,217,493 | ) | $ | (3,944,713 | ) | $ | (5,512,594 | ) |

 

Significant components of the Company’s deferredincome tax assets at June 30, 2007 and 2006 are as follows:

 
| ** **                                | ** ** | **Years ended June 30,** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                | ** ** | **2007**                                | ** ** | **2006** | ** ** |
| **Deferred tax asset**                    |       |                                    |       |   |   |
| Temporary differences                     |       |                                    |       |   |   |
| Patents                                   |       | $                                       | 562,926    |   | $ | 751,645 |   |
| Fixed assets                              |       | 456,251                                 |       | — |   |
| Foreign withholding taxes                 |       | 275,819                                 |       | 445,726 |   |
| Employee provisions and other differences |       | 287,586                                 |       | 111,581 |   |
| Proceeds from Applera settlement          |       | 1,622,452                               |       | 1,672,711 |   |
| Net operating loss carry forward          |       | 5,822,315                               |       | 5,111,462 |   |
| Total deferred tax asset                  |       | $                                       | 9,027,349  |   | $ | 8,093,125 |   |
| Valuation allowance                       |       | (9,027,349                              | )          | (8,093,125 | ) |
| Net                                       |       | $                                       | —     |   | $ | — |   |

 

The deferred tax asset isreconciled as follows:

 
| Current                  |   | $         | 550,547   |      | $      | 557,307   |   |
|--------------------------|--------|-----------|-----------|-----------|--------|-----------|--------|
| Non-current              |   | 8,476,802 |      | 7,535,818 |   |
| Total deferred tax asset |   | $         | 9,027,349 |      | $      | 8,093,125 |   |

 

The net movement in valuationallowance was $(934,224) and $(1,876,406) for the years ended June 30,2007 and 2006, respectively.

 

Impact of foreign currency movement in gross deferred taxassets relating to tax losses:

 
| ** **                                             | ** ** | **Years ended June 30,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                             | ** ** | **2007**                                | ** ** | **2006** | ** ** |
| **Deferred tax asset relating to tax losses**          |       |                                    |       |   |   |
| Tax losses brought forward from prior year             |       | $                                       | 5,111,462  |   | $ | 4,643,253 |   |
| Current year tax losses                                |       | 111,267                                 |       | 372,192 |   |
| Tax losses lost                                        |       | —                                  |       | — |   |
| Effect of foreign currency translations                |       | 599,586                                 |       | 96,017 |   |
| Total gross deferred tax asset relating to  tax losses |       | $                                       | 5,822,315  |   | $ | 5,111,462 |   |

 

F17

----

 

In assessing the realizability of deferredtax assets, Management considers whether it is more-likely-than-not that someor all of the deferred tax assets will be realized.  The ultimate realization of deferred taxassets is dependent upon the generating of future taxable income during theperiods in which those temporary differences become deductible.  Management considers the projected futuretaxable income and projections for future taxable income over the periods inwhich the deferred tax assets are deductible. At this time, Management has concluded that it is notmore-likely-than-not that the Company will realize the benefits of thesedeductible differences, as there can be no assurance that the Company willgenerate the necessary taxable income in future periods.

 

The deferred tax asset arisingfrom tax losses generated in Australia of $4,788,501 is indefinite as to use,subject to meeting various statutorytests.  The deferred tax asset arisingfrom tax losses generated in Switzerland of $67,329 expires over seven yearscommencing the financial year ending June 30,2008.  The deferred tax asset arisingfrom tax losses generated in the United States of America of $789,916 expiresover 15 years commencing with the financial year ending June 30, 2007 upto and including financial year ending June 30, 2021.  Finally, the deferred tax asset arising fromtax losses generated in Canada of $176,569 expires over seven years commencingwith the financial year ending June 30, 2008.  Tax losses lost in 2005 of $2,265,920 arosein connection with the creation of a tax consolidation group.

 

The following table reconciles the income tax provision at theAustralian statutory rate to that in the financial statements:

 
| ** **                                      | ** ** | **Years ended June 30,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| Loss before income taxes and minority  interest |       | $                                       | (1,217,493 | ) | $ | (3,944,713 | ) | $ | (5,512,594 | ) |
|                                            |       |                                    |       |   |   |   |   |
| Income tax rate                                 |       | 30                                      | %          | 30 | % | 30 | % |
|                                            |       |                                    |       |   |   |   |   |
| Income tax benefit at statutory rate            |       | $                                       | (365,248   | ) | $ | (1,183,414 | ) | $ | (1,653,778 | ) |
|                                            |       |                                    |       |   |   |   |   |
| Tax losses utilized                             |       | —                                  |       | 715,176 |   | — |   |
|                                            |       |                                    |       |   |   |   |   |
| Adjust for permanent differences:               |       |                                    |       |   |   |   |   |
| Stock compensation                              |       | 113,833                                 |       | 183,253 |   | — |   |
| Difference in tax rates                         |       | —                                  |       | 363 |   | 2,359 |   |
| Research and development concessions            |       | (163,236                                | )          | (112,125 | ) | (227,975 | ) |
| Other non-deductible items                      |       | 21,083                                  |       | 24,555 |   | — |   |
| Benefits of operating loss carry forward        |       | $                                       | (393,568   | ) | $ | (372,192 | ) | $ | (1,879,394 | ) |
| Increase in valuation allowance                 |       | 393,568                                 |       | 372,192 |   | 1,879,394 |   |
| Foreign taxes - current                         |       | 208,850                                 |       | 67,649 |   | 195,339 |   |
| Income tax expense - current                    |       | $                                       | 208,850    |   | $ | 67,649 |   | $ | 195,339 |   |
| Tax withheld directly                           |       | (411,050                                | )          | (101,481 | ) | — |   |
| Other foreign currency movements                |       | 32,293                                  |       | (12,428 | ) | 18,656 |   |
| Opening provision for income tax                |       | 445,726                                 |       | 491,986 |   | 277,991 |   |
| Closing provision for income tax                |       | $                                       | 275,819    |   | $ | 445,726 |   | $ | 491,986 |   |

 
| ** **    | ** ** | **Years ended June 30,** | ** ** |
|---------------|------------|-----------------------------------------|------------|
| ** **    | ** ** | **2007**                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Tax rates** |       |                                    |       |   |   |   |   |
| Australia     |       | 30                                      | %          | 30 | % | 30 | % |
| United States |       | 39                                      | %          | 39 | % | 39 | % |
| Switzerland   |       | 8.5                                     | %          | 8.5 | % | 8.5 | % |
| Canada        |       | 37                                      | %          | 37 | % | 37 | % |
|               |            |                                         |            |  |  |  |  |  |

 

F18

----

 

***8.      Deferred revenue***

 
| ** **                                      | ** ** | **June 30,** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|
| ** **                                      | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Opening balance                                 |       | $                 | 25,000     |   | $ | 366,790 |   |
| Add: cash receipts from customers               |       | 253,818           |       | — |   |
| Less: amount of revenue recognized in  earnings |       | (26,604           | )          | (326,532 | ) |
| Add: foreign exchange movements                 |       | 20,616            |       | (15,258 | ) |
| Closing balance                                 |       | $                 | 272,830    |   | $ | 25,000 |   |

 

***9.      Unsecured loan***

 
| ** **     | ** ** | **June 30,** | ** ** |
|----------------|------------|-------------------|------------|
| ** **     | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Unsecured loan |       | $                 | 594,370    |   | $ | 519,610 |   |
|           |       | $                 | 594,370    |   | $ | 519,610 |   |

 

The long-term loan represents an unsecured,non-interest bearing loan from the Australian Commonwealth Government receivedunder the Research & Development Start Program.  The loan represents a portion of a grantreceived by the Company, which has been deferred in accordance with the grantagreement.  The loan will be repayable onor before January 15, 2009, if the Company commercializes a product as aresult of the research covered under the grant. If no product is commercialized, the Company will recognize grantrevenue after January 15, 2009, when the loan is no longer repayable.  The costs associated with the research havebeen expensed prior to 2004.  Themovement for the year represents foreign currency exchange translation.

 

***10.    Related party transactions and balances***

 
| ** **                                                                                                                                                                                                                                                                                                                          | ** ** | **Years ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                          | ** ** | **2007**                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| 4F Investments Pty. Ltd. is associated with  Mr. Fred Bart (director in common) and provided management services  (included in general and administrative expenses) to the Company at a cost of                                                                                                                                |       | $                                       | —     |   | $ | — |   | $ | 27,231 |   |
|                                                                                                                                                                                                                                                                                                                                |       |                                    |       |   |   |   |   |   |   |   |
| Bankberg Pty. Ltd. is associated with the  Company’s Chief Executive Officer, Dr. Mervyn Jacobson (director in  common), and provided the office and laboratory premises in Fitzroy to  GeneType Pty. Ltd., a wholly-owned subsidiary. During the respective periods,  GeneType Pty. Ltd. paid Bankberg Pty. Ltd. rent of |       | $                                       | 351,822    |   | $ | 298,457 |   | $ | 293,100 |   |

 

On May 12, 2003, the Company increasedits holding in XY, Inc. by acquiring 17,500 ordinary shares through theissuance of 700,000 ordinary shares of the Company, valued at $171,676.  As of June 30, 2006, the Company owned atotal of 30,189 ordinary shares in XY, Inc. (representing approximately0.42% and 0.42% of the issued ordinary shares of XY, Inc., respectively),valued at $301,890 (2005: $301,890).  On May 15,2007, the Company sold all of its shares in XY, Inc.  The total proceeds received from the salewere $274,418.  As of June 30, 2007,the CEO of the Company was also the former CEO and Chairman of XY, Inc.

 

Premisespreviously leased by the Company were subleased to director relatedentities.  Rental recoveries wereincluded against rent expenses in the consolidated statement ofoperations.  Total rental recoveries forcancellable leases received by the Company from director related entitiesduring the years ended June 30, 2007, 2006 and 2005 amounted to $nil, $niland $46,053, respectively.

 

F19

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*** ***

***11.    Commitments andcontingencies***

 

***Capitalexpenditure commitments***

 

The Companydoes not have any significant capital expenditure commitments that are subjectto binding contracts.  However, theCompany has continuing minimal expenditure requirements of the WesternAustralian Mines Department in respect of its prospecting and explorationlicenses and mining leases, which are met by its joint venture partners.

 

The Company has an investment in the NorthLaverton Joint Venture with Regis Resources NL. The Company is not contributing any funding towards the project byagreement with the joint venture partner and does not have any involvement inits operations.  All liabilities areborne by the joint venture partner.  TheCompany’s investment has been valued at nil in the years ended June 30,2007 and 2006, respectively.  As a resultof this election not to contribute its share of expenditures, the Company’sinterest in the joint venture was diluted down to 16.36% as of June 30,2007 (2006: 17.45%).  During 2007, theCompany recognized a provision for $66,653 (2006: $nil) in respect of its shareof the estimated rehabilitation costs associated with the North Lavertonproject.

 

***Hirepurchase commitments***

 

On January 14, 2005, the Companyexecuted a Master Asset Finance Agreement with National Australia Bank Limited(the “Bank”) in respect of a $2,122,750 (AUD2,500,000) finance facility (the “Facility”).  During the period up to June 30, 2007,the Company financed the acquisition of laboratory and office equipment underthe Facility with a total value of $1,386,468 (AUD1,632,868).  A cash security deposit of $753,602(AUD887,530) was held by the Bank as of June 30, 2007.  Interest on the Facility is charged at ratesranging from 6.93% to 9.07% per annum. The hire purchase contracts have a term of three years with a 10%residual being payable at the conclusion of the contract.  Each of the Company’s Australian-residentcontrolled entities has provided a guarantee to the Company in respect of theFacility.

 

On February 9, 2005, the Company enteredinto a sale-and-hire-back transaction pursuant to which it sold three items oflaboratory equipment back to the Bank for $444,961 (AUD588,262).  The equipment was then refinanced by the Bankunder the Facility.

 

Details of the Company’s future hire purchasecommitments under the Facility as of June 30, 2007 are as follows:

 
| Minimum hire purchase payments                                           |   |    |    |
|--------------------------------------------------------------------------|--------|---------|---------|
| Year ending 2008                                                         |   | $       | 421,726 |   |
| Year ending 2009                                                         |   | 42,009  |    |
| Total minimum hire purchase payments                                     |   | $       | 463,735 |   |
| Less: future finance charges                                             |   | (18,835 | )       |
| Aggregate hire purchase expenditure  contracted for as at reporting date |   | $       | 444,900 |   |
|                                                                     |   |    |    |
| Aggregate expenditure commitments comprise:                              |   |    |    |
| Current liability                                                        |   | $       | 405,011 |   |
| Non-current liability                                                    |   | 39,889  |    |
| Total expenditure commitments                                            |   | $       | 444,900 |   |

 

***Researchand development commitments***

 

As of June 30, 2007, theCompany funded five separate research and development projects.  Refer Note 17 for details of the variouscommitments and contingencies pertaining to these projects.

 

***Leases***

 

Operating leases relate tooffice and laboratory premises in Fitzroy, Victoria, and office premises inSydney, New South Wales that wereformerly occupied by the Company.  Thelease over the Fitzroy premises is in the name of GeneType Pty. Ltd. (awholly-owned subsidiary of theCompany) and expires on June 30, 2011. GeneType Pty. Ltd. has an option to extend the lease at its expirationfor a further ten year period.  Havingpreviously vacated the Sydney premises in November 2005, the Companynegotiated with the existing co-tenants for them to assume all rights andobligations with respect to those premises as from January 1, 2006.  The Fitzroy premises are owned by BankbergPty. Ltd., a company associated with the Company’s former Chief ExecutiveOfficer, and current Non-Executive Director, Dr. Mervyn Jacobson.  The lease contains market review clauses  in the event that GeneType Pty. Ltd. exercises its option to renew.  GeneType Pty. Ltd. does not have an option topurchase the leased assets at the expiry of the lease period.

 

F20

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*** ***

Thefollowing is a schedule of future minimum lease payments for operating leasesthat had initial or remaining non-cancellable lease terms in excess of one yearas of June 30, 2007:

 
| **Year  ending June 30,**    |   |    |      |
|------------------------------|--------|---------|-----------|
|                         |   |    |      |
| 2008                         |   | $       | 355,074   |   |
| 2009                         |   | 370,197 |      |
| 2010                         |   | 370,197 |      |
| 2011                         |   | 370,197 |      |
| Total minimum lease payments |   | $       | 1,465,665 |   |

 

Rent expense totaling $351,822, $298,457 and $293,100 forthe years ended June 30, 2007, 2006 and 2005, respectively, was paid toBankberg Pty. Ltd. and allocated across the five expense categories as follows:

 
| ** **                 | ** ** | **As of and for the year ended June 30,** | ** ** |
|----------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **Expense category**  | ** ** | **2007**                                                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service testing expenses   |       | $                                                                                 | 157,127    |   | $ | 133,294 |   | $ | 130,901 |   |
| Research and development   |       | 45,848                                                                            |       | 38,894 |   | 38,196 |   |
| Patent and license fees    |       | 45,252                                                                            |       | 38,388 |   | 37,699 |   |
| Sales and marketing        |       | 37,012                                                                            |       | 31,398 |   | 30,834 |   |
| General and administrative |       | 66,583                                                                            |       | 56,483 |   | 55,470 |   |
| Total rent expense         |       | $                                                                                 | 351,822    |   | $ | 298,457 |   | $ | 293,100 |   |

 

***Other contingencies***

 

The Company has been notified of a number of native titleclaims covering exploration tenements in the North Laverton Joint Venture in Western Australiaheld by the Company under the Commonwealth Native Title Act, 1993.  Until further information regarding  the claims and the affected area is available,the Company will not be in a position to assess the likely effect, if any, ofany claim.  However, the Directors expectthat any future exploration will not be materially affected by any claim or theclaims in aggregate.

 

***12.    Shareholders’ equity***

 

***Terms andconditions***

 

Ordinary shares have the rightto receive dividends as declared and, in the event of winding up the Company,to participate in the proceeds from sale of all surplus assets in proportion tothe 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.

 

***Restrictedsecurities***

 

On June 15, 2004, theCompany issued a total of 16,666,667 ordinary shares to C.Y. O’Connor ERADEVillage Foundation pursuant to a Sponsored Research Agreement between theparties.  Under the terms of theAgreement, these ordinary shares are subject to a voluntary escrow periodcontractually agreed by the parties the details of which are tabled below.  A total of 10,000,000 shares have alreadybeen released from escrow.

 
| **Date of escrow expiry** | ** ** | **Number of ordinary shares to be released from escrow** | ** ** |
|------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| ** **                               | ** ** | ** **                                                                                       | ** ** |
| December 15, 2007                   |       |                                                                                             | 3,333,333  |   |
| December 15, 2008                   |       |                                                                                             | 3,333,334  |   |
|                                     |       |                                                                                             |       |   |
| Total number of ordinary shares          |       |                                                                                             | 6,666,667  |   |

 

Restricted securities have allthe rights and obligations of unrestricted securities during the escrow period,other than the ability to sell the shares.

 

F21

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*** ***

***13.    Stock options***

 

On August 29, 2000, the shareholders ofDuketon approved the granting of 70,000,000 stock options (“Vendor Options”) atan exercise price of $0.11 (AUD0.20) as partial consideration for theacquisition of GeneType AG.  Each optionwas exercisable into one ordinary share of the Company at any time on or beforeApril 14, 2005.  During the yearsended prior to June 30, 2004, a total 4,164,386 Vendor Options were exercised.  During the year ended June 30, 2005, atotal of 65,418,838 Vendor Options were exercised.  The remaining 416,776 VendorOptions lapsed, unexercised, on April 14, 2005.

 

Also on August 29, 2000, theshareholders of Duketon approved the grant of 3,000,000 stock options toemployee-directors (“Director Options”) at an exercise price of $0.26(AUD0.45).  Each of these Director Optionswas exercisable into one ordinary share at any time on or before April 14,2005.  No expense was previouslyrecognised.  During the year ended June 30,2004, a total of 1,000,000 Director Options were exercised.  The remaining 2,000,000 Director Optionslapsed on April 14, 2005.

 

On May 22, 2001, Gtech InternationalResources Limited, a subsidiary of the Company, issued a total of 130,000directors’ options to Dr. MervynJacobson at an exercise price of $0.25 (CAD0.38).  These options lapsed unexercised on May 22,2006.  On February 3, 2005, Mr. Fred Bart exercised a total of38,500 directors’ options in Gtech International Resources Limited at anexercise price of $0.16 (CAD0.20).  On August 26,2005, Gtech International Resources Limited, a subsidiary of the Company,issued 100,000 directors’ options to Mr. Thomas Howitt at an exerciseprice of $0.38 (CAD0.45).

 

On August 2, 2001, the Company announcedthat it had entered into an agreement with GTH Capital of New York to pursueits listing on the National Association of Securities Dealers AutomatedQuotations (“NASDAQ”).  In accordancewith the agreement, the Company agreed to issue 900,000 options at an exerciseprice of $0.36 (AUD0.70) to GTH Capital within three years.  GTH Capital subsequently assigned its rightsto GMCG, LLC.  The issue of the optionsis subject to meeting specified performance criteria in achieving the NASDAQlisting.  As of June 30, 2005, theCompany had issued to GMCG, LLC a total of 600,000 options that have metspecific performance criteria. Subsequent to June 30, 2005, the parties agreed not to proceed withthe issue of the 300,000 remaining options, notwithstanding the listing of theCompany’s Level II ADRs on NASDAQ on September 2, 2005, as certainperformance criteria were not met by GMCG, LLC. In accordance with SFAS 123, the Company recorded an expense of $10,827in the year ended June 30, 2004.  Noexpense was recognised for 2006 and 2005. These options subsequently lapsed unexercised on September 7, 2007.

 

On September 4, 2003, the Companygranted 6,666,667 stock options at an exercise price of $0.64 (AUD1.00) as partof a placement of ordinaryshares.  Each option was exercisable intoone ordinary share of the Company at any time on or before September 30,2005. These options vested immediately and carried no rights to dividends andno voting rights.  These options werenon-compensatory and were accounted for in permanent equity.  These options subsequently lapsed unexercisedon September 30, 2005.

 

On November 30, 2001, the Companyestablished a Staff Share Plan that permits the Company, at the discretion ofthe Board, to issue incentive stock options to directors, employees andconsultants.  The Company is required toreceive shareholder approval if the Company wishes to grant any options todirectors.  The number of optionsavailable to be issued by the Board is not restricted in number, but if theCompany issues options under the Plan which, together with other share issues,represents greater than 15% of the total share capital, the Company is requiredto obtain shareholder approval.

 

Options issued under the Staff Share Plan carry no rights to dividendsand no voting rights.  In accordance withthe terms of the Staff Share Plan, options generally vest on the basis of 25%per annum and 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.  Effective from July 1, 2005, the Companyadopted SFAS 123R, thereby recognizing the compensation cost in the financialstatements based on fair value for all share-based payments granted after thatdate, and based on the requirements of SFAS 123, for all unvested awardsgranted prior to the effective date of SFAS 123R.  In 2005 and 2004, the Company recorded anexpense based upon the difference between the exercise price and the marketprice of the Company’s ordinary shares at the date of the option grant.  In the years ended June 30, 2007, 2006and 2005, the expense was $360,677, $597,088 and $591, respectively.  Under the Staff Share Plan, the Company alsoissued options to consultants who would not be deemed employees of theCompany.  The Company records an expensein accordance with EITF 96-18 based on the fair value of the options issued inexchange for the services and the vesting period.  In the years ended June 30, 2007, 2006and 2005, this expense was $18,765, $13,755 and $nil, respectively.

 

F22

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*** ***

***13.    Stock options (cont.)***

 

In accordance with SFAS 123 and SFAS 123R, the Companyrecorded a total compensation expense of $379,442, $610,843 and $nil in theyears ended June 30, 2007, 2006 and 2005, respectively, which has beendissected in the following table.

 
| ** **                 | ** ** | **As of and for the year ended June 30,** | ** ** |
|----------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **Expense category**  | ** ** | **2007**                                                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service testing expenses   |       | $                                                                                 | 139,153    |   | $ | 174,767 |   | $ | — |   |
| Research and development   |       | 63,581                                                                            |       | 56,136 |   | — |   |
| Patent and license fees    |       | 14,478                                                                            |       | 91,903 |   | — |   |
| Sales and marketing        |       | 34,665                                                                            |       | 43,584 |   | — |   |
| General and administrative |       | 127,565                                                                           |       | 244,453 |   | — |   |
|                       |       |                                                                              |       |   |   |   |   |
| Total compensation expense |       | $                                                                                 | 379,442    |   | $ | 610,843 |   | $ | — |   |

 

Asummary of the Company’s stock option activity for years ended June 30,2007, 2006 and 2005 follows:

 
| ** **                                              | ** ** | **Number of   share options** | ** ** | **Exercise price   per option** | ** ** | **Weighted average   exercise price per option** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| Outstanding at June 30, 2004 * |       | 86,109,781                                   |       | $0.11 - $ 0.64                  |       | $                                                                         |  0.19 | ** ** |
| ** **                                              | ** ** | ** **                                   | ** ** | ** **                                     | ** ** | ** **                                                                | ** ** |
| Granted                                                 |       | 2,330,000                                    |       | $0.33 - $0.44                                  |       | $                                                                         | 0.39       |   |
| Exercised                                               |       | (65,561,338                                  | )          | $0.14 - $0.40                                  |       | $                                                                         | 0.16       |   |
| Forfeited                                               |       | (3,604,276                                   | )          | $0.15 - $0.45                                  |       | $                                                                         | 0.36       |   |
|                                                    |       |                                         |       |                                           |       |                                                                      |       |
| Outstanding at June 30, 2005                       |       | 19,274,167                                   |       | $0.29 - $0.76                                  |       | $                                                                         | 0.53       |   |
|                                                    |       |                                         |       |                                           |       |                                                                      |       |
| Granted                                                 |       | 5,300,000                                    |       | $0.30 - $0.42                                  |       | $                                                                         | 0.35       |   |
| Forfeited                                               |       | (6,666,667                                   | )          | $0.74                                          |       | $                                                                         | 0.74       |   |
| Expired                                                 |       | (2,630,000                                   | )          | $0.32 - $0.45                                  |       | $                                                                         | 0.42       |   |
|                                                    |       |                                         |       |                                           |       |                                                                      |       |
| Outstanding at June 30, 2006                       |       | 15,277,500                                   |       | $0.28 - $0.52                                  |       | $                                                                         | 0.38       |   |
|                                                    |       |                                         |       |                                           |       |                                                                      |       |
| Forfeited                                               |       | (1,175,000                                   | )          | $0.34 - $0.45                                  |       | $                                                                         | 0.38       |   |
| Expired                                                 |       | (1,525,000                                   | )          | $0.34 - $0.45                                  |       | $                                                                         | 0.37       |   |
|                                                    |       |                                         |       |                                           |       |                                                                      |       |
| Outstanding at June 30, 2007                       |       | 12,577,500                                   |       | $0.32 - $0.52                                  |       | $                                                                         | 0.45       |   |

 

----

*includes a total of 65,835,614 Vendor Options.

 

The number of unissued ordinary shares subject to optionsissued under the Staff Share Plan at June 30, 2007 was 11,977,500 (2006:14,677,500).  In addition, a total of600,000 options had been issued to GMCG, LLC, as stated above.

 

Theweighted-average fair value at grant date of the 5,300,000 options (2005:2,330,000) issued under the Staff Share Plan during 2006 was $0.15 (2005: $0.38- $0.39).  The aggregate intrinsic valueof the 12,577,500 options outstanding as of June 30, 2007 was $nil.  The aggregate intrinsic value of the9,177,500 options exercisable as of June 30, 2007 was also $nil.  The total fair value of the options whichvested during the years ended June 30, 2007, 2006 and 2005 was $343,150,$262,436 and $660,919, respectively.  Theweighted average fair values of those options were $0.18, $0.18 and $0.22,respectively.  The weighted average fairvalue of the 2,700,000 options which were forfeited or expired during 2007 was$0.24.  The aggregate intrinsic value ofthe 65,561,338 options that were exercised during 2005 was $13,016,636.

 

Thetotal compensation expense related to the 3,400,000 (2006: 6,381,250)non-vested options as of June 30, 2007 was $535,211 (2006: $985,343).  The periods over which these amounts will berecognized are disclosed in the tables below. The weighted average fair value of the non-vested options as of June 30,2007 and 2006 were $0.16 and $0.15, respectively.

 

During 2007 and 2006 (2005: 500,000), no options wereissued at an exercise price equal to the market price of the stock on the  grant date. The weighted average exercise price and weighted average fair value ofthe options issued in 2005 was $0.38 and $0.24, respectively.  In addition, no options were granted during2007 and 2006 (2005: 1,830,000) at exercise prices exceeding the market pricesof the stock on the respective grant dates.

 

F23

----

*** ***

***13.    Stock options (cont.)***

 

Thefollowing is additional information relating to all options outstanding 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                                   |       | 3,575,000                         |       | $0.37                                                  |       | 3.73 |   | 1,700,000 |   | $0.37 |   |
| $0.41 - $0.50                                   |       | 5,902,500                         |       | $0.45                                                  |       | 2.30 |   | 4,377,500 |   | $0.45 |   |
| $0.51 - $0.60                                   |       | 3,100,000                         |       | $0.53                                                  |       | 0.37 |   | 3,100,000 |   | $0.53 |   |
|                                            |       | 12,577,500                        |       | $0.45                                                  |       | 2.23 |   | 9,177,500 |   | $0.46 |   |

 

The following is additional information relating to alloptions outstanding as of June 30, 2006:

 
| ** **                                      | ** ** | **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                                   |       | 875,000                           |       | $0.29                                                  |       | 2.89 |   | 131,250 |   | $0.28 |   |
| $0.31 - $0.40                                   |       | 8,552,500                         |       | $0.35                                                  |       | 3.04 |   | 3,465,000 |   | $0.35 |   |
| $0.41 - $0.50                                   |       | 5,250,000                         |       | $0.43                                                  |       | 2.28 |   | 4,700,000 |   | $0.44 |   |
| $0.51 - $0.60                                   |       | 600,000                           |       | $0.52                                                  |       | 1.19 |   | 600,000 |   | $0.52 |   |
|                                            |       | 15,277,500                        |       | $0.38                                                  |       | 2.72 |   | 8,896,250 |   | $0.40 |   |

 

The following is additional information relating to alloptions outstanding as of June 30, 2005:

 
| ** **                                      | ** ** | **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                                   |       | 175,000                           |       | $0.29                                                  |       | 3.89 |   | 87,500 |   | $0.29 |   |
| $0.31 - $0.40                                   |       | 5,252,500                         |       | $0.35                                                  |       | 3.97 |   | 1,676,875 |   | $0.35 |   |
| $0.41 - $0.50                                   |       | 6,580,000                         |       | $0.45                                                  |       | 2.62 |   | 4,450,000 |   | $0.45 |   |
| $0.51 - $0.60                                   |       | 600,000                           |       | $0.53                                                  |       | 2.19 |   | 600,000 |   | $0.53 |   |
| $0.71 - $0.80                                   |       | 6,666,667                         |       | $0.76                                                  |       | 0.25 |   | 6,666,667 |   | $0.76 |   |
|                                            |       | 19,274,167                        |       | $0.53                                                  |       | 2.11 |   | 13,481,042 |   | $0.60 |   |

 

***14.    Non-cash investing andfinancing activities***

 

As stated below, GeneticTechnologies executed a Master Asset Finance Agreement with National AustraliaBank Limited in  respect of $2,122,750(AUD2,500,000) finance facility (the “Facility”).  During the period from January 14, 2005to June 30, 2007, the Company financed the acquisition of additionallaboratory equipment under the Facility with a total value of $1,386,468(AUD1,632,868), being $34,244 during fiscal year 2007, $69,154 during fiscalyear 2006 and $1,283,070 during fiscal year 2005.  Each of the Company’s Australian-residentcontrolled entities has provided a guarantee to the Company in respect of theFacility.  The assets acquired under theFacility are predominantly used in the testing segment in Australia.

 

On June 15, 2004, GeneticTechnologies issued 16,666,667 ordinary shares at $0.27 (AUD0.39) to C.Y. O’ConnorERADE Village Foundation toacquire patents and other intellectual property at a value of $4,524,000.  This transaction represents a non-cashinvesting activity and is part of theresearch segment in Australia.

 

F24

----

 

***15.    Financial instruments***

 

***Fair value of financial instruments***

 

Thefollowing table presents the carrying amounts and fair values of the Company’sfinancial instruments for which it is practicable to estimate fair value.  SFAS No. 107: *Disclosuresabout Fair Value of Financial Instruments* defines the fair value ofa financial instrument as the amount at which the instrument could be exchangedin a current transaction between willing parties, other than in a forced orliquidation sale.

 
| ** **                      | ** ** | **June 30,**        | ** ** |
|---------------------------------|------------|--------------------------|------------|
| ** **                      | ** ** | **2007**                 | ** ** | **2006** | ** ** |
| ** **                      | ** ** | **Carrying amount** | ** ** | **Estimated fair value** | ** ** | **Carrying amount** | ** ** | **Estimated fair value** | ** ** |
| **Assets**                      |       |                     |       |   |   |   |   |   |   |
| ** **                      |       |                     |       |   |   |   |   |   |   |
| Cash and cash equivalents       |       | $                        | 10,568,085 |   | $ | 10,568,085 |   | $ | 7,904,399 |   | $ | 7,904,399 |   |
| Trade accounts receivable       |       | 464,099                  |       | 464,099 |   | 892,113 |   | 892,113 |   |
| GST receivable                  |       | 84,843                   |       | 84,843 |   | 147,237 |   | 147,237 |   |
| Other current assets            |       | 380                      |       | 380 |   | 959 |   | 959 |   |
| Restricted security deposits    |       | 1,200,991                |       | 1,200,991 |   | 981,830 |   | 981,830 |   |
|                            |       |                     |       |   |   |   |   |   |   |
| **Liabilities**                 |       |                     |       |   |   |   |   |   |   |
| ** **                      |       |                     |       |   |   |   |   |   |   |
| Trade accounts payable          |       | $                        | 1,327,697  |   | $ | 1,327,697 |   | $ | 1,046,924 |   | $ | 1,046,924 |   |
| Hire purchase finance liability |       | 444,900                  |       | 444,900 |   | 729,018 |   | 729,018 |   |
| Unsecured loan                  |       | 594,370                  |       | Refer below |   | 519,610 |   | Refer below |   |

 

The values provided arerepresentative of the fair values as of June 30, 2007 and 2006 and do notreflect subsequent changes in the economy, interest and tax rates, and othervariables that may impact determination of fair value.

 

The following methods andassumptions were used in estimating fair values for financial instruments forwhich it is practicable to estimate values:

 

***Cash and cash equivalents-***The carrying amount reported in the balance sheet for cash and cashequivalents approximates fair value due to the short maturity of theseinstruments.

 

***Trade accounts receivableand other receivables -***The carrying amounts reported in thebalance sheet for trade accounts receivable, GST receivable and sundry debtorsapproximate fair values due to the short-term nature of the balances.

 

***Restricted securitydeposits -***The carrying amounts reportedin the balance sheet for restricted security deposits approximate fair valuesdue to the short-term nature of the balances.

 

***Trade accounts payable -***The carrying amountsreported in the balance sheet for trade accounts payable and GST relating toacquisition approximate fair values due to the short-term nature of thebalances.

 

***Hire purchase financeliability -***The carrying amounts reported in the balance sheet forhire purchase finance liabilities approximate fair values due to the short-termnature of the balances.

 

***Unsecured loan -***The fair value ofthe carrying amount reported in the balance sheet cannot be reasonablydetermined given that the loan is forgiven if commercial revenues are notgenerated.

 

It is not practicable to estimate the fair value of theCompany’s cost-method investments because of the lack of quoted market pricesand the inability to estimate fair value without incurring excessive costs.

 

***Concentrations of credit risk***

 

Credit risk represents the accounting loss that would berecognized at the reporting date if counterparties failed completely to performas contracted.  Concentrations of creditrisk (whether on or off-balance sheet) that arise from financial instrumentsexist for groups of customers or counterparties when they have similar economiccharacteristics that would cause their ability to meet contractual obligationsto be similarly affected by changes in economic or other conditions.  Financial instruments on the balance sheetthat potentially subject the Company to concentration of credit risk consistprincipally of cash and cash equivalents and trade accounts receivable.  The Company places its cash and cashequivalents with high credit quality institutions in order to limit the degreeof credit exposure.  The Company hasestablished guidelines relative to credit ratings, diversification andmaturities that seek to maintain safety and liquidity.  The Company does not require collateral toprovide credit.  In addition, themajority of the Company’s customers are large, reputable organizations, which alsoreduces the risk of credit exposure.  TheCompany has not entered into any transactions that would qualify as a financialderivative instrument.

 

F25

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*** ***

***15.    Financial instruments (cont.)***

 

***Concentrations of credit risk (cont.)***

 

At June 30, 2007, one customer accounted for 29%($134,786) of accounts receivable, which related to the licensing segment inAustralia, and one customer accounted for 14% ($64,404) of accounts receivable,which related to the testing segment in Australia.  At June 30, 2006, one customer accountedfor 72% ($637,934) of accounts receivable, which related to the licensingsegment in Australia.

 

At June 30, 2007, one supplier accounted for 23%($301,402) of accounts payable, which related to the licensing segment inAustralia.  At June 30, 2006, onesupplier accounted for 10% ($102,969) of accounts payable, which related to thetesting segment in Australia.

 

In 2007, one customer accounted for 41%($4,656,508) of the Company’s revenue. In 2006, one customer accounted for 38% ($2,788,232) of the Company’srevenue.  In 2005, one customer accountedfor 46% ($3,782,000) of the Company’s revenue. All revenues attributable to these customers relate to the licensingsegment in Australia.

 

Export sales, principally to the USA, were $8,914,261,$4,864,001 and $4,560,862 in 2007, 2006 and 2005, respectively.

 

***Interest rate risk exposures***

 

Cash assets totaling $10,568,085 (2006: $7,904,339) havea weighted average floating interest rate of 2.89% (2006: 5.02%).  A weighted floating interest rate of 6.14%(2006: 5.60%) on security deposits totaling $1,200,991 (2006: $981,830) isincluded  in non-current financialassets.  Other accounts receivable,security deposits, accounts payable and the unsecured loan are non-interestbearing.

 

***Foreignexchange rate risk exposures***

 

The Company is exposed to foreign currency exchange raterisk through primary financial assets and liabilities.  It is the Company’s policy not to hedge thesetransactions as the exposure is considered to be minimal from a consolidatedoperations perspective.

 

***Financingfacilities available***

 

At reporting date, thefollowing financing facilities had been negotiated and were available:

 
| ** **                              | ** ** | **June 30,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|
| ** **                              | ** ** | **2007**          | ** ** | **2006** | ** ** |
| **Total facilities**                    |       |              |       |   |   |
| Hire purchase facility                  |       | $                 | 2,122,750  |   | $ | 1,855,750 |   |
| Credit cards                            |       | $                 | 93,401     |   | $ | 81,653 |   |
|                                    |       |              |       |   |   |
| **Facilities used at reporting date**   |       |              |       |   |   |
| Hire purchase facility                  |       | $                 | 444,900    |   | $ | 729,018 |   |
| Credit cards                            |       | $                 | 16,810     |   | $ | 20,699 |   |
|                                    |       |              |       |   |   |
| **Facilities unused at reporting date** |       |              |       |   |   |
| Hire purchase facility                  |       | $                 | 1,677,850  |   | $ | 1,126,732 |   |
| Credit cards                            |       | $                 | 76,591     |   | $ | 60,954 |   |

 

***16.    Employee superannuation***

 

As required by Australian superannuationlegislation, the Company contributes 9% (2006: 9%) of every employee’s salaryto an approved superannuation fund nominated by the employee for theirretirement benefit; such funds represent defined contribution plans.  During the years ended June 30, 2007,2006 and 2005, the Company incurred expenses in relation to superannuationamounting to $247,034, $256,979 and $211,372, respectively.

 

F26

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*** ***

***17.    Significant research and developmentagreements***

 

The Company currently has the following key research and developmentagreements in place.  Under these agreements,each agency is responsible for its own costs in relation to the workundertaken.  The Company is not liablefor any costs incurred by other parties to these agreements.  No costshave been deferred in relation to any of the Company’s contracts.  The table below shows the Company’s research and development commitments as at June 30,2007:

 
| ** **                                | ** ** | **0-1 year** | ** ** | **>1-<3 years** | ** ** | **>3-<5 years** | ** ** | **>5 years** |
|-------------------------------------------|------------|--------------|------------|-----------------------|------------|-----------------------|------------|-----------------|
| Minimum research and development payments |       | $            | 1,550,922  |                  | $          | 1,168,827             |       | $               | — |   | $ | — |
|                                           |            |              |            |                       |            |                       |            |                 |  |  |  |  |

 

***Collaborative Research Agreement* –***University of MelbournePathogens Project***

 

The Company is party to aresearch agreement with the University of Melbourne dated April 2003whereby the Company and   the Universityconduct research into the field of molecular parasitology.  The agreement provides that all intellectualproperty developed under the agreement belongs to the Company.  As at June 30, 2007, GeneticTechnologies is required to contribute further GST-exclusive funds in the orderof $424,550 (AUD500,000) towards further research over the term of theagreement.  In March 2003, Meat andLivestock Australia Limited, a third party in an industry affected by molecularparasitology, agreed to contribute an additional $397,305 (AUD535,235) towardsthe Pathogens project over three years. On May 31, 2006, the Company entered into an ARC Linkage Agreementwith the University pursuant to which Genetic Technologies will contribute$185,575 (AUD250,000) per annumin cash for a period of three years towards research into target new drugsagainst parasitic nematodes of animals. As at June 30, 2007,therefore, a total amount of $424,550 (AUD500,000) remained payable by theCompany under the various agreements.  Inaddition, a further in-kind contribution of $42,455 (AUD50,000) per annum for aperiod of three years will also be made to the project by the Company under theARC agreement.  Net payments made by theCompany in accordance with the original agreement totaled $197,483(AUD250,000), $102,461 (AUD137,071) and $141,069 (AUD186,500) for the years endedJune 30, 2007, 2006 and 2005, respectively.

 

***Sponsored Research Agreement* –*C.Y. O’ConnorERADE Village Foundation***

 

In June 2004, the Companyentered into a Sponsored Research Agreement with the C.Y. O’Connor ERADEVillage Foundation whereby Genetic Technologies is required to contribute$764,190 (AUD900,000) per annum to fund research for a period of five years,amounting to a total commitment of $3,820,950 (AUD4,500,000).  Genetic Technologies will own any and allintellectual property arising from the research.  On July 7, 2004, the Company supplied aletter of credit for $382,095 (AUD450,000) for the term of the agreement.  As at June 30, 2007, a total amount of$1,146,285 (AUD1,350,000) remained payable by the Company under theagreement.  Net payments made by theCompany in accordance with the agreement totaled $710,937 (AUD900,000),$651,876 (AUD872,075) and $680,760 (AUD900,000) for the years ended June 30,2007, 2006 and 2005, respectively.

 

***CollaborativeResearch Agreement –******Horticulture Australia Limited***

 

In June 2003,AgGenomics Pty. Ltd., a subsidiary of the Company, entered into a three-yearCollaborative Research Agreement with Horticulture Australia Limited (“HAL”) totry to identify a genetic trait for day/night neutrality in strawberries which,if found, could lead to an extension of the cultivation season and consequentlyhigher production.  Under the terms ofthis initial agreement, the parties agreed to spend $1.5 million (AUD2.1million), to be funded 45% by HAL and 55% by AgGenomics.  Any and all intellectual property generatedfrom the project was to be owned in the same proportions.  This initial agreement was concluded in June 2006,following which it was agreed that it be extended for a period of a furtherthree years at a total cost of $1.78 million (AUD2.1 million), to be funded42.03% by HAL and 57.97% by AgGenomics. In accordance with bothagreements, AgGenomics Pty. Ltd. contributed amounts of $534,426 (AUD676,548),$459,524 (AUD614,748) and $465,002 (AUD614,748) for the years ended June 30, 2007, 2006 and 2005, respectively.

 

***Research Agreement* –*King’s College, London***

 

In March 2004, the Companyinitiated a research collaboration with King’s College, London to explore thefunctionality of certain non-coding DNA elements, with a focus on the geneticsof neuro-psychiatric conditions such as schizophrenia.  On May 31, 2005, the Company agreed toextend its research agreement with King’s College for the period from June 1,2005 to December 31, 2005.  On February 22,2006, the Company agreed to extend the agreement for the period from February 1,2006 to August 31, 2006.  Paymentsmade by the Company in accordance with the various agreements totaled $33,979(GBP18,200) $178,912 (GBP96,860) and $96,754 (GBP53,000) for the years ended June 30,2007, 2006 and 2005, respectively. During the year ended June 30, 2007,  the agreement with King’s College, London wasterminated.

 

F27

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*** ***

***18.    Segment disclosures***

 

The Company applies SFAS No. 131:*Disclosures aboutSegments of an Enterprise and Related Information*(“SFAS 131”), which establishesstandards for reporting information regarding operating segments in annualfinancial statements and requires selected information for those segments to bepresented in interim financial reports issued to shareholders.  SFAS 131 also establishes standards forrelated disclosures about products and services and geographic areas.

 

During2007, the Company changed the way in which it reports its financial informationfor internal Management purposes.  Aspart of this change, the Group has identified four reportable operatingsegments based on the similarity of the products produced and sold and/or theservices provided, as these represent the sources of the Group’s major risksand have the greatest effect on the rates of return.  The separate groups of similar products andservices are then divided into operating businesses, the performances of whichare reported to the Chief Executive Officer, the Management team and the Boardof Directors on a monthly basis.  Detailsof the four business segments are set as follows:

 

*Licensing* - involves the out-licensing of the Company’s “non-coding”technology.

 

*Testing* - involves the provision of a range of genetic testingservices.

 

*Research* - involves the undertaking of a range of research anddevelopment projects in the field of genetics and related areas.

 

*Corporate* - involves the management of the Company’s corporateactivities.

 

The changes in the way the Company reports its financialinformation for internal Management purposes resulted in a change from thepreviously two reportable operating segments, namely Biotechnology andInvestment, to the currently disclosed four reportable operating segments,namely Licensing, Testing, Research and Corporate.  This change does not result in any changes inthe total figures for each financial category previously disclosed.  Comparative segment information for fiscalyears 2006 and 2005 has been restated following the change in reportablesegments in fiscal year 2007.

 

***Business segments***

 
| **Business** | ** ** | ** ** | ** ** | **Revenues and income** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------|------------|------------|------------|-----------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Segment**  | ** ** | ** ** | ** ** | **Sales**                         | ** ** | **Other**  | ** ** | **Totals** | ** ** | **Result** | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **   | ** ** | ** ** | ** ** | **$**                             | ** ** | **$**      | ** ** | **$**      | ** ** | **$**      | ** ** | **$** | ** ** | **$** | ** ** |
| Licensing    |       | 2007       |       | 8,955,467                         |       | —     |       | 8,955,467  |       | 7,867,808  |       | 251,199 |   | (1,014,550 | ) |
|         |       | 2006       |       | 4,997,223                         |       | —     |       | 4,997,223  |       | 3,603,215  |       | 752,128 |   | (891,478 | ) |
|         |       | 2005       |       | 4,970,007                         |       | —     |       | 4,970,007  |       | 2,118,178  |       |   |   |   |   |
|         |       |       |       |                              |       |       |       |       |       |       |       |   |   |   |   |
| Testing      |       | 2007       |       | 2,463,886                         |       | —     |       | 2,463,886  |       | (2,678,694 | )          | 1,933,537 |   | (818,873 | ) |
|         |       | 2006       |       | 1,906,290                         |       | —     |       | 1,906,290  |       | (2,828,032 | )          | 1,798,960 |   | (589,475 | ) |
|         |       | 2005       |       | 1,809,301                         |       | —     |       | 1,809,301  |       | (3,045,965 | )          |   |   |   |   |
|         |       |       |       |                              |       |       |       |       |       |       |       |   |   |   |   |
| Research     |       | 2007       |       | —                            |       | 249,211    |       | 249,211    |       | (3,579,347 | )          | 3,407,268 |   | (227,716 | ) |
|         |       | 2006       |       | —                            |       | 426,574    |       | 426,574    |       | (2,903,621 | )          | 4,434,875 |   | (426,082 | ) |
|         |       | 2005       |       | —                            |       | 437,278    |       | 437,278    |       | (2,895,268 | )          |   |   |   |   |
|         |       |       |       |                              |       |       |       |       |       |       |       |   |   |   |   |
| Corporate    |       | 2007       |       | —                            |       | 1,330      |       | 1,330      |       | (3,036,110 | )          | 12,178,864 |   | (1,374,504 | ) |
|         |       | 2006       |       | —                            |       | 14,915     |       | 14,915     |       | (1,883,924 | )          | 9,667,137 |   | (1,191,895 | ) |
|         |       | 2005       |       | —                            |       | 3,469      |       | 3,469      |       | (1,884,878 | )          |   |   |   |   |
|         |       |       |       |                              |       |       |       |       |       |       |       |   |   |   |   |
| Totals       |       | 2007       |       | 11,419,353                        |       | 250,541    |       | 11,669,894 |       | (1,426,343 | )          | 17,770,868 |   | (3,435,643 | ) |
|         |       | 2006       |       | 6,903,513                         |       | 441,489    |       | 7,345,002  |       | (4,012,362 | )          | 16,653,100 |   | (3,098,930 | ) |
|         |       | 2005       |       | 6,779,308                         |       | 440,747    |       | 7,220,055  |       | (5,707,933 | )          |   |   |   |   |

 

F28

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*** ***

***18.    Segment disclosures (cont.)***

 

***Business segments (cont.)***

 
| **Business  Segment** | ** ** | ** ** | ** ** | **Interest    revenue** | ** ** | **Interest    expense** | ** ** | **Income tax  expense** | ** ** | **Net for. exch.  gains/(losses)** | ** ** | **Net profit on  sale of assets** | ** ** | **Additions to    long-lived assets** | ** ** | **Amortisation  /depreciation** | ** ** |
|-----------------------|------------|------------|------------|-------------------------|------------|-------------------------|------------|------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------|------------|
| ** **            | ** ** | ** ** | ** ** | **$**                   | ** ** | **$**                   | ** ** | **$**                        | ** ** | **$**                                        | ** ** | **$**                                                 | ** ** | **$**                                           | ** ** | **$**                           | ** ** |
| Licensing             |       | 2007       |       | —                  |       | —                  |       | (208,850                     | )          | —                                       |       | —                                                |       | 250                                             |       | (6,658                          | )          |
|                  |       | 2006       |       | —                  |       | —                  |       | (67,649                      | )          | —                                       |       | —                                                |       | 3,325                                           |       | (5,586                          | )          |
|                  |       | 2005       |       | —                  |       | —                  |       | (195,339                     | )          | —                                       |       | —                                                |       | 28,061                                          |       | —                          |       |
| Testing               |       | 2007       |       | —                  |       | —                  |       | —                       |       | —                                       |       | 19,748                                                |       | 76,702                                          |       | (747,815                        | )          |
|                  |       | 2006       |       | —                  |       | —                  |       | —                       |       | —                                       |       | —                                                |       | 86,697                                          |       | (752,681                        | )          |
|                  |       | 2005       |       | —                  |       | —                  |       | —                       |       | —                                       |       | —                                                |       | 247,876                                         |       | (537,338                        | )          |
| Research              |       | 2007       |       | —                  |       | —                  |       | —                       |       | —                                       |       | —                                                |       | 48,424                                          |       | (642,811                        | )          |
|                  |       | 2006       |       | —                  |       | —                  |       | —                       |       | —                                       |       | —                                                |       | 289                                             |       | (601,570                        | )          |
|                  |       | 2005       |       | —                  |       | —                  |       | —                       |       | —                                       |       | —                                                |       | 121,599                                         |       | (552,275                        | )          |
| Corporate             |       | 2007       |       | 386,259                 |       | (52,442                 | )          | —                       |       | (250,657                                     | )          | (26,310                                               | )          | 9,374                                           |       | (56,585                         | )          |
|                  |       | 2006       |       | 601,803                 |       | (63,316                 | )          | —                       |       | 92,403                                       |       | 1,735                                                 |       | 29,077                                          |       | (45,133                         | )          |
|                  |       | 2005       |       | 484,285                 |       | (31,750                 | )          | —                       |       | (140,861                                     | )          | 97,809                                                |       | 70,153                                          |       | (91,453                         | )          |
|                  |       |       |       |                    |       |                    |       |                         |       |                                         |       |                                                  |       |                                            |       |                            |       |
| Totals                |       | 2007       |       | 386,259                 |       | (52,442                 | )          | (208,850                     | )          | (250,657                                     | )          | (6,562                                                | )          | 134,750                                         |       | (1,453,869                      | )          |
|                  |       | 2006       |       | 601,083                 |       | (63,316                 | )          | (67,649                      | )          | 92,403                                       |       | 1,735                                                 |       | 119,388                                         |       | (1,404,970                      | )          |
|                  |       | 2005       |       | 484,285                 |       | (31,750                 | )          | (195,339                     | )          | (140,861                                     | )          | 97,809                                                |       | 467,689                                         |       | (1,181,066                      | )          |

 

Note:   There wereno intersegment sales.

 

***Geographic information***

 

*Australia* – is the home countryof the parent entity and the location of the Company’s testing facilities.

 

*Canada* – is the home of GtechInternational Resources Limited.

 

*Switzerland –* is the home of GeneTypeAG.

 

Revenues are allocated on the basis of the geographicallocation of the respective entities which earn them.

 

The following table presents sales and other income andcertain asset information regarding geographical locations for the years ended June 30,2007, 2006 and 2005.

 
| **Geographic** | ** ** | ** ** | **Revenues and income** | ** ** | **Long-lived assets** | ** ** |
|----------------|------------|------------|-----------------------------------|------------|----------------------------|------------|
| **Segment**    | ** ** | ** ** | **Sales**                         | ** ** | **Other**                  | ** ** | **Totals** | ** ** | **(other than financial instruments)** | ** ** |
| ** **     | ** ** | ** ** | **$**                             | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Australia      | 2007       |       | 11,419,353                        |       | 240,060                    |       | 11,659,413 |   | 4,983,810 |   |
|           | 2006       |       | 6,903,513                         |       | 431,539                    |       | 7,335,052 |   | 6,258,475 |   |
|           | 2005       |       | 6,779,308                         |       | 432,672                    |       | 7,211,980 |   |   |   |
| Canada         | 2007       |       | —                            |       | 10,475                     |       | 10,475 |   | — |   |
|           | 2006       |       | —                            |       | 8,818                      |       | 8,818 |   | — |   |
|           | 2005       |       | —                            |       | 7,782                      |       | 7,782 |   |   |   |
| Switzerland    | 2007       |       | —                            |       | 6                          |       | 6 |   | — |   |
|           | 2006       |       | —                            |       | 1,132                      |       | 1,132 |   | — |   |
|           | 2005       |       | —                            |       | 293                        |       | 293 |   |   |   |
|           |       |       |                              |       |                       |       |   |   |   |   |
| Totals         | 2007       |       | 11,419,353                        |       | 250,541                    |       | 11,669,894 |   | 4,983,810 |   |
|           | 2006       |       | 6,903,513                         |       | 441,489                    |       | 7,345,002 |   | 6,258,475 |   |
|           | 2005       |       | 6,779,308                         |       | 440,747                    |       | 7,220,055 |   |   |   |

# ** **

F29

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***18.    Segment disclosures (cont.)***

 

***Geographic information (cont.)***

 

***Segment products and locations***

 

The four principal business segments of theGroup are licensing, genetic testing, research and corporate.  The principal geographic segment isAustralia, with the Company’s headquarters being located in Melbourne in theState of Victoria.

 

***Non-cashtransactions***

 

All non-cash transactions relateto Australia.  Non-cash investing andfinancing transactions that related to a specific segment are  further described in Note 14.  Non-cash operating transactions are disclosedin the consolidated statement of cash flows. The   allocation of depreciationbetween segments is further described above.

 

***19.    Reclassifications***

 

The followingreclassifications have been made to the consolidated balance sheets andstatements of operations for the years ended June 30,2006 and 2005 to conform to the presentation of the consolidated statements ofoperations for the year ended   June 30,2007:

 
| ** **                   | ** ** | **2006**         | ** ** | **2005**                 | ** ** |
|------------------------------|------------|------------------|------------|--------------------------|------------|
| ** **                   | ** ** | **Reclassified** | ** ** | **Previously  reported** | ** ** | **Reclassified** | ** ** | **Previously  reported** | ** ** |
| Cash and cash equivalents    |       | $                | 7,904,399  |                     | $          | 8,238,434 |   | N/A |   | N/A |   |
| Restricted security deposits |       | 981,830          |       | 647,795                  |       | N/A |   | N/A |   |
| Service testing expenses     |       | —           |       | —                   |       | $ | 3,510,444 |   | $ | 3,518,398 |   |
| Research and development     |       | —           |       | —                   |       | 1,830,932 |   | 1,826,984 |   |
| Patent and license fees      |       | —           |       | —                   |       | 4,632,617 |   | 4,591,710 |   |
| Sales and marketing          |       | —           |       | —                   |       | 570,498 |   | 537,039 |   |
| General and administrative   |       | —           |       | —                   |       | 2,597,642 |   | 2,668,002 |   |
|                              |            |                  |            |                          |            |  |  |  |  |  |  |  |  |

 

***20.    Subsequent events***

 

Between July 5 and July 9, 2007, Dr. MervynJacobson acquired a total of 501 ordinary shares in ImmunAid Pty. Ltd., asubsidiary of the Company, representing approximately 4.4% of that company’stotal issued capital.  The shares wereacquired for a total cost  of AUD30,000.

 

On September 24, 2007, Dr. MervynJacobson resigned as the Company’s Chief Executive Officer.  He was replaced on the same day by Mr. MichaelOhanessian.  Dr. Jacobson remains onthe Board as a Non-Executive Director. Also on that date, a total of 3,650,602 options were granted to Mr. Ohanessian.  Each option, which entitles him to acquireone ordinary share in the Company  at aprice of $0.14, will vest after three years and will expire, if not alreadyexercised, after five years.

 

On October 23, 2007, a total of3,500,000 options were granted to various senior employees of the Company.  Each option, which entitles the holder toacquire one ordinary share in the Company at a price of $0.19, will vest afterthree years and will expire, if not already exercised, after five years.

 

On December 4, 2007, a total of3,500,000 options which had previously been granted to the Directors of theCompany as part of their compensation arrangements, together with a further2,552,500 options which had previously been granted to employees andconsultants, were forfeited or expired.

 

Apart from the above transactions, there havebeen no significant events which occurred after balance date.

 

F30

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