**U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549**

**FORM 20-F**
|       | **REGISTRATION STATEMENT PURSUANT  TO SECTION 12(b) OR 12(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, 2006**                   |
|       |                                                           |
|       | **OR**                                                         |
|       |                                                           |
| ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d)**         |
|       | **OF THE  SECURITIES EXCHANGE ACT OF 1934**                    |
|       | ** **                                                     |
|       | **OR**                                                         |
|       |                                                           |
| ** ** | **SHELL  COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)**      |
|       | **OF THE  SECURITIES EXCHANGE ACT OF 1934**                    |
|       | **Date of  event requiring this shell company report.....**    |

 

**Commissionfile number 0-51504**

**GENETICTECHNOLOGIES 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)

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

**None**

Securitiesregistered pursuant to Section 12(g) of the Act:

Title of eachclass

**AmericanDepositary Shares each representing 30 Ordinary Sharesand evidenced by American Depositary Receipts**

Securities forwhich there is a reporting obligation pursuant to Section 15(d) of the Act:

**None**

The total numberof issued shares of each class of stock of Genetic Technologies Limited as ofJune 30, 2006 was:

**362,389,899Ordinary Shares**

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o              No              x

If this report is an annual or transition report,indicate by check mark if the registrant is not required to file reports pursuantto Section 13 or Section 15(d) of the Securities Exchange Act of 1934.

Yes o              No              o

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes x              No              o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer  o                   Accelerated filer                   Non-acceleratedfiler        x

Indicate by check mark which financial statement itemthe registrant has elected to follow.

Item 17 o              Item 18      x

If this is an annual report, indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange 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**

 

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| 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.C                                         |   | AUDITORS                                                 |   |   |
|                                              |   |                                                     |   |   |
| ITEM 2.                                           |   | OFFER  STATISTICS AND EXPECTED TIMETABLE                 |   |   |
|                                              |   |                                                     |   |   |
| ITEM 3.                                           |   | KEY INFORMATION                                          |   |   |
|                                              |   |                                                     |   |   |
| ITEM 3.A                                          |   | SELECTED  FINANCIAL DATA                                 |   |   |
|                                              |   |                                                     |   |   |
| ITEM 3.C                                          |   | REASONS FOR  THE OFFER AND USE OF PROCEEDS               |   |   |
|                                              |   |                                                     |   |   |
| ITEM  3.D                                         |   | RISK  FACTORS                                            |   |   |
|                                              |   |                                                     |   |   |
| ITEM 4.                                           |   | INFORMATION ON  THE COMPANY                              |   |   |
|                                              |   |                                                     |   |   |
| ITEM 4.C                                          |   | ORGANIZATIONAL  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 6.                                           |   | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES              |   |   |
|                                              |   |                                                     |   |   |
| ITEM 6.A                                          |   | DIRECTORS  AND SENIOR MANAGEMENT                         |   |   |
|                                              |   |                                                     |   |   |
| ITEM 6.C                                          |   | BOARD PRACTICES                                          |   |   |
|                                              |   |                                                     |   |   |
| ITEM  6.D                                         |   | EMPLOYEES                                                |   |   |
|                                              |   |                                                     |   |   |
| ITEM 6.E                                          |   | SHARE OWNERSHIP                                          |   |   |
|                                              |   |                                                     |   |   |
| ITEM 7.A                                          |   | MAJOR SHAREHOLDERS                                       |   |   |
|                                              |   |                                                     |   |   |
| ITEM 7.B                                          |   | RELATED PARTY  TRANSACTIONS                              |   |   |
|                                              |   |                                                     |   |   |
| ITEM 8.                                           |   | FINANCIAL  INFORMATION                                   |   |   |
|                                              |   |                                                     |   |   |
| ITEM 8.A                                          |   | CONSOLIDATED  STATEMENTS AND OTHER FINANCIAL INFORMATION |   |   |
|                                              |   |                                                     |   |   |
| ITEM 8.B                                          |   | LITIGATION  AND OTHER LEGAL PROCEEDINGS                  |   |   |

 

i

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| ITEM 8.C   |   | DIVIDENDS                                                                     |   |   |
|------------|--------|-------------------------------------------------------------------------------|--------|--------|
|       |   |                                                                          |   |   |
| ITEM 9.A   |   | OFFER AND  LISTING DETAILS                                                    |   |   |
|       |   |                                                                          |   |   |
| ITEM 9.B   |   | PLAN OF  DISTRIBUTION                                                         |   |   |
|       |   |                                                                          |   |   |
| ITEM  9.C  |   | MARKETS                                                                       |   |   |
|       |   |                                                                          |   |   |
| ITEM 9.D   |   | SELLING  SHAREHOLDERS                                                         |   |   |
|       |   |                                                                          |   |   |
| 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.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                                                              |   |   |
|       |   |                                                                          |   |   |
| 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 16B.  |   | CODE OF ETHICS                                                                |   |   |
|       |   |                                                                          |   |   |
| ITEM 16C.  |   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       |   |   |
|       |   |                                                                          |   |   |
| ITEM 16D.  |   | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |   |   |

 

ii

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| ITEM 16E. |   | PURCHASES  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |   |   |
|-----------|--------|-------------------------------------------------------------------------|--------|--------|
|      |   |                                                                    |   |   |
| ITEM 17.  |   | FINANCIAL  STATEMENTS                                                   |   |   |
|      |   |                                                                    |   |   |
| ITEM 18.  |   | FINANCIAL  STATEMENTS                                                   |   |   |
|      |   |                                                                    |   |   |
| ITEM  19. |   | EXHIBITS                                                                |   |   |
|      |   |                                                                    |   |   |

 

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

Except as otherwise stated, all monetary amounts in thisAnnual Report are presented in U.S. dollars. Unless otherwise indicated,amounts in Australian dollars have been translated into U.S. dollars.  These translations are providedforconvenience only, and they are not representations that the Australian dollarcould be converted into U.S. dollars at therate indicated.  Historic data has been converted at theapplicable rate at the date indicated. In this Annual Report, references to “AUD” are to Australian dollars and references to “$” and “U.S.dollars” are to United States dollars. The noon buying rate for cable transfers in Australian dollars on June30, 2005 was AUD1.00 = $0.7618 and on June 30, 2006 was AUD1.00 = $0.7423.

Our fiscal year ends on June 30, and references in thisAnnual Report to any specific fiscal year are to the twelve month period endedon June 30 of such year.

**FORWARD-LOOKING STATEMENTS**

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

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

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

**ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS**

We are incorporated under the laws of Western Australia,in the Commonwealth of Australia.  All ofour directors and executive officers, and any experts named in this AnnualReport, reside outside the U.S. Substantially all of our assets, our directors’ and executive officers’assets and such experts’ assets are located outside the U.S.  As a result, it may not be possible forinvestors to affect service of process within the U.S. upon us or ourdirectors, executive officers or such experts, or to enforce against them or usin U.S. courts, judgments obtained in U.S. courts based upon the civil liability provisions of the federal securitieslaws of the U.S.  In addition, we havebeen advised by our Australian solicitors that there is doubt that the courts of Australia will enforce againstus, our directors, executive officers and experts named herein, judgmentsobtained in the U.S. based upon the civil liability provisions of the federalsecurities laws of the U.S. or will enter judgments in original actions broughtin Australian courts based upon the federal securities laws of the U.S.

1

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**PART I**

**Item 1.**                                   Identity of Directors,Senior Management and Advisers

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

The Directors of the Company asof the date of this Annual Report are as follows:
| Name                | ** ** | **Position/Function**   | ** ** | **Business Address**                                               |
|---------------------|------------|-------------------------|------------|--------------------------------------------------------------------|
|                |       |                    |       |                                                               |
| Henry Bosch AO      |       | Chairman                |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia             |
|                |       |                    |       |                                                               |
| Dr. Mervyn Jacobson |       | 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 |
|                |       |                    |       |                                                               |
| John S. Dawkins AO  |       | Non-Executive Director  |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia             |

 

The members of Senior Management of the Company as of thedate of this Annual Report are as follows:
| Name                | ** ** | **Position/Function**                           | ** ** | **Business Address**                                   |
|---------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------|
|                |       |                                            |       |                                                   |
| Dr. Mervyn Jacobson |       | 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 |
|                |       |                                            |       |                                                   |
| Geoffrey E. Newing  |       | Chief Operating Officer                         |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |
|                |       |                                            |       |                                                   |
| Dr. Gary S. Cobon   |       | Chief Scientific Officer                        |       | 60-66 Hanover Street  Fitzroy Victoria 3065  Australia |

 

2

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**Item 1.B**                       Advisers

Our principalbankers, 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 CO 80525  USA                      |
|                          |       |                    |       |                                                               |
| Baker &  McKenzie         |       | General Counsel         |       | 525 Collins Street  Melbourne Victoria 3000  Australia             |
|                          |       |                    |       |                                                               |
| Hamilton &  DeSanctis     |       | Licensing Attorneys     |       | 8555 W. Belleview Avenue G21-139Littleton CO 80123  USA            |
|                          |       |                    |       |                                                               |
| Faegre &  Benson LLP      |       | Patent Attorneys        |       | 3200 Wells Fargo Center  1700 Lincoln Street  Denver CO 80203  USA |
|                          |       |                    |       |                                                               |
| Greenberg  Traurig, LLP       |       | U.S. Securities Counsel |       | 200 Park Avenue  New York, NY 10166  USA                           |

**Item1.C**                          Auditors

The auditors of the Company’s US GAAP accounts for theyears ended June 30, 2002, 2003, 2004, 2005 and 2006 were Ernst & Young,whose address is 8 Exhibition Street, Melbourne, Victoria, 3000,Australia.  Ernst & Young are theCompany’s current auditors, an appointment ratified at the Annual GeneralMeeting held on November 28, 2003.

**Item 2.**                                   Offer Statistics AndExpected Timetable

Not applicable.

**Item 3.**                                   Key Information

**Item 3.A**                          Selected Financial Data

The following selected financial data for the five yearsended June 30, 2006, respectively, is derived from the audited consolidatedfinancial statements of Genetic Technologies Limited, prepared in accordancewith United States generally accepted accounting principles (“US GAAP”).  Thedata should be read in conjunction with the consolidated financial statements,related notes and other financial information included herein.

The acquisition of GeneType AG by the Company in 2000 wasaccounted for under US GAAP as a reverse acquisition for financial reportingpurposes.  Accordingly, the summaryfinancial data set forth below is that of GeneType (the legal acquiree), withthe results of operations of Genetic Technologies (the legal acquiror) includedfrom the effective date of its acquisition (September 30, 2000).

All amounts are in U.S. dollars as of June 30 as noted(except for per share data).

3

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**GENETIC TECHNOLOGIES LIMITED**

**CONSOLIDATED PROFIT AND LOSS STATEMENTSUS GAAP FOR 2006, 2005, 2004, 2003 AND 2002CONVERTED TO U.S. DOLLARS**
| ** **                                               | ** ** | **Year ended  30 June 2006** | ** ** | **Year ended  30 June 2005** | ** ** | **Year ended  30 June 2004** | ** ** | **Year ended  30 June 2003** | ** ** | **Year ended  30 June 2002** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                               | ** ** | **U.S. Dollars  (a)**                  | ** ** | **U.S. Dollars  (b)**                  | ** ** | **U.S. Dollars  (c)**                  | ** ** | **U.S. Dollars  (d)**                  | ** ** | **U.S. Dollars  (e)**                  | ** ** |
| REVENUES                                                 |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| Licensing Revenue                                        |       | 4,997,223                                   |       | 4,970,007                                   |       | 507,910                                     |       | 2,615,544                                   |       | 778,131                                     |       |
| Service Testing Revenue                                  |       | 1,906,290                                   |       | 1,809,301                                   |       | 1,969,963                                   |       | 1,727,617                                   |       | 838,969                                     |       |
| Grant Income                                             |       | 426,574                                     |       | 437,278                                     |       | 154,702                                     |       | 50,244                                      |       | 91,610                                      |       |
| Other Revenue                                            |       | 14,915                                      |       | 3,469                                       |       | 12,427                                      |       | 10,722                                      |       | 17,343                                      |       |
| TOTAL REVENUES                                           |       | 7,345,002                                   |       | 7,220,055                                   |       | 2,645,002                                   |       | 4,404,127                                   |       | 1,726,053                                   |       |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| OPERATING  EXPENSES                                      |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| Service Testing Expenses                                 |       | 4,547,437                                   |       | 3,510,444                                   |       | 2,244,020                                   |       | 1,820,490                                   |       | 934,732                                     |       |
| Research and Development                                 |       | 2,815,804                                   |       | 1,830,932                                   |       | 1,669,484                                   |       | 512,345                                     |       | 497,207                                     |       |
| Patent and License Fees                                  |       | 1,438,345                                   |       | 4,632,617                                   |       | 804,340                                     |       | 428,335                                     |       | 267,408                                     |       |
| Sales and Marketing                                      |       | 846,808                                     |       | 570,498                                     |       | 993,827                                     |       | 661,211                                     |       | 397,772                                     |       |
| General and Administrative                               |       | 2,273,946                                   |       | 2,597,642                                   |       | 2,285,787                                   |       | 1,182,856                                   |       | 1,140,919                                   |       |
| TOTAL OPERATING  EXPENSES                                |       | 11,922,340                                  |       | 13,142,133                                  |       | 7,997,458                                   |       | 4,605,237                                   |       | 3,238,038                                   |       |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| LOSS FROM  OPERATIONS                                    |       | (4,577,338                                  | )          | (5,922,078                                  | )          | (5,352,456                                  | )          | (201,110                                    | )          | (1,511,985                                  | )          |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| OTHER INCOME  (EXPENSE)                                  |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| Interest Income                                          |       | 601,803                                     |       | 484,286                                     |       | 352,605                                     |       | 68,387                                      |       | 57,907                                      |       |
| Interest Expense                                         |       | (63,316                                     | )          | (31,750                                     | )          | 0                                           |       | (5,979                                      | )          | (5,490                                      | )          |
| Net Profit (Loss) on Sale of Mining Operations           |       | 0                                           |       | 0                                           |       | 0                                           |       | 0                                           |       | 43,063                                      |       |
| Net Profit (Loss) on Assets                              |       | 1,735                                       |       | 97,809                                      |       | 406,224                                     |       | (100,191                                    | )          | (1,153,309                                  | )          |
| Net Foreign Exchange Gains (Losses)                      |       | 92,403                                      |       | (140,861                                    | )          | (171,960                                    | )          | (558,292                                    | )          | (579,605                                    | )          |
| TOTAL OTHER  INCOME (EXPENSES)                           |       | 632,625                                     |       | 409,484                                     |       | 586,869                                     |       | (596,075                                    | )          | (1,637,434                                  | )          |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| NET LOSS BEFORE  INCOME TAXES                            |       | (3,944,713                                  | )          | (5,512,594                                  | )          | (4,765,587                                  | )          | (797,185                                    | )          | (3,149,419                                  | )          |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| INCOME TAXES                                             |       | (67,649                                     | )          | (195,339                                    | )          | (27,579                                     | )          | (167,412                                    | )          | (83,000                                     | )          |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| NET LOSS BEFORE  MINORITY INTEREST                       |       | (4,012,362                                  | )          | (5,707,933                                  | )          | (4,793,166                                  | )          | (964,597                                    | )          | (3,232,419                                  | )          |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| MINORITY  INTEREST                                       |       | (7,961                                      | )          | (35,016                                     | )          | (23,560                                     | )          | 4,202                                       |       | 10,240                                      |       |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| NET LOSS                                                 |       | (4,020,323                                  | )          | (5,742,949                                  | )          | (4,816,726                                  | )          | (960,395                                    | )          | (3,222,179                                  | )          |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| NET LOSS PER  ORDINARY SHARE   (CENTS PER SHARE)         |       | (1                                          | )          | (2                                          | )          | (2                                          | )          | (0                                          | )          | (1                                          | )          |
|                                                     |       |                                        |       |                                        |       |                                        |       |                                        |       |                                        |       |
| WEIGHTED-AVERAGE SHARES  OUTSTANDING (BASIC AND DILUTED) |       | 362,386,940                                 |       | 315,264,068                                 |       | 277,806,689                                 |       | 261,541,405                                 |       | 259,757,871                                 |       |

 

4

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**GENETIC TECHNOLOGIES LIMITED**

**SELECTED CONSOLIDATED BALANCE SHEET DATAUS GAAP FOR 2006, 2005, 2004, 2003 AND 2002CONVERTED TO U.S. DOLLARS**
| ** **                       | ** ** | **Year ended  30 June 2006** | ** ** | **Year ended  30 June 2005** | ** ** | **Year ended  30 June 2004** | ** ** | **Year ended  30 June 2003** | ** ** | **Year ended  30 June 2002** | ** ** |
|----------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                       | ** ** | **U.S. Dollars  (a)**                  | ** ** | **U.S. Dollars  (b)**                  | ** ** | **U.S. Dollars  (c)**                  | ** ** | **U.S. Dollars  (d)**                  | ** ** | **U.S. Dollars  (e)**                  | ** ** |
| ASSETS                           | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| Current                          |       | 9,715,206                                   |       | 14,372,325                                  |       | 9,063,848                                   |       | 4,274,514                                   |       | 4,631,408                                   |       |
| Non-Current                      |       | 6,937,894                                   |       | 7,941,476                                   |       | 6,589,525                                   |       | 1,807,634                                   |       | 660,338                                     |       |
| TOTAL ASSETS                     |       | 16,653,100                                  |       | 22,313,801                                  |       | 15,653,373                                  |       | 6,082,148                                   |       | 5,291,746                                   |       |
|                             | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| LIABILITIES                      | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| Current                          |       | 2,186,973                                   |       | 3,711,241                                   |       | 3,233,207                                   |       | 1,349,310                                   |       | 736,881                                     |       |
| Non-Current                      |       | 911,957                                     |       | 1,252,509                                   |       | 486,640                                     |       | 469,490                                     |       | 392,980                                     |       |
| TOTAL  LIABILITIES               |       | 3,098,930                                   |       | 4,963,750                                   |       | 3,719,847                                   |       | 1,818,800                                   |       | 1,129,861                                   |       |
|                             | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| TOTAL  SHAREHOLDERS’ EQUITY |       | 13,424,137                                  |       | 17,224,715                                  |       | 11,851,330                                  |       | 4,204,310                                   |       | 4,120,945                                   |       |
|                             | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| DIVIDENDS DECLARED PER  SHARE    |       | 0                                           |       | 0                                           |       | 0                                           |       | 0                                           |       | 0                                           |       |

 

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(a)          Convertedat AUD1.00 = $0.7475, except for assets and liabilities which were converted atAUD1.00 = $0.7423

(b)         Converted atAUD1.00 = $0.7564, except for assets and liabilities which were converted atAUD1.00 = $0.7618

(c)          Convertedat AUD1.00 = $0.7132, except for assets and liabilities which were converted atAUD1.00 = $0.6952

(d)         Converted atAUD1.00 = $0.5847, except for assets and liabilities which were converted atAUD1.00 = $0.6713

(e)          Converted at AUD1.00 = $0.5236, except for assetsand liabilities which were converted at AUD1.00 = $0.5628

**EXCHANGERATES**

Thefollowing table sets forth, for the periods and dates indicated, certaininformation concerning the noon buying rate in New York City for Australiandollars expressed in U.S. dollars per AUD1.00 as certified for customs purposesby the Federal Reserve Bank of New York.
| Period ended | ** ** | **At period end** | ** ** | **Average rate (a)** | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------|------------|-----------------------------|------------|--------------------------------|------------|----------|------------|---------|------------|
| June 2002         |       | 0.5628                      |       | 0.5236                         |       | 0.6256   |       | 0.4819  |       |
| 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  |       |
| July 2006         |       | 0.7664                      |       | 0.7528                         |       | 0.7664   |       | 0.7407  |       |
| August 2006       |       | 0.7630                      |       | 0.7631                         |       | 0.7699   |       | 0.7568  |       |
| September 2006    |       | 0.7461                      |       | 0.7549                         |       | 0.7704   |       | 0.7461  |       |
| October 2006      |       | 0.7743                      |       | 0.7544                         |       | 0.7743   |       | 0.7434  |       |
| November 2006     |       | 0.7896                      |       | 0.7728                         |       | 0.7896   |       | 0.7629  |       |

 

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

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

Not applicable.

**Item 3.C**                          Reasons for the Offer and Use of Proceeds

Not applicable.

**Item 3.D**                          Risk Factors

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

**Risks Related to Us**

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

The biotechnology sector can be particularly vulnerableto 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.

SinceJune 30, 2002, the price of our Ordinary Shares has ranged from a low ofAUD0.18 to a high of AUD0.87 per share. Further fluctuations are likely to occur due to events not within ourcontrol and general market conditions affecting the biotechnology sector or thestock market generally.  The mostsignificant such event of which we have knowledge took place in August 2003after a television report in Australia on our company was broadcast.  During that week, the price of our sharesincreased from AUD0.58 to AUD0.87 on a volume of 26,000,000 shares traded,which was exceptionally high for us.  Theshare price subsequently retreated.

Inaddition, low trading volume may increase the volatility of the price of ourADSs.  Trading volume in our OrdinaryShares on other markets has not been historically high, and the trading volumeof our ADSs on the NASDAQ Global Market has typically also been low.  Further, because each of our ADSs represents30 of our Ordinary Shares, trading volume in our ADSs is lower than that forour Ordinary Shares.  A thin tradingmarket could cause the price of our ADSs to fluctuate significantly more thanthe stock market as a whole.  Forexample, trades involving a relatively small number of our ADSs may have agreater impact on the trading price for our ADSs than would be the case if thetrading volume were higher.

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Thefollowing chart graphically illustrates the fluctuation in the price of ourshares (in Australian dollars) over the last five years:

**The fact that we do not expect topay cash dividends may lead to decreased prices for our stock.**

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

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

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

**Becausewe are not necessarily required to provide you with the same information as anissuer of securities based in the United States, you may not be afforded thesame protection or information you would have if you had invested in a publiccorporation based in the United States.**

We are exempt from certain provisions of the SecuritiesExchange Act of 1934, as amended, commonly referred to as the Exchange Act,that are applicable to U.S. public companies, including (i) the rules under theExchange Act requiring the filing with the SEC of quarterly reports on Form10-Q or current reports on Form 8-K; (ii) the sections of the Exchange Actregulating the solicitation of proxies, consents or authorizations in respectof a security registered under the Exchange Act; and (iii) the sections of theExchange Act requiring insiders to file public reports of their stock ownershipand trading activities and liability for insiders who profit from trades madein a short period of time.  The exemptprovisions would be available to you if you had invested in a U.S. corporation.

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

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

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

***In certain circumstances, holders of ADRs may have limited rightsrelative to holders of Ordinary Shares******.***

The rights of holders of ADSs with respect to the votingof Ordinary Shares and the right to receive certain distributions may belimited in certain respects by the deposit agreement entered into by us and TheBank of New York.  For example, althoughADS holders are entitled under the deposit agreement, subject to any applicableprovisions of Australian law and of our Constitution, to instruct thedepositary as to the exercise of the voting rights pertaining to the OrdinaryShares represented by the American Depositary Shares, and the depositary hasagreed that it will try, as far as practical, to vote the Ordinary Shares sorepresented in accordance with such instructions, ADS holders may not receivenotices sent by the depositary in time to ensure that the depositary will votethe Ordinary Shares.  This means that theholders of ADRs may not be able to exercise their right to vote.  In addition, under the deposit agreement, thedepositary has the right to restrict distributions to holders of the ADSs inthe event that it is unlawful or impractical to make such distributions.  We have no obligation to take any action topermit distributions to holders of our American Depositary Receipts, orADRs.  As a result, holders of ADRs maynot receive distributions made by us. For further information about the rights and limitations on rightsapplicable to holders of our ADSs, please see Item 12D of this Annual Reportentitled “American Depositary Shares”.

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

Genetic Technologies Limited was founded in 1989.  We have incurred operating losses in everyyear of our existence.  We incurred netlosses of $3,222,179 for the year ended June 30, 2002, net losses of $960,395for the year ended June 30, 2003, net losses of $4,816,726 for the year endedJune 30, 2004, net losses of $5,742,949 for year ended June 30, 2005 and netlosses of $4,020,323 for year ended June 30, 2006.  As of June 30, 2006, we have accumulatedlosses of $17,002,436.  The extent offuture losses and the time required to achieve profitability remains uncertain.

**Risks Related to ourIndustry**

**Our sales cycle is typically lengthy.**

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

8

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

Weare subject to limited competition from biotechnology and diagnostic companies,academic and research institutionsand government or other publicly-funded agencies that are pursuing products andservices that are substantiallysimilar to our genetic testing services, or which otherwise address the needsof our customers and potential customers. Our competitors in the testing market include private and public sectorenterprises located in Australia and elsewhere. Many of the organizations competing with us have greater experience inthe areas of finance, 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 the testingarea is based upon our ability to:

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

·                  attract and retain qualified personnel;

·                  obtain patent or other protection for our productsand services;

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

·                  successfully market our services.

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

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

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

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

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

We have relationships with a number of academicconsultants who are not employed by us. Accordingly, we have limited control over their activities and canexpect only limited amounts of their time to be dedicated to our activities.  These persons may have consulting, employmentor advisory arrangements with other entities that may conflict with or competewith their obligations to us.  Ourconsultants typically sign agreements that provide for confidentiality of ourproprietary information and results of studies. However, in connection with every relationship, we may not be able tomaintain the confidentiality of our technology, the dissemination of whichcould hurt our competitive position and results of operations.  To the extent that our scientific consultantsdevelop inventions or processes independently that may be applicable to ourproposed products, disputes may arise as to the ownership of the proprietaryrights to such information, and we may not win those disputes.

9

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**If we are unable to protect our proprietary methods and technologies,we may not be able to commercialize products or services.**

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

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

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

We have in the past and may possibly in the future becomea party to litigation involving patents and intellectual property rights. We have previously commenced litigation against a number of parties toprotect our rights pertaining to our intellectual property.  We may in the future receive claims ofinfringement of intellectual property rights from other parties.  If we do not prevail in any future legalproceedings, we may be required to pay significant monetary damages.  In addition, we could also be enjoined fromuse of certain processes or prevented from selling certain configurations ofour products or services that were found to be within the scope of the patentclaims.  In the event we did not prevailin any future proceeding, we would either have to obtain licenses from theother party, avoid certain product configurations or modify some of ourproducts, services and processes to design around the patents.  Licenses could be costly or unavailable oncommercially reasonable terms.  Designingaround patents or focusing efforts on different configurations could be timeconsuming, and we may have to remove some of our products or services from themarket while we were completing redesigns. Accordingly, if we are unable to settle future intellectual propertydisputes through licensing or similar arrangements, or if any such futuredisputes are determined adversely to us, our ability to market and sell ourproducts and services could be seriously harmed.  This would in turn reduce demands for ourservices and harm our financial condition and results of operations.

In addition,in order to protect or enforce our patent rights or to protect our ability tooperate our business, we may need to initiate other patent litigation againstthird parties.  These lawsuits could beexpensive, take significant time, and could divert Management’s attention fromother business concerns.  These lawsuitscould result in the invalidation or limitation in the scope of our patents orforfeiture 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, there may be public announcements of theresults of hearings, motions and other interim proceedings or developments inthe litigation.  Securities analysts orinvestors may perceive these announcements to be negative, which could causethe market price of our stock to decline.

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**We may be subject to professionalliability suits and our insurance may not be sufficient to cover damages.  If thisoccurs, our business and financial condition may be adversely affected.**

Our business exposes us to potential liability risks thatare inherent in the testing, manufacturing, marketing and sale of genetictests.  The use of our products andproduct candidates, whether for clinical trials or commercial sale, may exposeus to professional liability claims and possible adverse publicity.  We may be subject to claims resulting fromincorrect results of analysis of genetic variations or other screening testsperformed using our services.  Litigationof such claims could be costly.  We couldexpend significant funds during any litigation proceeding brought againstus.  Further, if a court were to requireus to pay damages to a plaintiff, the amount of such damages couldsignificantly harm our financial condition. Although we have public and products liability insurance coverage underbroadform liability and professional indemnity policies, for an aggregateamount of AUD60,000,000, the level or breadth of our coverage may not beadequate to fully cover potential liability claims.  To date we have not been subject to anyclaims, or ultimately liability, inexcess of the amount of our coverage.  Inaddition, we may not be able to obtain additional professional liability coverage in the future at an acceptablecost.  A successful claim or series ofclaims brought against us in excess of our insurance coverage and the effect of professional liability litigationupon the reputation and marketability of our technology and products, together with the diversion of theattention of key personnel, could negatively affect our business.

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

Our research and development, production and serviceactivities involve the controlled use of hazardous laboratory materials andchemicals, including small quantities of acid and alcohol, and patient tissueand blood samples.  We do not knowinglydeal with infectious samples.  We, ourcollaborators and service providers are subject to stringent Australianfederal, state and local laws and regulations governing occupational health andsafety standards, including those governing the use, storage, handling anddisposal of these materials and certain waste products.  However, we could be liable for accidental contamination or discharge or anyresultant injury from hazardous materials, and conveyance, processing, and storage of and data on patientsamples.  If we, our collaborators orservice providers fail to comply with applicable laws or regulations, we couldbe required to pay penalties or be held liable for any damages that result andthis liability could exceed our financial resources.  Further, future changes to environmentalhealth and safety laws could cause us to incur additional expense or restrictour operations.  We have never had areportable injury through the date of this Annual Report.

In addition, our collaborators and service providers maybe working with these types of hazardous materials, including hazardouschemicals, in connection with our collaborations.  In the event of a lawsuit or investigation,we could be held responsible for any injury caused to persons or property byexposure to, or release of, these patient samples that may contain viruses andhazardous materials.  The cost of thisliability could exceed our resources. While we maintain broadform liability insurance coverage for theserisks, in the amount of up to 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 a resultof the mishandling of such materials.  Wealso maintain workers’ compensation insurance, which is mandatory in Australia,covering all of our workers in the event of injury.

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

Our strategy for research, development andcommercialization of some of our products 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.

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If our collaborators breach or terminate their agreementwith us or otherwise fail to conduct their collaborative activities in a timelymanner, the development or commercialization of the product candidate orresearch program under suchcollaborative arrangement may be delayed. If that is the case, we may be required to undertake unforeseenadditional responsibilities or todevote unforeseen additional funds orother resources to such development or commercialization, or such developmentor commercialization could beterminated.  The termination orcancellation of collaborative arrangements could adversely affect our financialcondition, intellectual property position and general operations.  Inaddition, disagreements between collaborators and us could lead to delays inthe collaborative research, development, or commercialization of certain products or could require or result informal legal process or arbitration for resolution.  These consequences could be time-consumingand expensive and could have material adverse effects on us.

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

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

We may seek additional collaborative arrangements todevelop and commercialize our products in the future.  We may not be able to negotiate acceptablecollaborative arrangements in the future and, if negotiated, we have nocertainty that they will be on favorable terms or will be successful.  In addition, our collaborative partners maypursue alternative technologies independently or in collaboration with othersas a means of developing treatments for the diseases targeted by theircollaborative programs with us.  If anyof these events occurs, the progress of the Company could be adversely affectedand our results of operations and financial condition could suffer.

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

We seek to license our intellectual property on a globalscale, including eventually in countries that are considered to provide significantlyless protection to intellectual property than the United States andAustralia.  In addition, a number ofother risks are inherent in international transactions and commerce, includingpolitical and economic instability, foreign currency exchange fluctuations andchanges in tax laws.  For example, infiscal year 2003, we sustained foreign exchange losses of over $500,000primarily due to the appreciation in the value of the Australian Dollarcompared to the U.S. Dollar and the impact on our cash deposits which aredenominated in U.S. Dollars.

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

Apart from accreditation requirements, we are generallynot subject to regulation.  Federal,state and local governments, however, may adopt regulations relating to theconduct of genetic research and genetic testing.  These regulations could limit or restrictgenetic research activities as well as genetic testing for research or clinicalpurposes.   In addition, if state andlocal regulations are adopted, these regulations may be inconsistent with, orin conflict with, regulations adopted by other state or local governments.  Regulations relating to genetic researchactivities could adversely affect our ability to conduct our research anddevelopment activities.  Regulationsrestricting genetic testing could adversely affect our ability to market andsell our services.  Accordingly, anyregulations of this nature could increase the costs of our operations orrestrict our ability to conduct our testing business and might adversely affectour operations and financial condition.

In Australia, there is no law that prohibits the performing a paternitytest by using 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 paternity testing,it made various recommendations, the most significant of which was that thetesting of a child without the knowledge or consent of both parents should bemade illegal.  In December 2005, theAustralian Government formally responded to the ALRC report.  Although it accepted most of the report’srecommendations, it did not accept its recommendation that it should be illegalto test a child without the knowledge or consent of both parents.  Instead, it recommended that the body thatformally accredits laboratories, National Association of Testing Authorities(NATA) should review its accreditation requirements for DNA parentage testingto ensure that laboratories meet the highest technical and ethical standards,particularly in relation to consent to testing, protecting the integrity ofgenetic samples, and providing information about counselling.

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This approach is very similar to the model adopted in the United Kingdomwhere, for a laboratory to perform tests for legal purposes, it is not allowedto perform testing where just the father and the child give a sample withoutthe knowledge or consent of the mother. If NATA follows the UK model, this will have a negative impact on ourrevenue as father/child testing is a substantial and growing market.

The Government also rejected the ALRC recommendation that all human DNAtesting laboratories 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 whenthis will occur.

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

Much of the future success of the Company depends on thecontinued service and availability of skilled personnel, including its ChiefExecutive Officer, members of its senior executive team, and those intechnical, marketing and staff positions. While we are actively recruiting new employees with such skills andexperience to reduce our reliance on these individuals, however skilledpersonnel, with specific experience in the biotechnology industry, are in highdemand and competition for their talents is intense.

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

Public opinion regarding ethical issues related to theconfidentiality and appropriate use of genetic testing results may influence governmental authorities tocall for limits on, or regulation of the use of, genetic testing.  In addition, such authorities could prohibit testing for genetic predisposition tocertain conditions, particularly for those that have no known cure. Furthermore, adverse publicity or public opinion relating to geneticresearch and testing, even in the absenceof any governmental regulation,could reduce the potential markets for our services, which could materially andadversely affect our revenues.

Althoughwe are a leader in the field of genetics in Australia, we do not undertake anyactivities in the contentious areasof cloning, stem cell research or other gene-altering areas.  As such, many of the ethical issues that maybe relevant to other participants in the genetics industry are not applicableto us.

**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 infringerwill defend itself through a counter-claim of patent invalidity.  Subsequent legal action could potentiallyoverturn, invalidate or limit thescope of our patents.

Underthe relevant Patent Act in most, if not all, of the countries in which ournon-coding patents have issued, the relevant judicial system has rights toimpose compulsory licensing.  Therelevant governments typically hold “march-in” rights by which they mayunilaterally choose to exploit the technology. To the extent that the Company’s non-coding technology is used in theconduct of genetic research, we also face risks, uncertainty and controversyover the licensing 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.

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**Genetic testing**

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

In recent years, health care payors as well as federaland state governments have focused on containing or reducing health carecosts.  We cannot predict the effect thatany of these initiatives may have on our business.  In particular, gene-based therapeutics, ifsuccessfully developed and commercialized, are likely to be costly compared tocurrently available drug therapies. Health care cost containment initiatives focused either on gene-basedtherapeutics or on genetic testing could result in the growth in the clinicalmarket for genetic testing being curtailed or slowed.  In addition, health care cost containmentinitiatives could also cause pharmaceutical companies to reduce research anddevelopment spending.  In either case,our business and our operating results could be adversely affected.  Further, genetic testing in clinical settingsis often billed to third-party payors, including private insurers andgovernmental organizations.  If ourcurrent and future clinical products and services are not consideredcost-effective by these payors, reimbursement may not be available to users ofour services.  In this event, potentialcustomers would be much less likely to use our services and our business andoperating 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 of Western Australiaon January 5, 1987 as Concord Mining N.L. On August 13, 1991 we changed our name to Consolidated Victorian GoldMines N.L.  On December 2, 1991, wechanged our name to Consolidated Victorian Mines N.L.  On March 15, 1995, we changed our name toDuketon Goldfields N.L.

On October 15, 1999, the type of company was changed froma No Liability Company to a company limited by shares.  On August 29, 2000, we changed our name toGenetic Technologies Limited, which is our current name.  We were originally incorporated as a miningcompany 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 AustralianSecurities Exchange Listing Rules, the Marketplace Rules of NASDAQ and, whereapplicable, local legislation.

Our registered office, headquarters, laboratory andbusiness activities are all located at 60-66 Hanover Street, Fitzroy, Victoria,3065 Australia.  Our telephone number is+61 3 9415 1135.  Our website address iswww.gtg.com.au.  Information on ourwebsite and websites linked to it does not constitute part of this AnnualReport.

On August 29, 2000, we acquired 100% of GeneType AG,including all of its valuable patents, and we changed our focus exclusively tothe area of biotechnology.  We alsochanged our name to Genetic Technologies Limited to better reflect our newbusiness.  In September 2000, our listingwas duly transferred from the mining board of the ASX to the industrial board and our shares were thereafterclassified under the industry group “Health and Biotechnology”, completing our transformation from a mining and resourcescompany into a biotechnology company. During 2001, we also acquired 10% of the issued and outstanding sharesin Cytomation Inc., based in Fort Collins, Colorado.  At that time, Cytomation was a leader in themanufacture and sales of flow cytometers and cell sorters.  Also, in December 2001, we acquired aninitial shareholding of less than 1% in the issued capital of XY, Inc., acompany also based in Fort Collins.  InJuly 2001, we acquired the business of DNA-ID Labs in Perth, Western Australia,as part of our strategy of expanding our paternity testing business inAustralia.  In March 2002, we formedAgGenomics Pty. Ltd., based in Melbourne, in order to expand our genetictesting services into the field of plant genetics.  In May 2003, we acquired the fixed assets ofthe business Genetic Science Services in Melbourne, in order to further expandinto the field of genetic testing.

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Since the acquisition of GeneType AG, with the exceptionof certain minor passive interests, the directors have disposed of all remainingmining interests so that our activities now focus solely on emergingopportunities in the field of biotechnology. Our current activities in biotechnology primarily concentrate on threeclearly defined areas of activity which are covered under Item 4.B “BusinessOverview”.

In early calendar year 2002, we commenced the process ofout-licensing our non-coding patents, announcing several early successes.  The first license to our non-coding patentswas granted to Genetic Solutions Pty. Ltd. of Australia, and soon after, toNanogen Inc., Sequenom Inc., Perlegen Sciences Inc. and Myriad Genetics Inc.all of USA.  In the first half of 2003,we granted licenses to Pyrosequencing AB (now Biotage AB) of Sweden, to ARUP andthe University of Utah.  During the yearended June 30, 2004, we granted licenses to the University of Sydney, inAustralia, Quest Diagnostics Inc. of USA, King’s College London, ViaLactiaBiosciences (NZ) Limited of New Zealand, University of Technology, Sydney,Australia, TM Bioscience Corporation of Canada, Laboratory Corporation ofAmerica Holdings, Colorado State University of USA, C.Y. O’Connor ERADE VillageFoundation of Perth, Western Australia and Ovita Limited of New Zealand.  Since June 30, 2004, we have granted licensesto Genzyme Corporation of USA, MetaMorphix Inc. of USA, Bionomics Limited ofAdelaide, South Australia, the Australian Genome Research Facility of Brisbane,Queensland, four parties in New Zealand, Applera Corporation, Bovigen LLC andOptigen LLC all of USA, Innogenetics NV of Belgium and GENOSENSE ofAustria.  These licenses are more fullydescribed below under Item 4.B “Business Overview”.

It is a priority for the Company to continue to identifyadditional parties who would benefit from taking a license to the Company’snon-coding patents.  We are now pursuingnegotiations with companies and organizations in USA, Europe, Australia, NewZealand, Canada, Japan and South America that would all benefit from taking alicense to our non-coding patents or from collaborations with our servicetesting business.

In order to increase the rate at which these licenses can be secured,the licensing team at the Company’s headquarters in Melbourne, Australia wasexpanded during the year by the appointment of additional staff to acceleratethe preparation of dossiers on potential licensees.  Internationally, four independent licensingcontractors were also engaged to represent the Company “on the ground”, twoeach in our major markets of USA and Europe.

**Item 4.B**                          Business Overview

We are a biotechnology company, now pursuing commercialopportunities in three main areas 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 Genome Project (HGP) announced (in 2003) thecompletion of the first draft of the entire sequence of the human genome.  The biotechnology industry is now working tobuild upon the vast amount of knowledge generatedby that program in order todevelop a better understanding of the genetic basis of human health anddisease.  Increasingly, genetics is being shown to play a key role in thediagnosis and treatment of many diseases in humans, as well as diseases inanimals and plants.  Our growingunderstanding of genetics is now providing new information for understandingsuch predisposing or causative factors in many of these diseases.

More recently, the successful mapping of the Mouse Genomewas published in December, 2002, and this permitted for the first time, adetailed comparison of human genes and mouse genes.  One of the key findings that has arisen fromthis work is the significant role that non-coding DNA plays in controlling genefunction in both human genes and mouse 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.

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A major focus in science is now the identification andanalysis of genetic variations and disease-associated genes within thegenome.  These genetic variations, orpolymorphisms, in the DNA sequences vary between individuals.  The most common genetic variations are SingleNucleotide Polymorphisms, or SNPs, which are merely a difference in a singlenucleotide.  The first draft of the humangenome identified over 1.4 million SNPs that can be useful as positionalsignposts for disease-associated DNA sequencesin a gene or as markers to map genes along a chromosome.  A significant number of these SNPs (perhapsmore than 97%) are now known to benon-coding.

**Genomics**

A genome is an organism’s complete set of DNA and thestudy of that DNA is called genomics. Genomes vary in size, with bacteria displaying the smallest known genomeat 600,000 DNA base pairs, while human and mouse genomes have over 3billion.  The DNA of the human genome isorganized into 24 distinct chromosomes that contain from 50 million to 250million base pairs on each chromosome. The DNA on each chromosome contains genes that are specific sequencesthat encode proteins that actually perform the work within a cell and also makeup the cell itself.  Surprisingly, onlyabout 2% to 5% of the human genome is organized into coding DNA, with theremainder being considered to be non-coding DNA.  Our patent portfolio is centered onproprietary methods for utilizing the valuable information contained withinthese non-coding regions.

**GeneticVariability**

Almost 99.9% of an individual’s genome is identical tothat of every other individual’s genome. However,  even slight variationsin sequence can drastically change how a gene functions.  Variations can lead to harmless changes, suchas blue eyes instead of brown, or to major diseases such as cancer, cysticfibrosis, or cardiovascular disease. Genetic variations can also be responsible for many of the differencesin the ways individuals respond to drug therapies.  As a result of this knowledge, routineanalysis of SNPs and other genetic variations is expected to play anincreasingly important role in the discovery and development of new drugs, aswell as in a variety of diagnostic therapeutic and other medical and lifescience applications.  Industry sourcesestimate there are millions of genetic variations in the human genome, creating demand for products andtechnologies that can quickly and accurately detect and analyze thesevariations.  Itis thought that the medicine of the future will be dispensed to a patient basedon his or her own specific DNA variations.  This type of “personalizedmedicine” will require sophisticated genetic tests to determine the geneticcomposition of an individual, and it is now recognized that such geneticmake-up depends not only on the form of the coding DNA, but also the form ofthe associated non-coding DNA.

**Genetic Tests**

Most genes come in many different forms, calledalleles.  One or more allele may beassociated with a particular disease state. Genetic testing involves the direct examination of an individual’s DNAfor a DNA marker associated with theallele of interest.  The determination ofthe particular alleles an individual has within his or her DNA is calledgenotyping.

The most commonly tested marker of a particular allele isa SNP.  As much as 98% of the humangenome is considered to be non-coding DNA, the majority of the identified 1.4million SNPs are also located in non-coding regions of DNA.  We believe that a license to our proprietarymethods of analyzing non-coding regions of DNA will be absolutely necessary formany of the genetic tests of the future. Similarly, tests for genetic abnormalities or mutations may involve notjust individual SNPs, but also groups of SNPs or even larger sequences of DNA,and such abnormal sequences – large or small – may be located either in thecoding region alone, or in the non-coding region alone, or in both the codingand non-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 roleof non-coding DNA is now being found to be highly relevant in a growing numberof diseases.  This similarly applies to genetic disorders in animals and inplants.  Accordingly, more and moregenetic testing will in future look not only at coding variations, but also atthe non-coding variations within a particular gene.

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**OurPatent Portfolio**

The acquisition of GeneType AG gave our company ownershiprights to a potentially significant portfolio of issued patents.  The major families of patents in theportfolio include:

(a)          Intron sequence analysis;

(b)         Genomic mapping;

(c)          Fetal cell recovery;

(d)         Electrophoresis standards;

(e)          Sports performance;

(f)            Parasitology;

(g)         Ancestral haplotypes for tissue typing;

(h)         Markers for disease; and

(i)             Modulationof the immune system.

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

**(b)**          **TheGenomic Mapping patents** -describe methods for analyzing genetic material collected from various selectedpopulations to identify and locate genes and markers of interest, by identifyinghighly polymorphic sites throughout the genome and particular haplotypesassociated with such sites, all based on a reading of sequence information inboth the coding and the non-coding portions of the genome.

**(c)**          **TheFetal Cell Recovery patents** -describe a novel and safe method for the isolation and collection of fetalcells from the peripheral blood of a pregnant woman, utilizing various HLA orother markers plus flow cytometry - all without any invasive procedure thatmight endanger the mother or the child. These patents form the basis of the RareCellect project.

**(d)****          TheElectrophoresis Standards patents -**describe a method for identifying band positions in an electrophoreticseparation by also including a control, which serves as an internal standard.

**(e)**          **TheSports Performance patents** -describe a method that enables aspects of athletic performance to be predictedbased on detection of various forms of the alpha actinin 3 (ACTN3) gene.

**(f)****            TheParasitology patents** - describemeans to identify and to control a variety of species of parasites.  The initial patents describe the use ofgenetic technologies to identify potentially human pathogenic species of thewater-borne parasite species of *Cryptosporidium*and distinguish them from non-pathogenic strains.  This enables more accurate typing of *Cryptosporidium* organisms which may be important in themanagement of disease outbreaks.  Thesecond series of patent applications describe the use of modern genetictechnologies to identify two novel classes of chemicals which can be used to control the major parasitic worms ofsheep and cattle.  These nematodes areresponsible for extensive economiclosses to the sheep and cattle industries and are rapidly developing resistantto the existing chemicals.  The novel classesof chemical described in these patents offer a safe and highly effectivealternative.

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**(g)**         **TheAncestral Haplotypes for Tissue Typing patents** – describe a method for determining ancestralhaplotypes using haplospecific geometric elements within the majorhistocompatibility complex multi gene cluster and methods of genetic analysisinvolving the amplification of complimentary duplicons.  These patents were acquired from the C.Y. O’ConnorERADE Village Foundation.

**(h)**         **TheMarkers for Disease patents** - describe a group of patents relatingto uses of a group of genetic variations called “variable number tandem repeats”(VNTRs).  Particular uses have been foundfor VNTR’s in predicting predisposition to addiction.

**(i)**            **TheModulation of the Immune System patents** - describe various methods aimed at improving the efficacy of cancertherapy and treatment of HIV-AIDS and form the basis of the ImmunAid project.

In total, we own 8 issued patents and 9 pending patentsin the United States.  Reflecting ourinternational business strategy, we have also sought and been granted foreignpatents by many other major industrialized nations, corresponding to each ofthe major patents already issued in the United States.

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

Generally, United States patents have a term of 17 yearsfrom the date of issuance for patents filed with the United States PatentOffice prior to June 8, 1995, and 20 years from the application filing date orearlier claimed priority date in the case of patents issued from applicationsfiled on or after June 8, 1995.  Forapplications filed after May 29, 2000, the term is 20 years from the date offiling.  A minimum term of 17 years isassured, provided the applicant causes no delays during prosecution.  Patents in most other countries have a termof 20 years from the date of filing the patent application.  Our issued United States patents will expirebetween 2009 and 2019.  We intend tocontinue to file patent applications as we develop new products, technologiesand patentable enhancements.  Prosecutionpractices have been implemented toavoid any applicant delays that could compromise the 17-year minimum term.  There can be no guarantee that such procedures will prevent the loss of apotential patent term.  This isparticularly true in the short-term as the patent rules implementing the mostrecent patent term changes are largely new and untested.

Complex legal and factual determinations and evolving lawmake patent protection uncertain.  As aresult, we cannot be certain that patents will be issued from any of ourpending patent applications or from applications licensed to us or that anyissued patents will have sufficient breadth to offer meaningfulprotection.  In addition, our issued patentsmay be successfully challenged, invalidated, circumvented or renderedunenforceable so that our patent rights would not create an effectivecompetitive barrier.  Moreover, the lawsof some foreign countries may not protect our proprietary rights to the sameextent as do the United States patent laws.

In addition to patent protection, we rely on trade secretprotection of our intellectual property. We attempt to protect our trade secrets by entering into confidentialityagreements with third parties, employees and consultants.  Our employees and consultants are required tosign agreements to assign to us their interests in discoveries, inventions,patents, trademarks and copyrights arising from their work for us.  They also are required to maintain the confidentialityof our intellectual property, andrefrain from unfair competition with us during their employment and for acertain amount of time after theiremployment with us, which includes solicitation of our employees andcustomers.  We cannot be certain theseagreements will not be breached or invalidated. In addition, third parties may independently discover or inventcompeting technologies or reverse engineer our trade secrets or othertechnologies.

In the future, we may become involved in lawsuits inwhich 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 oragainst our licensors, or us and may face costly litigation and diversion ofManagement’s attention and resources.  Asa result 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.

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In addition, we may become involved in lawsuits in whichthird parties file claims asserting that one or more of our patents areinvalid.  We cannot predict whether thirdparties will assert such claims against us or against the licensees of suchpatents, or whether those claims will have an adverse impact on ourbusiness.  We may be forced to defend against such claims, whether they are with orwithout merit or whether they are resolved in favor of or against our licensees, or us and may face costly litigation anddiversion of Management’s attention. During the period from February 2001 through March 31, 2002, we had inplace a patent insurance policy, placed with GE Reinsurance Corporation throughDexta Corporation Limited, their managing general agents in Australia.  Although the policy was not renewed on itsexpiry, since we had advised Dexta of 13 companies prior to March 31, 2002 aspotential infringers, a significant portion of our expenses incurred to daterelating to the prosecution of our claims have been covered by the policy.

Of those 13 so identified, we have secured licenses withsix, relinquished our claims against four and commenced proceedings against Applera, Covance andNuvello.  The suits against Covance andNuvello were subsequently settled.  OnDecember 12, 2005, we announced the final settlement of our patent dispute withApplera Corporation, 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 and partly in kind, including agreements supplyingthe Company with certain Applera equipment, reagents and intellectual property rights. Recognition of in-kind consideration as revenue is subject to us meetingcertain revenue recognition criteria including, but not limited to, themeasurement of fair value at the time of receipt.

**Our Patents**

Our current patent portfolio is described below.  “Numbers” refers to either application,publication or patent number.
| ** **                                                                                             | ** ** | **COUNTRY / REGION** | ** ** | **NUMBERS**   | ** ** | **GRANTED** | ** ** | **PENDING** |
|--------------------------------------------------------------------------------------------------------|------------|----------------------|------------|---------------|------------|-------------|------------|-------------|
| **NON-CODING  DNA**                                                                                    |       |                 |       |          |       |        |       |        |
| **Intron  sequence analysis method for detection of adjacent and remote locus alleles  as haplotypes** |       |                 |       |          |       |        |       |        |
| Earliest  priority August 25, 1989                                                                     |       | Australia            |       | AU654111      |       | ·      |       |        |
|                                                                                                   |       |                 |       | 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      |       | ·      |       |        |
|                                                                                                   |       | New Zealand          |       | NZ235051      |       | ·      |       |        |
|                                                                                                   |       | Singapore            |       | SG47747       |       | ·      |       |        |
|                                                                                                   |       | South Africa         |       | ZA9006765     |       | ·      |       |        |
|                                                                                                   |       | Spain                |       | ES2095859     |       | ·      |       |        |
|                                                                                                   |       | Sweden               |       | EP414469      |       | ·      |       |        |
|                                                                                                   |       | Switzerland          |       | EP414469      |       | ·      |       |        |
|                                                                                                   |       | United States        |       | US5192659     |       | ·      |       |        |
|                                                                                                   |       |                 |       | US5612179     |       | ·      |       |        |
|                                                                                                   |       |                 |       | US5789568     |       | ·      |       |        |
|                                                                                                   |       |                 |       |          |       |        |       |        |
|                                                                                                   |       | Japan                |       | JP2001309796  |       |        |       | ·      |
|                                                                                                   |       | United States        |       | US20030119003 |       |        |       | ·      |

 

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| ** **                                                                        | ** ** | **COUNTRY / REGION** | ** ** | **NUMBERS**  | ** ** | **GRANTED** | ** ** | **PENDING** |
|-----------------------------------------------------------------------------------|------------|----------------------|------------|--------------|------------|-------------|------------|-------------|
| **NON-CODING  DNA**                                                               |       |                 |       |         |       |        |       |        |
| **Genomic  mapping method by direct haplotyping using intron sequence analysis**  |       |                 |       |         |       |        |       |        |
| Earliest  priority July 11, 1990                                                  |       | Australia            |       | AU647806     |       | ·      |       |        |
|                                                                              |       | 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    |       | ·      |       |        |
|                                                                              |       |                 |       |         |       |        |       |        |
| **Compositions  and methods of use of variable number of tandem repeats (VNTRs)** |       |                 |       |         |       |        |       |        |
| Earliest  priority October 3, 2003                                                |       | United States        |       | 10/956581    |       |        |       | ·      |
|                                                                              |       |                 |       |         |       |        |       |        |
| **Markers  of predisposition to addictive states**                                |       |                 |       |         |       |        |       |        |
| Earliest  priority November 8, 2004                                               |       | Australia            |       | AU2004906419 |       |        |       | ·      |
|                                                                              |       | World                |       | WO2006048778 |       |        |       | ·      |
|                                                                              |       |                 |       |         |       |        |       |        |
| **LABORATORY  TECHNIQUES**                                                        |       |                 |       |         |       |        |       |        |
| **Internal  standard for electrophoretic separations**                            |       |                 |       |         |       |        |       |        |
| Earliest  priority July 11, 1990                                                  |       | Austria              |       | AT159589     |       | ·      |       |        |
|                                                                              |       | Europe               |       | EP466479     |       | ·      |       |        |
|                                                                              |       | France               |       | EP466479     |       | ·      |       |        |
|                                                                              |       | Germany              |       | DE69127999   |       | ·      |       |        |
|                                                                              |       | Great Britain        |       | EP466479     |       | ·      |       |        |
|                                                                              |       | Japan                |       | JP4232850    |       | ·      |       |        |
|                                                                              |       | Sweden               |       | EP466479     |       | ·      |       |        |
|                                                                              |       | United States        |       | US5096557    |       | ·      |       |        |

 

20

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| ** **                                                                                                                                             | ** ** | **COUNTRY / REGION** | ** ** | **NUMBERS**       | ** ** | **GRANTED** | ** ** | **PENDING** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|-------------|------------|-------------|
| **ANCESTRAL HAPLOTYPES**                                                                                                                               |       |                 |       |              |       |        |       |        |
| **Genetic analysis**                                                                                                                                   |       |                 |       |              |       |        |       |        |
| Earliest priority November 1, 1991                                                                                                                     |       | Europe               |       | EP660877          |       | ·      |       |        |
|                                                                                                                                                   |       | France               |       | EP660877          |       | ·      |       |        |
|                                                                                                                                                   |       | Germany              |       | DE69232726        |       | ·      |       |        |
|                                                                                                                                                   |       | Great Britain        |       | EP660877          |       | ·      |       |        |
|                                                                                                                                                   |       |                 |       |              |       |        |       |        |
| **Method for determining ancestral haplotypes  using haplospecific geometric elements within the major histocompatability  complex multigene cluster** |       |                 |       |              |       |        |       |        |
| Earliest priority November 1, 1991                                                                                                                     |       | United States        |       | US6383747         |       | ·      |       |        |
|                                                                                                                                                   |       |                 |       |              |       |        |       |        |
| **Methods of genetic analysis involving the  amplification of complementary duplicons**                                                                |       |                 |       |              |       |        |       |        |
| Earliest priority February 16, 2005                                                                                                                    |       | World                |       | WO2006086846      |       |        |       | ·      |
|                                                                                                                                                   |       |                 |       |              |       |        |       |        |
| **Identification of ancestral haplotypes and uses  thereof**                                                                                           |       |                 |       |              |       |        |       |        |
| Earliest priority August 24, 2005                                                                                                                      |       | World                |       | PCT/AU2006/001232 |       |        |       | ·      |
|                                                                                                                                                   |       |                 |       |              |       |        |       |        |
| **ATHLETIC PERFORMANCE**                                                                                                                               |       |                 |       |              |       |        |       |        |
| **ACTN3 genotype screen for athletic performance**                                                                                                     | ** ** | ** **           | ** ** | ** **        |       |        |       |        |
| Earliest priority September 16, 2002                                                                                                                   |       | Australia            |       | AU2003258390      |       |        |       | ·      |
|                                                                                                                                                   |       | Canada               |       | CA2499084         |       |        |       | ·      |
|                                                                                                                                                   |       | China                |       | CN1732270         |       |        |       | ·      |
|                                                                                                                                                   |       | Europe               |       | EP1546403         |       |        |       | ·      |
|                                                                                                                                                   |       | India                |       | 599/KOLNP/2005    |       |        |       | ·      |
|                                                                                                                                                   |       | Japan                |       | JP2005538710      |       |        |       | ·      |
|                                                                                                                                                   |       | New Zealand          |       | NZ538890          |       |        |       | ·      |
|                                                                                                                                                   |       | Russia               |       | RU2005111236      |       |        |       | ·      |
|                                                                                                                                                   |       | South Korea          |       | KR1020057004536   |       |        |       | ·      |
|                                                                                                                                                   |       | United States        |       | US2006121478      |       |        |       | ·      |
|                                                                                                                                                   |       |                 |       |              |       |        |       |        |
| **IMMUNAID PROJECT**                                                                                                                                   |       |                 |       |              |       |        |       |        |
| **A retroviral immunotherapy**                                                                                                                         |       |                 |       |              |       |        |       |        |
| Earliest priority August 18, 2000                                                                                                                      |       | Australia            |       | AU2003200583      |       | ·      |       |        |
|                                                                                                                                                   |       | New Zealand          |       | NZ524280          |       | ·      |       |        |
|                                                                                                                                                   |       | Singapore            |       | SG95523           |       | ·      |       |        |
|                                                                                                                                                   |       | South Africa         |       | ZA200301694       |       | ·      |       |        |
|                                                                                                                                                   |       | Brazil               |       | BR0113354         |       |        |       | ·      |
|                                                                                                                                                   |       | Canada               |       | CA2431954         |       |        |       | ·      |
|                                                                                                                                                   |       | China                |       | CN1469746         |       |        |       | ·      |
|                                                                                                                                                   |       | Europe               |       | EP1311267         |       |        |       | ·      |
|                                                                                                                                                   |       | Japan                |       | JP2004506015      |       |        |       | ·      |
|                                                                                                                                                   |       | United States        |       | US20030228320     |       |        |       | ·      |

 

21

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| ** **                                                                         | ** ** | **COUNTRY / REGION** | ** ** | **NUMBERS**      | ** ** | **GRANTED** | ** ** | **PENDING** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|------------------|------------|-------------|------------|-------------|
| **Cancer  therapy**                                                                |       |                 |       |             |       |        |       |        |
| Earliest  priority February 14, 2002                                               |       | Singapore            |       | SG105902         |       | ·      |       |        |
|                                                                               |       | South Africa         |       | ZA200407142      |       | ·      |       |        |
|                                                                               |       | Australia            |       | AU2003203051     |       |        |       | ·      |
|                                                                               |       | Brazil               |       | BR0307661        |       |        |       | ·      |
|                                                                               |       | Canada               |       | CA2476366        |       |        |       | ·      |
|                                                                               |       | China                |       | CN1646155        |       |        |       | ·      |
|                                                                               |       | Europe               |       | EP1482970        |       |        |       | ·      |
|                                                                               |       | Japan                |       | JP2005523277     |       |        |       | ·      |
|                                                                               |       | New Zealand          |       | NZ534570         |       |        |       | ·      |
|                                                                               |       | United States        |       | US2005180971     |       |        |       | ·      |
|                                                                               |       |                 |       |             |       |        |       |        |
| **Strategy  for retroviral immunotherapy**                                         |       |                 |       |             |       |        |       |        |
| Earliest  priority February 20, 2002                                               |       | Singapore            |       | SG105903         |       | ·      |       |        |
|                                                                               |       | South Africa         |       | ZA200407143      |       | ·      |       |        |
|                                                                               |       | Brazil               |       | BR0307868        |       |        |       | ·      |
|                                                                               |       | Canada               |       | CA2476956        |       |        |       | ·      |
|                                                                               |       | China                |       | CN1646156        |       |        |       | ·      |
|                                                                               |       | Europe               |       | EP1482971        |       |        |       | ·      |
|                                                                               |       | Japan                |       | JP2005526729     |       |        |       | ·      |
|                                                                               |       | New Zealand          |       | NZ534590         |       |        |       | ·      |
|                                                                               |       |                 |       |             |       |        |       |        |
| **Method  of therapy**                                                             |       |                 |       |             |       |        |       |        |
| Earliest  priority October 24, 2003                                                |       | Australia            |       | AU2004283322     |       |        |       | ·      |
|                                                                               |       | Brazil               |       | BR04155335       |       |        |       | ·      |
|                                                                               |       | Canada               |       | CA2543490        |       |        |       | ·      |
|                                                                               |       | China                |       | CN2004838999     |       |        |       | ·      |
|                                                                               |       | Europe               |       | EP1692516        |       |        |       | ·      |
|                                                                               |       | Israel               |       | IL175141         |       |        |       | ·      |
|                                                                               |       | Japan                |       | 2006535913       |       |        |       | ·      |
|                                                                               |       | Mexico               |       | PA/a/2006/004522 |       |        |       | ·      |
|                                                                               |       | New Zealand          |       | 546873           |       |        |       | ·      |
|                                                                               |       | Russia               |       | RU200611793      |       |        |       | ·      |
|                                                                               |       | Singapore            |       | SG121609         |       |        |       | ·      |
|                                                                               |       | Ukraine              |       | UK200605663      |       |        |       | ·      |
|                                                                               |       | United States        |       | US10/576981      |       |        |       | ·      |
|                                                                               |       | World                |       | WO2005040816     |       |        |       | ·      |
|                                                                               |       |                 |       |             |       |        |       |        |
| **Therapeutic  strategy for treating  autoimmune and degenerative diseases**       |       |                 |       |             |       |        |       |        |
| Earliest  priority September 8, 2004                                               |       | World                |       | WO2006026821     |       |        |       | ·      |
|                                                                               |       |                 |       |             |       |        |       |        |
| **PATHOGENS  PROJECT**                                                             |       |                 |       |             |       |        |       |        |
| **High  resolution analysis of genetic  variation within*Cryptosporidium parvum*** |       |                 |       |             |       |        |       |        |
| Earliest  priority August 21, 2002                                                 |       | Australia            |       | AU2003250619     |       |        |       | ·      |
|                                                                               |       | Brazil               |       | BR03137082       |       |        |       | ·      |
|                                                                               |       | Canada               |       | CA2496472        |       |        |       | ·      |
|                                                                               |       | China                |       | CN1681940        |       |        |       | ·      |
|                                                                               |       | Europe               |       | EP1543149        |       |        |       | ·      |
|                                                                               |       | Hong Kong            |       | HK1076295        |       |        |       | ·      |
|                                                                               |       | Japan                |       | JP2004529588     |       |        |       | ·      |
|                                                                               |       | Mexico               |       | MXPA05002027     |       |        |       | ·      |
|                                                                               |       | New Zealand          |       | NZ538418         |       |        |       | ·      |
|                                                                               |       | United States        |       | US2002950977     |       |        |       | ·      |

 

22

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| ** **                                                                                             | ** ** | **COUNTRY / REGION** | ** ** | **NUMBERS**       | ** ** | **GRANTED** | ** ** | **PENDING** |
|--------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|-------------|------------|-------------|
| **PATHOGENS  PROJECT**                                                                                 |       |                 |       |              |       |        |       |        |
| **Compounds,  compositions and methods for controlling invertebrate pests**                            |       |                 |       |              |       |        |       |        |
| Earliest  priority November 15, 2006                                                                   |       | Australia            |       | AU2006906383      |       |        |       | ·      |
|                                                                                                   |       |                 |       |              |       |        |       |        |
| **RARECELLECT****®**** PROJECT**                                                             |       |                 |       |              |       |        |       |        |
| **Fetal  cell recovery method**                                                                        |       |                 |       |              |       |        |       |        |
| Earliest  priority March 27, 1990                                                                      |       | Australia            |       | AU649027          |       | ·      |       |        |
|                                                                                                   |       | Austria              |       | AT194166          |       | ·      |       |        |
|                                                                                                   |       | Belgium              |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | Canada               |       | CA2059554         |       | ·      |       |        |
|                                                                                                   |       | Denmark              |       | DK521909          |       | ·      |       |        |
|                                                                                                   |       | Europe               |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | France               |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | Germany              |       | DE69132269        |       | ·      |       |        |
|                                                                                                   |       | Great Britain        |       | EP521909          |       | ·      |       |        |
|                                                                                                   |       | Greece               |       | GR3034487         |       | ·      |       |        |
|                                                                                                   |       | Ireland              |       | IE83199           |       | ·      |       |        |
|                                                                                                   |       | 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         |       | ·      |       |        |
|                                                                                                   |       |                 |       |              |       |        |       |        |
| **Maternal  antibodies as fetal cell markers to identify and enrich fetal cells from  maternal blood** |       |                 |       |              |       |        |       |        |
| Earliest  priority May 30, 2002                                                                        |       | Australia            |       | AU2003229397      |       |        |       | ·      |
|                                                                                                   |       | Canada               |       | CA2492631         |       |        |       | ·      |
|                                                                                                   |       | Europe               |       | EP1532453         |       |        |       | ·      |
|                                                                                                   |       | Hong Kong            |       | HK1075699         |       |        |       | ·      |
|                                                                                                   |       | Japan                |       | JP2004509429      |       |        |       | ·      |
|                                                                                                   |       | New Zealand          |       | NZ537328          |       |        |       | ·      |
|                                                                                                   |       | Singapore            |       | SG108133          |       | ·      |       |        |
|                                                                                                   |       | United States        |       | US20050287604     |       |        |       | ·      |
|                                                                                                   |       | World                |       | WO03102595        |       |        |       | ·      |
|                                                                                                   |       |                 |       |              |       |        |       |        |
| **Identification  of fetal DNA and fetal cell markers in maternal plasma or serum**                    |       |                 |       |              |       |        |       |        |
| Earliest  priority March 5, 2003                                                                       |       | Australia            |       | AU2004217872      |       |        |       | ·      |
|                                                                                                   |       | Europe               |       | EP1599608         |       |        |       | ·      |
|                                                                                                   |       | Hong Kong            |       | HK1079245         |       |        |       | ·      |
|                                                                                                   |       | New Zealand          |       | NZ542143          |       |        |       | ·      |
|                                                                                                   |       | United States        |       | US10547721        |       |        |       | ·      |
|                                                                                                   |       |                 |       |              |       |        |       |        |
| **Methods  of enriching fetal cells**                                                                  |       |                 |       |              |       |        |       |        |
| Earliest  priority May 11, 2005                                                                        |       | World                |       | PCT/AU2006/000617 |       |        |       | ·      |

 

23

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**Out-licensing our Non-codingPatents Globally**

The Company is currently commercializing and licensingits non-coding patents in the USA and elsewhere.

This strategy was initiated in late 2000, soon afterGeneType AG and its patents were acquired by the Company.  The firststep in the process was to secure patent insurance, which we achieved in early2001.  This meant that if we were forcedto take legal action against infringers, under that policy the cost would belargely covered by our underwriter.  Thispolicy has since expired.

Thereafter, we progressively made contact with manycompanies in the USA and elsewhere, bringing the patents to their attention andindicating how they might benefit from a license to the Company’s non-codingpatents.  In late 2002,  we hired a manager to manage the Australian end ofthe licensing effort and to establish a central database of all prospective licensees, globally.

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

**Our Licenses and CommercialCollaborations**

The following section describes our existing commercialand research licenses, our collaborations and our collaborators.  We announced our first license to thenon-coding patents to the Australian livestock testing firm Genetic Solutions Pty. Ltd., in February 2002.  Since then, we have formed severalcollaborations and granted a further 31 licenses.

**Commercial Licenses and Collaborations:**

Agriculture Victoria Services Pty. Ltd.:  On February 28, 2002, our subsidiary GeneTypePty. Ltd. entered into a joint venture agreement with Agriculture VictoriaServices Pty. Ltd. (“AVS”) for the formation of the joint venture companyAgGenomics Pty. Ltd., to operate a joint venture business in commercial plantgenotyping and genomics services.  Underthe terms of the joint venture agreement, we hold 50.1% of the shares of thejoint venture company.   We have certainobligations under the joint venture agreement to loan money to the jointventure company, which is not expected to exceed AUD500,000 at any given time.  AVS is not required to provide further fundingto the joint venture company.  Theagreement is terminable by a party in the event of a breach by the other partythat is not timely cured or upon the occurrence of an “adverse event” to thecompany or to either shareholder. Adverse events are insolvency type events or discontinuation ofbusiness.  In the event of terminationthe non-defaulting party can require liquidation of the company or purchase theother party’s interest, as it chooses.

Nanogen License: In April 2002, we granted a license to Nanogen, Inc, of San Diego, USA,who specializes in the development of biochip applications in geneticsdiagnostics.  Nanogen paid us anon-refundable license fee of $250,000 and unlisted warrants in return for a licenselimited to genetic research and human diagnostics.  Specifically, Nanogen receives no rights tothe mapping patent nor any applications in animals or plants.  Since the date of the initial license, thewarrants became “in the money” and we exercised them, acquiring Nanogen shareswhich we disposed of in market transactions generating a further $275,000 ofother income.  The license can beterminated by either party upon any material breach of any term or condition ofthe agreement not timely cured.  We alsocan terminate the agreement in the event the licensee becomes involved ininsolvency proceedings or if it discontinues its business for any reason.

Sequenom License: Also in April, 2002, we granteda license to bioinstrument maker Sequenom, Inc., who paid us a non-refundablelicense fee of $500,000 (in cash and shares) in return for a license to ournon-coding analysis and mapping patents. The license can be terminated by either party upon any material breachof any term or condition by the other party which has not been timely curedafter notice.  We may also terminate theagreement in the event of the bankruptcy of the licensee or discontinuation oftheir business.

Perlegen License: In August 2002, we granted a license to US genome researcher, PerlegenSciences, Inc., which paid a non-refundable combination of cash and securitiesworth approximately $598,120 for an exclusive license limited to a specializedfield known as “high resolution whole genome analysis”.  Either party can terminate the licenseagreement upon any material breach of any term or condition by the other partythat is not timely cured after notice. We also have the right to terminate the agreement in the event ofinsolvency of the licensee or if it discontinues it business for any reason.

24

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Myriad Licenses: In October, 2002, we announced a licensing agreement with MyriadGenetics, Inc, under which we granted Myriad broad rights to utilize ournon-coding patents, in return for which Myriad agreed to pay us anon-refundable license fee of $1,000,000 cash, plus future fees on an annualbasis in lieu of royalties, plus the rights to bring Myriad’s predictive teststo Australia and New Zealand.  Thesetests, which include genetic susceptibility tests for breast cancer, ovariancancer, bowel cancer, melanoma and cardiac risk are now being offered by theCompany in Australia and have resulted in the expansion of our existing genetictesting facilities in Melbourne.  Thelicense can be terminated by either party upon material breach by the otherparty that is not cured within 30 days of notice.  We also may terminate if the licensee fails to make any payment required by theagreement.  Under the second of twoagreements, we are granted a licenseto use Myriad’s diagnostic services in Australia and New Zealand in exchangefor an annual fee.  We are obligated touse reasonable efforts to commercialize the licensed diagnostic services inAustralia and New Zealand.  Under theterms of this agreement, we have been granted an option in exchange for upfrontpayments and a continuing royalty, to expand the license in respect of fullsequence testing, which has not been exercised. The term of this agreement extends until 2012.  Either party can terminate the agreement upona material breach not timely cured after notice.  In addition, Myriad can terminate if we failto make any payment required under the agreement.

Pyrosequencing Licenses:  In March, 2003, we announced across-licensing agreement with Pyrosequencing AB, of Sweden (now known as Biotage AB). Pyrosequencing received a broad non-exclusive license to our non-coding DNA analysis and mapping patents but only whenused in combination with Pyrosequencing’s “sequencing by synthesis” reagents. In return, we received a non-refundable cash up front payment, plusroyalties for the life of the non-coding patents, plus three state-of-the-artanalytical instruments (Pyrosequencing systems), plus other IP rights andassays from Pyrosequencing.  Either partycan terminate the agreement upon material breach that is not timely cured bythe other party after notice.  Inaddition, either party can terminate the agreement if the other party becomesinvolved in insolvency proceedings, or if the other party discontinues itsbusiness for any reason.

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

Quest License: In August 2003, we granted a license to our non-coding analysis patentsto 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 and Mexico.  The license is unilaterally revocable by usif upon notice we have a reasonable belief that the license is being used toassist an unlicensed party to avoid obtaining its own license under thelicensed patents.  In addition, thelicense is terminable by one party in the event of a material breach by theother party not cured after notice. Either party may also terminate the license in the event of aninsolvency event affecting the other party or the discontinuation of businessby the other party.

ViaLactia License: In September 2003, we reached agreement with ViaLactia Biosciences (NZ)Limited of Auckland, New Zealand regarding the terms of a research andcommercial license to the Company’s non-coding patents.  ViaLactia is a biotechnology companyoperating as a wholly-owned subsidiary of Fonterra, New Zealand’s largest dairycooperative.  The license was formallyconcluded in December 2003.  The purposeof the license is to permit ViaLactia to conduct internal research activitiesand development of applications of our technology in the dairy industry,including new applications concerningdairy cattle, pasture grasses, mice as models for dairy cattle and yeast andbacteria 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, we announced that we hadjoined the GENDIA diagnostic genetic testing network as the sole GENDIAaffiliated laboratory operating in Australia and New Zealand.  GENDIA is a network of some 20 leadinglaboratories worldwide who work together and share with each other access tohighly sophisticated genetic testing procedures.  We are the sole GENDIA-affiliated laboratoryin Australia and New Zealand.

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C.Y. O’Connor ERADE Village Foundation:  In October 2003, we announced that we hadsigned heads of agreement to establish a broad strategic alliance with the C.Y.O’Connor ERADE Village Foundation, a leader in biotechnology innovation basedin Perth, Western Australia.  Definitivedocumentation was concluded in June 2004. Under the terms of the agreement, we acquired all of the Foundation’spatents and other intellectual property in the fields of genetics and genomics,including the Foundation’s issued U.S. patent 6383747-B1 and foreignequivalents.  This extensive package ofintellectual property has created additional opportunities for us in support oflicensing and service testing.  As partof the arrangement, the Foundation acquired a license to our non-coding patentsfor a fee, such that the net purchase price for us was settled by the issuanceof a total of 16,666,667 of our Ordinary Shares to the Foundation based on a market value of AUD0.39 pershare.  The transaction closed in June2004.  Under the arrangement, we support the ongoing genetics and genomicsprograms of the Foundation.  Initially,five projects were selected for priority attention and we will provide AUD4.5million to the Foundation, spread over five years, to help fund such researchand development of new intellectual property. The first five instalments of AUD450,000 each have already been paid,and we have also supplied a letter of credit for AUD450,000 for the term of theagreement.  In return, we are the primarycommercialization vehicle for all new inventions, patents, intellectualproperty and business opportunities arising at the Foundation in the field ofgenetics or genomics.  We are alsoobligated to pay royalties to the Foundation on gross revenue derived from theFoundation IP.  We may terminate thelicense following any breach of the license by the licensee, either party canterminate following a material breach that is not timely cured or following aninsolvency event of the other party.

TM Bioscience License: In December 2003, we granted a license to our non-coding analysis andmapping patents to TM Bioscience Corporation of Toronto, Canada.  The terms provide for a signing fee plusongoing annual payments as a non-refundable license fee and an annual royaltyon licensed products.  This was our firstcommercial license granted to a Canadian company.  TM Bioscience is a leading provider ofdiagnostic kits for human genetic testing, exported globally.  The agreement is terminable by a party uponmaterial breach by the other party that is not timely cured, and may beterminated by us in the event of dissolution or sale of the business of thelicensee.

LabCorp License: In February 2004, we granted a license to our non-coding patents toLaboratory Corporation of America Holdings (known as “LabCorp”), a leadingprovider of human diagnostic services in the U.S. and Canada.  It also performs testing in Europe for othercompanies, including pharmaceutical companies, for regulatory compliance purposes. The consideration received for the license, which covers both thenon-coding analysis and non-coding mapping patents, included a non-refundable signing fee plus annual licenseannuity payments for the life of the patents, through 2015.  LabCorp also withdrew a declaratory action inrespect of our patents which had been initiated in New Jersey.  The license is terminable by either partyupon material breach by the other party that is not timely cured.  In addition, we are entitled to terminate theagreement in the event that the licensee intentionally and knowingly promotesthe licensee’s reference testing to third party clinical laboratories for thepurpose of circumventing the need for such laboratories to license ourpatents.  The licensee is entitled toterminate the agreement at any time upon 30 days prior written notice (without prejudice to its accruedobligations thereunder) and we can terminate in the event of an insolvency event involving the licensee or discontinuationof its business.

Ovita License: In June 2004, we entered into a license agreement with Ovita Limited ofNew Zealand, granting them a license to our non-coding patents to the extentrequired in order to commercialize genetic marker tests and pedigree tests andto conduct research and development activities for new applications of our technologyin connection with testing of sheep and cattle. The agreement included the payment of an initial non-refundable researchlicense fee, a non-refundable commercial license fee and a royalty on licensedproducts made 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.

Genzyme License: Effective as of September 17, 2004, we granted a license to ournon-coding patents to Genzyme Corporation, based in Cambridge, Massachusetts,in order for the licensee to perform preclinical and human research and humangenetic testing.  The grant of thelicense was in exchange for a non-refundable license issue fee consisting of acash component and an in-kind component. The in-kind component consisted of a license agreement in respect of patentsowned by Johns Hopkins University and licensed by the licensee.  In addition, Genzyme is obligated to pay tous license annuity fees in lieu of a royalty for each year of the term.  Either party can terminate the agreement uponmaterial breach not timely cured, in the event of insolvency of the licensee,or by the licensee at any time upon 30 days written notice to us.

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MetaMorphix Agreements:  On September 17, 2004, we executed twoagreements with MetaMorphix, Inc., based in Maryland and specializing in thegenetics and genomics of certain animal species, particularly cattle anddogs.  Under the first such agreement, wegranted a license to use our non-coding patents in order to commercializeapplications of DNA/RNA-based diagnostic assays for use in the livestock,aquaculture and companion animal industries. The licensee is obligated to pay us annually increasing license annuityfees in lieu of a royalty, as well as a non-refundable license issue fee.  Either party can terminate the agreement upona material breach not timely cured, or by us upon the licensee’sdiscontinuation of its business for any reason. Under the second license, to which MMI Genomics, Inc. (a subsidiary ofMetaMorphix) is also a party, we were granted a license to the licensor’spatents and associated know-how in order to perform internal DNA-baseddiagnostic assays for use in our cattle and canine identity and parentageverification services.  We havesubsequently paid the licensor a non-refundable license fee.  The licensor’s obligations include ongoingsupport for the license and know-how. The agreement is terminable by either party upon material default by theother party that is not timely cured, or by the licensor in the event we discontinueour cattle and canine identity and parentage verification genotyping servicesbusiness for any reason.

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

Australian Genome Research Facility License:  Effective December 31, 2004, we granted alicense to the non-coding patents to Australian Genome Research Facility Ltd. (“AGRF”)pursuant to which AGRF can use the patents on a non-exclusive basis for thepurpose of performing genotyping services. The license requires an advance non-refundable license fee and an annualnon-refundable annuity for the term of the license in lieu of a royalty, whichcontinues until sooner terminated or the licensee no longer utilizes thepatent.  The agreement is terminable bymutual agreement, or by us in the event of a breach of a term or condition bythe licensee or if it is subject to an insolvency event.

New Zealand Licenses: Effective June 30, 2005, we entered into a license agreement with fourcommercial parties in New Zealand: AgResearch Limited, The Horticulture andFood Research Institute of New Zealand Limited, New Zealand Forest ResearchLimited and Livestock Improvement Corporation Limited.  Under the terms of the agreement, the partieswere granted licenses to our non-coding patents in consideration for which theypaid us a non-refundable license issue fee of NZ$450,000.

Applera Corporation Licenses:  Effective December 8, 2005, weentered 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 consideration receivableby us is approximately AUD15 million, payable partly in cash and partly in kind- including agreements supplying the Company with certain Applera equipment,reagents and intellectual property rights. Recognition of in-kind consideration as revenue is subject to us meetingcertain revenue recognition criteria including, but not limited to, themeasurement of fair value at the time of receipt.

Optigen License:  EffectiveMay 23, 2006, we executed an agreement with Optigen, LLC of Ithaca, NewYork.  Under the agreement, GeneticTechnologies granted Optigen a non-exclusive license to our non-coding patentsfor applications in dogs, and Optigen granted the Company the exclusive rightto offer and perform the complete range of Optigen genetic tests for diseasesin dogs 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.

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Bovigen License:  EffectiveJune 1, 2006, we granted a license to the non-coding patents to Bovigen, LLC ofHarahan, Louisiana.  Under the agreement,Bovigen will use the Company’s non-coding technology to build its business ofoffering genetic tests to the American livestock industry to determine thepresence or absence of certain desirable traits in individual cattle.  The rightsthat we licensed to Bovigen were granted non-exclusively, and are limited toapplications in cattle in the USA,Canada and South America.  Inconsideration for granting the license, Bovigen paid us an up-front signing feeand will pay ongoing royalties on the future sales by Bovigen for the life ofthe non-coding patents.

Innogenetics License:  EffectiveJune 30, 2006, we granted a license to the Company’s non-coding patents toInnogenetics NV of Ghent, Belgium. Innogenetics is a significant supplier of genetic testing kits in Europeand is listed on the Belgium and German stock exchanges.  In consideration for granting the license,Innogenetics paid us an up-front signing fee and will pay ongoing annuities forthe life of the non-coding patents.  Theagreement is terminable by mutual agreement,or by us in the event of a breach of a term or condition by the licensee or ifit is subject to an insolvency event.

GENOSENSE License:  EffectiveDecember 1, 2006, we granted a license to the Company’s non-coding patents to GENOSENSE Diagnostics GmbH, a leadinganti-aging and preventive genetic diagnostics company based in Vienna, Austria.  Inconsideration for granting the license, GENOSENSE will pay us an up-frontsigning fee and will pay ongoingannuities for the life of the non-coding patents.  The agreement is terminable by mutualagreement, or by us in the event of a breach of a term or condition by thelicensee or if it is subject to an insolvency event.

**Research Licenses andCollaborations**

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

Horticulture Australia Limited:  On June 18, 2003, AgGenomics Pty. Ltd., asubsidiary of the Company, entered intoa three-year Collaborative Research Agreement with Horticulture AustraliaLimited (HAL) to try and identify a genetic trait for day/night neutrality in strawberries which, if found, couldlead to an extension of the cultivation season and consequently higherproduction.  The research program,costing approximately $1.5 million (AUD2.1 million), is funded by HAL as to 45%and AgGenomics as to 55%.  Any and allintellectual property generated from the project will be owned in the sameproportions.

University of Sydney License:  In July 2003, we granted a research licenseto the University of Sydney, in Australia.   We subsequently entered into a further agreement (dated September 4,2003) with the University of Sydney pursuant to which we received the exclusiveright to commercialize a new and potentially significant genetic invention madeby a professor in the Neurogenetics Research Unit and the University’s Facultyof Medicine.  This Australian inventionis intended to permit an improved understanding of the genetic factorsunderlying superior athletic and sports performance, based on the presence orabsence of the ACTN3 gene.  Under theterms of this agreement, we made an upfront payment, agreed to pay a royalty onnet sales of the invention by us and a fee on first grant of a patent for theinvention or any patent rights in any country and a further payment of part ofany consideration of whatever kind received by us under a license of theassigned intellectual property.

King’s College License:  In December 2003, we granted a license to ournon-coding patents to King’s College, London,in the United Kingdom.  Under the termsof the license, King’s College will be able to apply the non-coding patents to its internal research programs.  The license is terminable by either partyupon any material breach not timely cured, without penalty.  King’s College is considered a leader in thefield of researching the genetic basis of various psychiatric and psychological disorders, includingschizophrenia, anxiety / depression and certain attention deficit disorders.  Futurecommercial applications arising from research at King’s College would requirean additional commercial license from us. In March 2004, we initiated a joint research project in the UnitedKingdom to explore the functionality of certain non-coding DNA elements, initiallywith special focus on the genetics of breast cancer susceptibility and thegenetics of certain neuro-psychiatric conditions, such as schizophrenia.  The project was funded by us for a furtherperiod of six months, in an amount of GBP53,000 that was paid in twoinstalments.  In May 2005, we extendedthe project for the period from June 1, 2005 to December 31, 2005 and agreed tofund the costs incurred by King’s College during that period up to a maximumamount of GBP51,360.  In February, 2006,the Company agreed to further extend its research agreement with King’s Collegefor the period from February 1, 2006 to August 31, 2006 and agreed to fund thecosts incurred by King’s College during that period up to a maximum amount ofGBP63,700.

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University of Technology, Sydney:  Effective December 23, 2003, we entered intoa non-commercial research license with 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, we entered into a researchlicense with the Colorado State University. This is a royalty-free license to permit the University to conductresearch in exchange for a nominal fee.

In addition to the above agreements, we continue tonegotiate licensing terms to grant licenses to our non-codingpatentsto many companies, large and small, and also to government and privateinstitutes, in many countries.  Tofacilitate these negotiations, wehave established a database of all prospective licensees, who we believe wouldbenefit from a license to our non-coding patents.  As at December 2006, the names of more than2,500 entities had been entered on the database.  Of these, we have so far found evidence of possibleinfringement in relation to more than 400 of these.  Negotiations have now commenced with morethan 40 of these parties.

Given the large number of potential licensees, the Company decided toexpand its licensing program during 2006 by applying additional resources inthis area.  As a result, the licensingteam at the Company’s headquarters in Melbourne, Australia was expanded by theappointment of additional staff to accelerate the preparation of dossiers on potential licensees whilst, internationally, fourindependent licensing contractors were engaged to represent the Company “on the ground”, two each in our major markets,the USA and Europe.

**Buildingthe Genetic Testing Business**

**Backgroundand History of the Paternity Testing Business**

In the early 1990’s, GeneType AG established a smallservice-testing laboratory in Melbourne, Australia, initially to show-case itsnon-coding inventions, but also to generate revenue to help support and fundits ambitious research program in those early days.  Following the acquisition of several other smallDNA testing laboratories in Australia, GeneType AG consolidated the businesssuch that the Company is now the largest provider of disputed paternity DNAtesting services in Australia.  InDecember 1997, GeneType AG formed a partnership with Curtin University, basedin Perth, Australia, to offer DNA paternity tests in Western Australia.  This partnership continues today, with theUniversity helping us collect specimens and sending them to Melbourne, wherethe actual testing is performed in our laboratory.

Then in August 2000, we acquired 100% of GeneType AG,including control over all its patents and its disputed paternity DNA service testing business.  Later, in July 2001, we acquired thepaternity testing business of DNA-ID Labs, another small testing laboratorybased in Perth.  Overall, we acquiredseveral small businesses, some in Sydney, plus two based in Perth and one basedin Melbourne, eventually making our service testing laboratory based inMelbourne the leading non-Government genetic testing service provider inAustralia.  We now have extensiveexperience in providing DNA-based individuality testing for the resolution ofdisputed paternity, the determination of familial relationships for immigrationpurposes and for forensic analysis.

The most common type of DNA testing is paternity 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 offer include:

·                          Y chromosome testing - determines if two malescome from the same paternal line, i.e. have a common father or grandfather.

·                          Mitochondrial DNA testing - determines if two peoplecome from the same maternal line.

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

·                          Maternity testing - determines the mother of agiven child.

·                          DNA typing - reveals the DNA makeup of anindividual.

·                          Grandparent analysis - determines the grandparentsof a given child. This is mainly used when the father of a child is deceasedand a will is being contested.

·                          Antenatal DNA testing - determines the father ofan as-yet unborn child.

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

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We issue reportsfor the Family Court in Australia and provide similar services internationallyfor the Department of Immigration and Multicultural and Indigenous Affairs(DIMIA).  We are one of only two DNAtesting laboratories in Australia recognized by DIMIA to provide DNA tests forimmigration purposes.

We are one of only three laboratories worldwide used byKenyon Corporation, believed to be the world’s largest disaster managementcompany.  We perform the full range ofDNA tests required by Kenyon for purposes of crash victim identification, andprovide cover for the region controlled by Kenyon Australia.  The boundaries of this region are determinedby the north and south pole, to the west by India, and to the east byFiji.  Since the relationship wasestablished with Kenyon, no airline serviced by Kenyon has had one of itsplanes crash in our region.

Over time, we have gained a reputation as a leadinggenetic testing laboratory, and progressively, we have started to receivespecimens for testing from other countries, mostly from countries in theAsia-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 State Government’s Department ofPrimary Industry, for the purpose of providing a high throughput genotypingservice for plant testing – in order to help plant breeders identify the genesresponsible for the detection of commercially relevant traits, such asresistance to disease, accelerated growth and the improvement of cropyields.  A new company, AgGenomics Pty.Ltd., was formed, with us as the majority shareholder and the State agency asthe minority partner.  AgGenomics islocated at the Plant Biotechnology Centre at La Trobe University, inMelbourne.  In June, 2003, AgGenomicsannounced it had entered into a two year AUD2.1 million program withHorticulture Australia to identify genetic markers in strawberries.  AgGenomics will also receive 55% of anyintellectual property developed during the life of this project aftercontributing AUD1,165,757 to acquire the IP.

**(2) Cancer Susceptibility Testing**– the strategic alliancewith Myriad delivered to the Company exclusive rights in Australia and NewZealand to perform DNA susceptibility testing for a range of cancers, initiallyfor breast cancer and ovarian cancer, and later, for bowel cancer, melanoma andcardiac risk.  In April 2003, we establishedour cancer susceptibility testing facility. In June 2003, this facility was granted provisional accreditation by theNational Association of Testing Authorities, Australia (“NATA”).  This important area of testing continues tobuild momentum, with the addition of new equipment, new employees joining theCompany and new technology becoming available exclusively to us, such that theAustralian community now has access to some of the latest technologiesavailable for genetic testing.

In July 2006, we further cementedour position as Australia’s leading independent provider of complex genetic testing services with NATA granting furtheraccreditation of our Melbourne laboratory to provide a wide range of complex genetic tests. Genetic analysis for the predisposition and diagnosis of a wide range ofdisease states is increasingly being used by clinicians in standard medicalpractice.  We committed to providing thegold standard in testing technology, with superior 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 us to expand the number ofclinical service providers who can utilise the Company’s testing service.

**(3) AnimalTesting**– in May 2003, weacquired the assets of Genetic Science Services to expand the range of tests wecan offer to include relevant genetic testing in animals – for example, progenytesting in horses, dogs, deer, sexing in birds, and animal disease identificationand susceptibility testing for a range of animals, including exotic and zooanimals.  This acquisition will alsoallow the Company to support research projects involving, for example, theAustralian fur seal, and possibly the platypus 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.

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**(4) ForensicTesting** – recognising theincreasing use of DNA analysis in forensics and the demand this would place onexisting government laboratories, in February 2004, the Company successfullygained forensics accreditation from the National Association of TestingAuthorities, Australia (NATA).  We werethe first non-government laboratory in Australia to be awarded thisaccreditation.  Since then, we havedeveloped a highly efficient and technologically advanced forensicslaboratory.  This capability was substantiallyadvanced by our recent non-coding licensing deal with Applera Corporation underwhich we secured equipment and supplies essential to conducting forensicsanalysis.  Together with these resourcesand our experience in DNA analysis, the Company is becoming a major provider ofDNA analysis services to the forensics community.

InApril 2006, we announced that it had been awarded a contract to supply NewSouth Wales Police with DNA analysis services. Under the contract, we will provide services for an initial trial periodof three months after which NSW Police will assess the benefits of outsourcingand then make a decision on seeking tenders for the awarding of a longer termcontract for a period of one to five years. This contract represents the first major outsourcing contract inAustralia to be awarded by a state based police department for the provision ofDNA analysis services by a non-governmentlaboratory.  We believe a significantopportunity exists for it to assist other policing authorities to expeditiously process DNA samples and is in discussions with anumber of these parties.  It is estimatedthat there is a substantial backlog of DNA samples currently waiting to beprocessed by police departments throughout Australia.  This is in addition to the processing of DNAsamples collected on an ongoing basis from crime scenes.

**(5) Athletic Performance Testing** – the Company acquired the commercial rights fromthe University of Sydney for a genetic test, known as the ACTN3 SportsGene TestTM,which is capable of determining whether or not athletes possess apredisposition for speed or endurance events. In September 2005, we announced the official launch of this test inJapan with its Japanese distribution partner, Sportsstyle, to an audience ofover 100 sports specialists, including the President of the Japan Federation ofHealth and Sports.  The launch of theACTN3 SportsGene TestTM was widely reported in the Japanese press andrepresented the start of a major program with Sportsstyle that will see thetest sold across its extensive Japanese distribution network.  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.  All commercial ACTN3 SportsGene Tests fromJapan will be analysed at our headquarter laboratory in Melbourne.  Further discussions are also being held withother parties around the world with a view to marketing this test in otherjurisdictions.

**Our Support forFive Significant Research Projects**

We strongly supportresearch and development.  Indeed,Genetic Technologies had its foundation as a research company when it wasestablished some 17 years ago.  Sincethen, the Company has consistently pursued research and, following itsAustralian listing in 2000 when additional working capital became available,its research activities were significantly expanded.

We currently supportfive major research programs, details of which have been provided below.  Some projects have arisen from new inventionsmade by the Company while some have been made by others who have approached theCompany seeking collaboration and support for their activities.

By its very nature,research is unpredictable and involves a considerable element of risk.  Such risks may relate toscientific concepts, the implementation of the science, the protection of anyinventions made and the success or otherwise in persuading othersto respect the intellectual property acquired or created by the Company.

Specifically, patentsfiled may not issue or may later be challenged by others.  Even if patents issue, the methodsdescribed may, with time, be superseded by alternative methods which may proveto be commercially more attractive.  Evenif patents issue and the methods developed are successfully reduced to practiceand 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.  Suchaction, in turn, raises a new series of risks including potentially significantlegal costs and uncertain outcomes.

To the extent thatdelays are encountered in concluding the research projects, additional costsmay be incurred.  Further, the projectedrevenues from the projects may also be deferred, potentially impacting on theCompany’s liquidity.  In such cases, theCompany may seek to partner with outside parties, who will contribute to thecosts of research in return for an interest in the project, or the Company mayseek to raise additional working capital from the Market.  In a worst case scenario, if the Company’sresearch projects do not achieve their scientific objectives, the projects maywell be closed down with no valuable intellectual property having been created.

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** **

**(1) RareCellect****®**

Our subsidiary GeneType AG holds issued patents on amethod for the recovery of fetal cells circulating in the peripheral blood of a pregnant woman.  These patents, with an earliest priority dateof March 27, 1990, have been granted orallowed in most countries where filed, including the US, United Kingdom,France, Germany, Australia, and Japan.  In March 2001, RareCellect Pty. Ltd. wasincorporated by us in Australia for the purpose of performing additionalresearch and development of themethod and overseeing its eventual commercialization.

Ithas long been generally recognized that a simple, universally applicable, non-invasivemeans of obtaining fetal cells for prenatal diagnosis would represent a majoradvance over existing practice and would be widely adopted throughout thedeveloped world.  Accordingly, theRareCellect**®** research is investigating theisolation of fetal cells from both maternal blood and cervical mucous samples at a purity and concentrationsuitable for clinical genetic testing. To this end, several innovative patent applications have recently been filed, as the methodology hasundergone further substantialrefinement in the laboratory.  Ifsuccessful, the commercial potential of the RareCellect**®** technique is staggering, withsome 9 million live births occurring annually in the USA and Europe alone.  Significant advances in the RareCellect**®** project have been made are summarised in thefollowing paragraphs.

Put simply, the RareCellect**®** projectaims to eliminate the current risks to a mother and her unborn baby associated with obtaining fetal cells for genetic testing byamniocentesis or chorionic villus sampling (CVS) during the second trimester ofpregnancy.  The project focuses on thedevelopment of novel and safe processes for isolating fetal cells from themother during the first trimester of pregnancy while avoiding the need todisturb the developing fetus unnecessarily.

Approximately 0.65% of live births are affected by majorchromosomal abnormalities including trisomy 21 (Down’s Syndrome, 0.12%).  Prenatal screening for such disorders is nowwidely available in developed countries, but is neither standardized noruniversal.  Even the best prenatalscreening regimens fail to detect 5% of Down’s cases, and suffers from falsepositive rates of about 5%.  Whenscreening based on past obstetric history or advanced maternal age indicates an increased risk of fetal geneticdefects, the pregnant woman is generally subjected to a further, invasiveprocedure – amniocentesis, CVS, or fetal blood sampling – in order to obtainfetal cells for definitive prenatal diagnosis.  Such procedures are not without risk, resulting in miscarriage ratesfrom 0.5% to 2.0% above the expected background rate, andcan lead to congenital abnormalities when performed too early in gestation.Accordingly these tests are not recommended: consequently, some 80% of Down’s syndrome babies are currently born towomen under 35 years of age.

It is well-known that fetal cells, includingtrophoblasts, lymphocytes and erythroblasts, circulate in the peripheral blood of pregnant women, in some cases as early asfive weeks’ gestation.  Although thesecells are rare, only 1 per 106 to 107 maternal nucleated cells, it is possible todistinguish them from venous blood samples. To date, no group has been able to purify these cells to the requiredpurity and concentration and with the reliability necessary for a routineclinical trisomy test.  Reasons for thisfailure have included the lack of markers capable of adequately discriminatingfetal from adult cells and limitations on the speed at which the required numberof cells can be processed.

The Company’s fetal cell recovery patents describe amethod that, in principle, should have the requisite power to reliablydiscriminate fetal from maternal cells. The method makes use of the HLA system of cell-surface molecules and thedifferent physical properties of fetal cells compared with adult cells.  The genes that encode the HLA cell surfacemolecules show great variability (i.e. they are highly polymorphic) in allhuman populations and are co-dominantly expressed.  Provided that enough different types of HLAmolecules can be interrogated, the probability that maternal and fetal cellsshare exactly the 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 identifythe very rare fetal cells which has in turn enabled methods to be developed topurify 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 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.

Over the next decade, it is predicted that there will be an enormousincrease in the number of genetic tests available to identify fetalcharacteristics.  There will also beincreased pressure to conduct those tests as soon as possible after conception.  The number of cells that can be purified fromblood to the purity required for such testing (virtually 100% pure) is toosmall to perform these complex genetic tests. As a result, the RareCellect**®** project isalso examining the possibility of isolating fetal cells obtained from thecervical mucous.  This method ismoderately invasive but not nearly as invasive as existing methods and is farsafer for the fetus than either amniocentesis or CVS.  The application of this method has beendemonstrated in the laboratory to enable fetal cells to be isolated at the requiredpurity with no adverse effects on small number of mothers currently tested.

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As described above, the proposed project outcome is a non-invasive,pre-natal genetic test.  Revenues fromthe project will be generated from a mixture of licence fees, royalties anddirect, fee-for-service genetic testing. Using the Company’s patented methods, fetal cells can now bereproducibly and routinely isolated from maternal blood using a combination ofthe methods.  The combined protocols havebeen demonstrated in the laboratory to an extent that the RareCellect teamconsider that it is time to extend the project the next step into clinicaltrials.  It is anticipated that theclinical analysis and test validation will commence in early 2007 and takearound 12-24 months to complete depending on the recruitment rate at a cost ofapproximately $1 million.  Suitablepartners include a Melbourne-based hospital network and, potentially, large USgenetics companies.  Initial contactshave been made with suitable hospitals within Australia and ethics approvalapplications have been submitted, are currently under investigation which willdetermine the time that the trials can be initiated.  In total, it is anticipated thatapproximately 1,000 mothers will be involved in these trials and the efficacyand safety of the double blinded RareCellect protocols will be compared withthe standard technologies currently in use. Once initial results from the first of these trials have been shown to besafe and effective, the trials will be extended potentially to the US at theexpense of a potential US partner which will enable a substantial increase inpatient recruitment and facilitate the routine introduction of the test in themajor US market.

Thekey risk for this project is that the laboratory tests will not translate intothe clinic.  Should this be the case,further refinements may be necessary resulting in a longer lead time tocommercial revenues and extended cash burn on research.

Markets and 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 ofwomen becoming pregnant later in life is resulting in an increasing risk ofchromosomal aberrations in thesepregnancies.  Given the expense,inconvenience, and inaccuracy of current screening strategies, and the risks associated with subsequent invasive diagnosticprocedures, it seems probable that a reliable, accurate, non-invasive, and relatively inexpensive diagnostic test would berapidly adopted and applied in all pregnancies early in the pregnancy whichwould substantially increase the current markets.

This conclusion has, of course, been reached by a numberof other parties.  There are currentlyseveral competing groups actively pursuing different methods for the isolationof fetal cells from maternal blood, including academic centers in manycountries – the USA, United Kingdom, Japan, China, Italy, Singapore, Finland,Germany, Netherlands, France - and commercial organizations, e.g. IQCorporation, Vysis, Roche Diagnostics, Paragon Genetics and NiagenGenetics.  In 1995, the U.S. NationalInstitutes of Health began funding of the large, collaborative NationalInstitute of Child Health and Fetal Cell Isolation Study (NIFTY) trial, stillon-going.  Despite numerous optimisticclaims made in the past, it does not appear that a fully satisfactory solutionhas been found or commercialized yet by any of these bodies.

The method being developed by us has attracted widespreadinterest in relation to collaborative research and development, clinical trials and futurecommercialization.  At least two majordiagnostic companies have expressed interest in the project, as have certaininvestment groups.  During the comingyear, the Company is likely to pursue discussions with these parties regardingthe sharing of development costs and future licensing rights.

Government regulation: Clinical testing in most developed countries is subject to extensiveregulatory scrutiny, the nature of which varies from one country (and sometimesstate) to another.  In Australia,accreditation of laboratories offering pathology services is granted by theHealth Insurance Commission, based on a report of assessment by the NationalAssociation of Testing Authorities, Australia (NATA).  In addition, in the State of Victoria, wherethe Company has its headquarters, accreditation may also be obtained from thePathology Services Accreditation Board, again subject to favorable assessment by NATA.  In the U.S., laboratories are currentlycertified by the College of American Pathologists and the Health Care Financing Administration, under the authority ofthe Clinical Laboratory Improvement Amendments of 1988.  However, there are currently moves tointroduce an additional level of regulation for entities offering genetictesting, 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 Healthand Medical Research Council haverecently issued a major issues paper, “Protection of Human Genetic Information”.  It is anticipated that the field of genetic testing will beprogressively subject to increasing levels of governmental regulation in mostcountries.

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**(2)ImmunAid**

ImmunAid Pty. Ltd. (currently 65% owned by us) was formed in March 2001in Victoria, Australia, with us owning 60% and the scientists working on theproject owning the remaining 40%.  Wesubsequently acquired a further 5% interest in the company, following theconversion of loans made to it by us into shares.

The ImmunAid project is seeking ways to improve the efficiency oftreatments in cancer and chronic diseases such as AIDS, by focusing on thehuman immune system.  ImmunAid principleresearcher Martin Ashdown found that individuals suffering from cancer or whoare chronically infected with a virus such as HIV/AIDS mount an immune responseagainst the modified cells, but that the immune response wanes before it caneliminate the cancer or virus.  Theimmune system seems to switch itself “on and off” in a continuous andrepetitive cycle.  The “off” switch iscontrolled by a group of cells calledT-Regulatory cells which limit the immune response to a level that is too lowto cure the disease.

ImmunAid researchers have taken regular blood samples from cancer andHIV patients and identified a continuous cycle of rising and falling immune response and a number of small scalemonitoring trials of cancer patients have since been conducted under theguidance of Professor Michael Quinn (Royal Women’s Hospital, Melbourne) andProfessor Jonathan Cebon (Austin Hospital, Melbourne).  All of the cancer patients examined as partof these trials have shown a varying immune response consistent with theImmunAid theory.

ImmunAid researchers believe that a cancer can be killed by chemotherapyif the treatment is timed to eliminate the T-Regulatory cells.  Once the T-Regulatory cells are removed, itis proposed that the effectiveness of the immune system will increase,rendering it free to attack the cancer. This is why, hypothesise the researchers, a small percentage of patientstreated with normal cancer therapies seem to unexpectedly recover from thecancer.  In those rare cases where thecancer disappears, ImmunAid researchers believe that chemotherapy may actuallybe having a greater effect on the immune system (T-Regulatory cells) enablingthe liberated immune response to attack and eliminate the cancer.

Further support comes from a report which claimed that some 40% of womenexamined at autopsy had experienced some form of breast cancer but that only avery small proportion of these cancers had developed into the disease.  This observation is consistent with theproposal that cancers arise far more frequently than observed and are usuallyeffectively eliminated by an immune mechanism. It is only when the immune response is not sufficiently strong – due toperhaps normal mechanisms and ageing, concurrent diseases, stresses ormedications, for example – that the cancer escapes the immune system of thepatient and proliferates into disease. Given this extensive support for the theory, it is planned to initiate anumber of small scale trials to further support the ImmunAid concepts.

The novel discoveries made by ImmunAid offer the prospect of improvingcurrent treatments by tailoring timed therapeutic interventions for these majordiseases.  If successful, the net resultof this project could be a “personalised medicine” approach to the treatment ofcancer, given that each patient has subtle differences in the periodicity oftheir immune response against their cancers and, as it is necessary toaccurately time the application of therapy, they would have to be individuallymonitored.

The methods developed by ImmunAid have been protected by the initial filingof patent applications which have been filed in the countries with the majorpotential markets for these treatments.

The project has undergone a review process and considerable support byexternal experts in the fields in late 2005. Future cost and duration of the project will depend on the success ofthe current exploratory trials in cancer patients aimed to define the optimaltiming for treatments.  This may take sixmonths or more.  During this time, it isplanned to submit ethics approval applications in several hospitals withinAustralia (and potentially 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, hopefullymid 2007.  The costs of these trials willdepend upon the level of success obtained in the preliminary trials which willdetermine the size of the clinical studies and availability of collaboratorsfor recruitment 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.  Estimated budget andtimetable for the initial trials is dependant on their size.  Given the potentially enormous impact of theImmunAid program and the fact that current anticancer therapies are being onlymoderately modified, it is likely that the clinical trials will be rapidly andreasonably inexpensively implemented. Importantly, various other parties have expressed an interest toparticipate in the commercialisation of the ImmunAid project.

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**(3) Pathogens Program**

In March 2001 we entered into a Collaborative ResearchAgreement (CRA) with the University of Melbourne (Department of VeterinaryScience) to conduct applied research on methods for the diagnosis and controlof infectious diseases in animals and humans. Two scientists were employed via the university and work commenced inmid-2001 under the direction ofAssociate Professor Robin Gasser.  Prof.Gasser is the author of more than 120 papers in international peer-reviewed journals, mainly in classical andmolecular parasitology.

A substantial portion of the costs associated with thisproject are paid for by interested third parties, including relevant industry bodies such as Meat andLivestock Australia (“MLA”) and the Australian Research Committee (“ARC”).  A summaryof the project’s development costs, outcomes and further plans is summarizedbelow:

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

Totalestimated costs paid by the Company: $400,000

Gasser*et al* developed a new, DNA-based test toidentify and sub-type *Cryptosporidium*speciesand sub-species.  Independent validation of sensitivity andspecificity was conducted by Robin Gasser and Rachel Chalmers (PHLS *Cryptosporidium* Reference Unit, Swansea, UK) post ourfunding.  Collectively, the Company andGasser have transferred the test fromgels to capillary instruments. Accordingly, we are now able to offer the test directly.  Marketing of this test is in progress.

**Project 2**(currentapplication initiated in January 2003) – Novel methods for the control of themajor parasitic worm parasites of sheep and cattle including *Haemonchus contortus,**Trichostrongylus vitrinus*and *Ostertagia ostertagi.*

Totalestimated costs paid by the Company: $750,000 supported by similar amounts fromMLA and ARC.

Pathogens, including parasites that effect livestock and other animals,are a major cause of disease globally and the financial losses they cause are significant.  Infestation of sheep and cattle withparasites is estimated to cost Australian 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 typically controlparasitic worms by drenching, but the efficacy of current treatments is becomingprogressively 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 to identify severalessential genes associated with the reproduction or the development of theparasitic worms. In a recent development, researchers have gone a step furtherand identified compounds thatactually interact with the parasites, either killing them or rendering themunable to reproduce. Importantly,these compounds have no adverse effect on the host animal.

The world market for antiparasitic drugs for animals is estimated to beworth around $5 billion per year and theCompany is in initial discussions with major animal health chemical companiesto develop products based on patent applications arising from this exciting research.

The Pathogens Program has been support by grants from Meat and LivestockAustralia (“MLA”) and the Australian Research Council and is protected bystrong patents.  In August 2006, weannounced that MLA had agreed to contribute more than $970,000 to the PathogensProgram which will be used to continue the Company’s research into the use ofinnovative genetic technologies to produce safe and environmentally friendlytreatments to control disease-causing parasites.

The next stage of the project is to test these compounds under trialconditions with a view to producing commercialproducts for release toglobal livestock markets.  GeneticTechnologies has already commenced negotiations with a number of large livestock pharmaceutical companies with aview to marketing products from the Program.

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**(4) Genomic Matching Technique**

In June 2004, we entered into a series of agreements withthe C.Y. O’Connor ERADE Village Foundation, incorporating the ImmunogeneticsResearch Foundation and the Institute of Molecular Genetics and Immunology (“CYO”and the “Foundation”) under which (i) we acquired CYO’s entire patent estate inthe field of genetics and genomics,known collectively as the “Genomic Matching Technique” (“GMT”) (ii) we granteda license to CYO to utilize ournon-coding patents, and (iii) we agreed to provide research funding to theFoundation for a period of five years to develop novel, high-value genetictests for commercialization by us.

The research program was formed upon the acquisition bythe Company of all the genetics and genomics intellectual property generated bythe Foundation, which showed great promise in a number of important areas,including improved tissue typing and transplantation techniques in human bonemarrow transplantation, plus an extensive range of new opportunities in the field of human geneticsand animal genetics, including cattle, horses, dogs and fish.  The Company will also own any and all intellectual property generated by theFoundation as part of the agreement between the parties.

It is becoming increasingly apparent that the traditional genetic testswhich have been developed to diagnose individuals susceptible to diseases, oridentify plants or animals that have desirable characteristics, provide limitedinformation.  As such, the Company isworking closely with the Foundation to develop a novel approach designed to overcome these shortcomings.  The GMT developed by CYO, is an effective,yet relatively simple, method for identifying genetic differences between individuals. A large number of GMT clusters have now been identified which are beingassociated with genes that may be implicated with diseases.

One such potential disease association has been discovered withAge-related Macular Degeneration, a disease of the eye which often results inblindness in the aged.  A proportion ofpatients diagnosed with the milder form of the disease develop to themore-advanced form which results in blindness. GMT may be used to effectively identify those susceptible to diseaseprogression, enabling early intervention with therapy.  This approach can potentially delay the onsetof the disease, or reduce its severity. These possibilities will be pursued during the coming year.

In the area of tissue and marrow transplantation, CYO and independentlaboratories have shown that transplant recipients who were matched to donorsusing the traditional immune markers and by GMT had a substantially increasedchance of long term survival compared with patients matched for the immunemarkers alone.  This data demonstratesthat the GMT is revealing information about the haplotype of the individuals asit applies to transplantation that is over and above that provided bytraditional immunological typing.  Thisprinciple can be extended to a range of similar disorders.

We are now in the process of commercialising various applications of theGMT technology as they relate to immune-related diseases, including autoimmunediseases.  These include the earlyidentification of people who are susceptible to disorders such as Type Idiabetes, multiple sclerosis, lupus and rheumatoid arthritis, therebyincreasing their lifespan and qualityof life by delaying the onset of disease, reducing the severity of disease orpotentially eliminating the diseasealtogether.

Research currently being undertaken by CYO involves investigatingwhether this principle can be extended to diseases outside the immunesystem.  These include virtually alldiseases and desirable traits of plants and animals.  These tests may potentially revolutionisegenetic testing throughout the world. The tests are rapid, inexpensive, can be readily performed on standardequipment and provide significantly more information than regular genetictests.

This extensive program is strongly protected by a series ofinternational patents that is constantly being expanded.

Successof this research to date has already resulted in new methods that could savelives in human bone marrow transplantation and have already resulted in a newgenetic test which can determine susceptibility to recurrent spontaneousabortion in humans and also in certain livestock species.  Other projects, while still at an early stageof development, have alreadydemonstrated exciting new findings which readily justify this innovativeprogram.  As additional research projects commence, sources of requiredbiological materials will be identified and sample libraries assembled.

Representativesfrom the Company and the Foundation have recently met with external parties toidentify potential commercial partners to advance these projects anddiscussions are continuing.  Subject tothese negotiations, first commercial outputs may be received during the 2007calendar year.  Further, additionalproducts are likely to be developed and offered to the market progressivelyduring the life of the program.  Some ofthese inventions could have significant value - both in terms of saving livesand in generating new sources of revenue for the Company.

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**(5) Addictive States**

This research collaboration with King’s College, London (currently beingcarried out under the auspices of Dr. GeromeBreen), has developed new ways of identifying novel VNTRs (Variable NumberTandem Repeat polymorphisms) inhumans and is aimed at understanding the molecular mechanism of drug addictionwith particular emphasis on cocaine and,potentially, other drugs.  Cocaine is apowerful stimulant that directly affects the brain and is one of the mostaddictive of the drugs of abuse, andits use often has fatal consequences. There are well over 1 million people in the United States alone who needrehabilitation for their cocaine abuse and a further 750,000 people in theUnited Kingdom are estimated to use cocaine at least once a year.  Of greatest concern, in 1988, 3.2% of gradeeight students in the US had reported using “crack” (cocaine) at least once intheir lives.  These figures are muchhigher in other countries and are growing daily as the price of cocainedecreases.

There is little scientific evidence of the detailed mechanism of addiction.  The major receptors in the brain for cocaineand related drugs have been identified. However, it is not known how these receptors vary between individuals,possibly explaining why some people become addicted while others do not.  The objective of this project is to study thegenes of addicts, users who are not addicted and non-users in an effort todiscover the reasons for the differences. This information could be used to develop a genetic test to identify potentialaddicts and which genes are altered in particular addicts, enabling effectivetreatment regimes to be prescribed.  Thiswould also enable pharmaceutical companies to design drugs that would be moreeffective in treating addicts with particular gene modifications.

The project has reached the stage where the first of the geneticdifferences have been identified which has formed the topic of first patentapplication.  The estimated timing of theproject to identify the first genes of addiction was two years at a cost ofapproximately $180,000 which concludes in December 2006.  Discussions are currently being undertaken onthe conditions of any further collaboration to identify further genetic causesof addiction, possibly with the support of a large multinational organisation.

****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 togenerate license revenues from these particular patents will cease.  It is anticipated that, over time, however,licensing of additional patents filed by the Company in other areas of geneticswill replace revenues currently generated from the licensing of the non-codingpatents.

**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 tests peryear which, if correct, would give the Company approximately a 50 percent totalmarket share.  There are presently anumber of other organisations that offer these tests in Australia, most ofwhich 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 ofDecember 2006, our market share appears to have stabilized.

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Abrief outline of each competitor in this area is listed below.

DNAlabs:  This is our largest competitor and is a wholly-owned subsidiary ofSydney IVF.  It obtains paternity testingreferrals exclusively from Symbion Health (formerly Mayne Health) which has thelargest share of the Australian pathology market.

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.

Healthscope(formerly Gribbles):  The third largest pathology provider inAustralia, which entered the paternity testing market in late 2003, and isaggressively pricing their service in order to increase market share.

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

JohnTonge Centre:  This is the Coroner’s laboratory inQueensland.  They are NATA accredited butdon’t offer the test commercially.

MedvetScience:  This laboratory is based in South Australiaand its major shareholder is the State Government.  Priorto the entry of Gribbles, it had a monopoly in S.A. and also controls themarket in the Northern Territory and Tasmania.

DNASolutions:  This company was established in the late 1990’sand sells its services over the internet. DNA Solutions is the only non accredited provider which has its ownlaboratory.  Their business is generatedvia the web and they have sites in various countries.

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

**Genetictesting - diagnostics**

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

**Genetictesting - forensics**

Forensic DNA testing is defined to include DNA tests, the results ofwhich 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 forensics 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, for this reason, do not generallyundertake private DNA forensic tests.  Assuch, we are one of a few accredited laboratory currently providing forensictesting services to the public.  Toresolve the backlog problem, various state governments have already suggestedthat they plan to outsource thetesting of forensic samples to the private sector.  In fact, in April 2006, the Company announced that it had been awarded a contract to supply NewSouth Wales Police with DNA analysis services. Under the contract, Genetic Technologies will provide services for aninitial trial period of three months after which the NSW Police will assess thebenefits of outsourcing and make a decision on seeking tenders for the awardingof a longer term contract for a period of one to five years.

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**Genetic testing - animals**

We offer a DNA testing service across a number of animal species,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.

Someof major pathology companies in Australia already have vet pathology businessesand almost all have expertise in human DNA profiling. We expect that they willenter the animal testing market in the medium term.

**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 throughput extraction of plasmid DNA andgenomic DNA;

·                  High throughput DNA sequencing;

·                  High throughput genotyping; and

·                  SNP discovery and analysis.

AgGenomicshas focused on the commercial species of greatest value to the Australianeconomy and also species where the most substantial funding has been invested,including wheat, barley, canola, cotton, vegetable brassicas (e.g. cabbage,cauliflower, brussel sprouts and broccoli) and wine grapes.  To date, AgGenomics has completed a number ofcommercial projects on behalf of some of these 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’testing capacity, they are not seen as a major threat.  The second, South Australian Research &Development Institute (SARDI), is seen as our major threat as in the next fewyears there is a reasonable expectation that they will have the capacity to matchAgGenomics.  In addition to this, their expertisein plants is similar to ours.

Whilstwe have few domestic competitors, our major commercial threat comes fromoffshore laboratories based in the USA, England and Korea.  These laboratories have a significantlyhigher throughput than AgGenomics and by and large enjoy greater economies ofscale, thereby reducing their production costs. To date, a few large Australian plant sequencing contracts have beenlost offshore in cases where the client simply requires the return of thegenetic data and does not require our expertise in its interpretation.

**Genetictesting - sports performance**

Weown the worldwide patents and marketing rights to the ACTN3 SportsGeneTestTM.  This unique genetic test, whichfocuses on the ACTN3 gene, is the subject of granted patents and cannot beoffered by any other party within the patent territories.  As such, we have no competitors for thisgenetic test.  As the ACTN3 SportsGeneTestTM provides an indication of anindividual’s predisposition to sports/power sport performance as opposed toendurance sport performance, thereare a range of other tests, genetic and non genetic that may also indicate apredisposition to particular sporting performance.  None of these, however, specifically relateto a genetic test on the ACTN3 gene which, scientifically, has shown a veryhigh correlation to sports performance.

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**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 ofpregnancy.  There is, therefore, both ahealth and economic requirement to provide an efficient and non-invasive methodfor 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.

We hold worldwide patents concerning a method for the recovery of fetalcells from maternal blood.  These cellscan then be used to analyze the genetic health of the fetus, without the needto perform the current invasive tests. We are currently conducting pre-clinical research to optimize the fetalcell isolation techniques as part of the project’s commercialization processinvolving clinical trials which are due to commence in early 2007.  Patent applications have been filed to coverrecent inventions in this field.

Localcompetition in Australia has come from MonashMedical 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, but recent announcements made by theUniversity indicate that this aspect of their research has been terminated.

Thedevelopment of non-invasive fetal diagnostics is a highly competitivefield.  Worldwide groups activelypursuing non-invasive fetal cell diagnostics include:

·                  Genzyme Corporation, USA

·                  Roche Diagnostics, USA

·                  Aviva Biosciences, USA

·                  Hamilton Thorne Research, USA

·                  Rubicon Genomics, Inc, USA

·                  MOR Research Applications Ltd.

·                  Children’s Medical Centre – Tuft’s University,Boston, USA

·                  The Chinese University of Hong Kong

·                  Laboratory for Prenatal Medicine, University Women’sHospital, Basle, Switzerland

·                  The Jikai University School of Medicine, Tokyo,Japan

·                  Imperial College London UK

(this list is not exhaustive and many other academic and commercialresearch 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 ofRareCellect.  This means that samples offetal cells prepared using RareCellect technology will be suitable for use bythe current and emerging tests for fetal genetic health.  Importantly, in the fetal cell isolationarea, there are no known competitors who have demonstrated that they have areproducible and commercially viable process for collecting fetal cells frommaternal blood.

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**Environmental Regulations**

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

We have a minority interest of 17.45% in a mining jointventure in Western Australia known as the Duketon Belt Joint Venture which hasbeen fully written off in the Company’s accounts.  To date, the Venture has only been subject toexploration drilling.  As at June 30,2006, we had provided performance bonds of $63,810 (AUD85,963) to the MinesDepartment in respect of restoration and environmental matters.

The Directors of the Company are not aware of anypotential environmental issues in respect of this mining exploration project.

**Item 4.C         Organizational Structure**

The following table shows the organizational structure ofGenetic Technologies and its subsidiaries as at the date of this Annual Report:

Genetic Technologies Limited is the holding company ofthe group and is listed on the Australian Securities Exchange, under the code GTG, and on the NASDAQ GlobalMarket, under the ticker symbol GENE.

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

GeneType Pty. Ltd., a wholly-owned subsidiary of theCompany, rents the offices and laboratory premises located at 60-66 HanoverStreet, Fitzroy, Victoria, Australia from Bankberg Pty. Ltd., a companyassociated with the Company’s 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 $300,000.

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

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.

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**Item 5.A         Operating Results**

**Overview**

**Our Formation**

GeneType AG was incorporated in Zug,Switzerland on February 13, 1989 to exploit the commercialization of thehypothesis 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 was incorporated on January5, 1987 as Concord Mining NL in Western Australia.  On August 13, 1991, we changed our name toConsolidated 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 our nameto 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 name toGenetic Technologies Limited, which is the current name of the Company.

On August 29, 2000, Duketon Goldfields Limited receivedshareholder approval to change its activities from a mining company to abiotechnology and genetics company on the acquisition of all the issued capitalof GeneType AG of Switzerland.  Followingthe acquisition of GeneType AG, the new combination has been engaged in theresearching, developing and commercialization of genetic concepts primarilyrelated to our intron sequence patents and genomic mapping patents.  We are also the largest accredited paternitytesting laboratory in Australia which GeneType has been operating since1990.  Over the past five years, theCompany has granted licenses to its patents and expects to derive revenue fromfurther licensing of its patents.  Priorto the merger with GeneType AG, the mining exploration activities had ceasedand were being progressively disposed of by August 2000.  The company was basically an investment shelland following the completion of the merger the old shareholders of GeneType AGwere in control of the company which formed the basis for treating theacquisition of GeneType AG as a reverse acquisition.

**Development Stage Enterprise**

Until 2002, we were a development stage enterprise.  We had been developing our technology thatresulted in the granting of seven families of patents in the USA which we havenow actively started to commercialize and enforce.  Since inception up to June 30, 2006, we haveincurred $17,002,436 in operating losses and a further $2,238,382 in other comprehensive income.  Our losses have resulted principally fromcosts incurred in research and development, investment activity and from general and administrativecosts associated with our operations. Other comprehensive losses relate primarily to foreign exchangetranslation adjustments recorded on conversion of our accounts from Australiandollars to US dollars.  See theConsolidated Statements of Operations in our attached financial statements.

The research and development costs incurred prior toAugust 2000 of approximately $6 million were funded by shareholders of GeneTypeAG.  On completion of the merger ofDuketon Goldfields 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 for approximately $5million.  The funds realized from thissale were applied towards research and development and general andadministrative 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 licenseour non-coding technology and provide a series of genetic tests, both of whichgenerate revenue to fund our expenses.

The extent to which we continue to incur losses willdepend on the quantum of license fees received from the licensing of ourpatents, the amount of annuities and royalties we receive from past licenses,and the number of genetic tests we conduct. We may not be able to license our technology successfully or everachieve or sustain profitability.

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**Where We Derive our Revenues**

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

Since June 30, 2002, the Company has been successful insecuring licenses for its technology from Genetic Solutions Pty. Ltd., NanogenInc., Sequenom Inc., Perlegen Sciences Inc., Myriad Genetics Inc, ARUP, QuestDiagnostics Inc. of USA, King’s College London, ViaLactia Biosciences (NZ)Limited of New Zealand, University of Technology, Sydney, Australia, TMBioscience Corporation of Canada, Laboratory of Colorado State University ofUSA, C.Y. O’Connor ERADE Village Foundation of Perth, Western Australia, OvitaLimited of New Zealand, Genzyme Corporation of USA, MetaMorphix Inc. of USA,Bionomics Limited of Adelaide, South Australia and University of Utah, fourcommercial parties in New Zealand, Applera Corporation of USA, Innogenetics ofBelgium, GENOSENSE of Austria, among others. We expect that licensing revenue in the form of up-front payments androyalties and subscription agreements may provide the majority of our income inthe future.  We anticipate licensingother companies in the drug discovery, research, genomics, genetics, IT,service provider, pharmaceutical and biotechnology industries on a world widebasis.  Our service testing revenue hasincreased annually since 2001.

We also received proceeds from the disposal of some ofour remaining non-core mining assets which were held for resale in Australiaand Canada during the year ended June 30, 2003. This is non-recurring income.

**Fiscal Year**

As an Australian company, our fiscal year ends on June 30each year.  We produce auditedconsolidated accounts at the end of June each year and provide reviewedsix-monthly accounts at the end of December each year, both of which areprepared under Australian Accounting Standards which include Australianequivalents to International Financial Reporting Standards (“AIFRS”).

**Recent Accounting Pronouncements**

*Accounting Changesand Error Corrections*

In May 2005, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) No. 154, *Accounting Changes and Error Corrections*, a replacement ofAccounting Principles Board (“APB”) Opinion No. 20 and FASB Statement No.3 (“SFAS 154”).  SFAS 154 provides guidanceon the accounting for and reporting of accounting changes, including changes inprinciple, accounting estimates, and the reporting entity, as well as,corrections of errors in previously issued financial statements.  SFAS 154 requires retrospective applicationof voluntary changes in accounting principle to prior period financialstatements, unless it is impracticable to do so.  SFAS 154 also provides that a change inaccounting estimate that is affected by a change in accounting principle isaccounted for as a change inestimate.  SFAS 154 carries forward fromAPB 20, *Accounting Changes*, the reporting for acorrection of an error, a change inthe reporting entity, and the requirement to justify a voluntary change inaccounting principle on the basis of preferability.  SFAS 154 is effective for accounting changesand corrections of errors made in fiscal years beginning after December 15,2005 with early adoption permitted for accounting changes and corrections of errorsmade in fiscal years beginning after the date SFAS 154 was issued.  The Company plans to adopt this pronouncementin fiscal years beginning July 1, 2006 and does not believe the adoption ofSFAS 154 will have a material effect on the financial statements.

*Uncertainty inIncome Taxes*

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, *Accounting for Uncertainty in Income Taxes*, aninterpretation of FASB Statement No. 109, *Accounting for IncomeTaxes* (“FIN 48”).  FIN 48creates a single model to address uncertainty in tax positions and clarifiesthe accounting for income taxes by prescribing the minimum recognitionthreshold a tax position is required to meet before being recognized in thefinancial statements.  FIN 48 alsoprovides guidance on derecognition, measurement, classification, interest andpenalties, accounting in interim periods, disclosure, and transition.  In addition, FIN 48 clearly scopes out incometaxes from SFAS No. 5, *Accounting forContingencies*.  FIN 48 appliesto all tax positions related to income taxes subject to SFAS No. 109.  This includes tax positions considered to be “routine”as well as those with a high degree of uncertainty.  The guidance contained in FIN 48 is alsoapplicable to pass-through entities, non-taxable entities, and entities whosetax liability is subject to 100% credit for dividends 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.

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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 yearsbeginning after December 15, 2006.  TheCompany plans to adopt this pronouncement in fiscal year beginning July 1, 2007and does not believe the adoption of FIN 48 will have a material effect on thefinancial statements.

*Fair ValueMeasurements*

In September 2006, the FASB issued SFAS No. 157, *Fair ValueMeasurements* (“SFAS 157”). SFAS 157 provides enhanced guidance for using fair value to measureassets and liabilities and also responds to investors’ requests for expandedinformation 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 does not expand the use of fair valuein any new circumstances.  Under SFAS157, fair value refers to the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between market participants in the market in which the reportingentity transacts.  SFAS 157 clarifies theprinciple that fair value should be based on the assumptions market participants would use when pricing the assetor liability.  In support of thisprinciple, SFAS 157 establishes afair value hierarchy that prioritizes the information used to develop thoseassumptions.  The fair value hierarchygives the highest priority to quotedprices in active markets and the lowest priority to unobservable data.  Under SFAS 157, fair value measurements wouldbe separately disclosed by level within the fair value hierarchy.  SFAS 157 is effective for financial statements issued for fiscal years beginningafter November 15, 2007.  The Companyplans to adopt this pronouncement in fiscal years beginning July 1, 2008 anddoes not believe the adoption of SFAS 157 will have a material effect onthe financial statements.

**Critical Accounting Policies**

**Revenue Recognition**

Revenues are recognized at the fair value of theconsideration 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 isrecoverable.  Service arrangements are ofshort duration (in most cases less than 3 months).

**Sale of MarketableSecurities**

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.

**Research and Development Grants**

The Company receives non-refundablegrants that assist the Company to fund specific research and developmentprojects.  These grants generally providefor reimbursement ofapproved costs incurred as defined in the various agreements.  Government grants are recorded asrevenue when key milestones set within each agreement are achieved and acceptedby all parties to the grant, no performance obligation remains andcollectibility is reasonably assured. Grant funds received in advance of the Company completing itsperformance are deferred.  When theCompany is required to make cash payments or purchases from the issuer of thegrant as a requirement for the grant to be issued, the income is recorded netof the consideration payable by the Company.

**Patents**

External costs incurred in filing,defending and protecting patent applications for which no future benefit isreasonably assured are expensed as patent fees as incurred.  As of June 30, 2006 and 2005, none of theseexternal costs have been capitalized. Acquired patents for which a future benefit is reasonably assured arecapitalized and amortized over their useful life.

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**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 isrequired by the Company and collection is reasonably assured.  Incomeunder license arrangements with fixed terms and renewal options is deferred andrecognized on a straight-line basis over the license period.  The Company has no other arrangements withits licensees to provide services besides the license agreement.  Revenues are recognized at the fair value ofthe consideration received net of the amountsof goods and services tax (GST).  Anysecurities received as a component of the upfront license fees are recorded as revenue, based on the market price of thesecurities at the date of signing the license agreement 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.

**Impairment of Long-LivedAssets**

Pursuant to guidance established in SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets,* the Company evaluates the recoverability of itslong-lived assets at least annually, or 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.  Managementalso re-evaluates the periods of amortization to determine whether subsequentevents and circumstances warrant revised estimates of useful lives.  An impairment loss is recognized when the carryingamount of the asset exceeds its fair value. The resulting impairment loss is classified as a component of loss fromoperations.  No impairment losses havebeen recognized for any of the periods presented.

Pursuant to guidance established in SFAS No. 142, *Goodwill and Other Intangible Assets,* theCompany tests goodwill for impairment annually and on an interim basis ifevents or changes in circumstances between annual tests indicate that the assetmight be impaired using the two-step process 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.  Since theadoption of SFAS 142, no impairment losses have been recognized.  However, in fiscal year 2006, the Companyrecorded a write-off of goodwill amounting to $81,851.

**Non-Cash Stock Compensation**

Prior to July 1, 2005, the Company elected to account forits stock-based employee compensation plan under the intrinsic value method inaccordance with the Accounting Principals Board Opinion No. 25: *Accounting for Stock Issued to Employees* (“APB25”) and related interpretations.  TheCompany has adopted the disclosure-only provisions of FASB Statement No. 123: *Accountingfor Stock-Based Compensation* (“SFAS 123”) as amended by FASBStatement No. 148: *Accounting**for Stock Based Compensation –Transition and Disclosure* (“SFAS148”).

In accordance with APB 25, the Company records andamortizes, over the related vesting periods, deferred compensation representingthe difference between the exercise price of stock options granted and the fairvalue of the Company’s ordinary shares on the measurement date.  Options granted to consultants and othernon-employees are accounted for in accordance with Emerging Issues Task Force ConsensusNo. 96-18:  *Accountingfor Equity Instruments That Are Issued to Other 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 forservices, compensation is recorded based on the fair value of the shares at thedate of measurement, as determined by reference to quoted market price.

Effective from July 1, 2005, the Company adopted the requirements ofSFAS 123 (revised 2004): *Share-Based Payments*(“SFAS 123R”) using the “modifiedprospective” method thereby recognising the compensation cost in the financialstatements for all share-basedpayments granted after that date, and based on the requirements of SFAS 123,for all unvested awards granted prior to the effective date of SFAS 123R.

On August 29, 2000, shareholders approved the grant of3,000,000 options to Directors.  Eachoption granted to Directors was exercisable into one Ordinary Share at any timeon or before April 14, 2005 at a fixed price of AUD0.45 per share.  On August 12, 2003, Ian Dennis exercised1,000,000 options at AUD0.45 by paying AUD450,000 and simultaneously sold theresulting 1,000,000 shares.  Theremaining 2,000,000 lapsed unexercised 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 consolidated entity. The options, issued for nil consideration, are granted in accordancewith guidelines established by the Directors. The options are generally issued for a term of up to six years.  In accordance with the terms of the Plan,options generally vest on the basis of 25% per annum and can be exercised atany time after vesting prior to the date of their expiry.  The options are not transferable and are notquoted on the ASX.  There are currentlyfour Directors, four executives, nine consultants and 28 staff who have beengranted options under the Plan.  Optionsissued under the Plan carry no rights to dividends and no voting rights.

Options issued under the Plan during the followingfinancial years are as follows:

Year ended June30, 2004:
| Grant date    | ** ** | **Expiry date** | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|--------------------|------------|----------------------|------------|-------------------------|------------|-------------------------|------------|
|               |       |                 |       |                    |       |                    |       |
| December 15,  2003 |       | May  20, 2009        |       | 2,000,000               |       | AUD0.48                 |       |
| December 15,  2003 |       | December  15, 2009   |       | 750,000                 |       | AUD0.59                 |       |
|               |       | Total                |       | 2,750,000               |       |                    |       |

 

The 2,000,000 options issued on December 15, 2003, whichhad an exercise price of AUD0.48 and were due to expire on May 20, 2009, weregranted to two Directors, Russell Granzow (1,000,000) and Prof. Deon Venter (1,000,000).  The options granted to RussellGranzow lapsed following his resignation from the Company on April 19,2004.  The options granted to Prof.Venter lapsed upon his resignation from the Company on August 23, 2006.  The remaining 750,000 options were granted toDr. Adrian Hodgson.  These, too, expiredfollowing his resignation on May 12, 2005. A total of 1,225,000 of the options issued under the Plan lapsed duringthe year ended June 30, 2004.

Year ended June30, 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 total of1,080,000 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 November30, 2004, we issued 500,000 options under the Plan to a Director, RobertEdge.  These options are also exercisableat AUD0.48 and, following his retirement on November 17, 2006, will expire onMay 17, 2007.  A total of 1,187,500 ofthe options issued under the Plan lapsed during the year ended June 30, 2005.

Year ended June30, 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 issued 750,000 options under thePlan to Geoff Newing, our Chief Operating Officer, and a further 250,000options to Tom Howitt.  These options areexercisable at AUD0.53 and expire on August 12, 2011.  On November 23, 2005, we issued 500,000 newoptions under the Plan to each of two Directors, Henry Bosch AO and JohnDawkins AO.  These options are exercisableat AUD0.56 and expire on November 23, 2011. The remaining 3,300,000 options were issued to various employees.  A total of 2,630,000 of the options issuedunder the Plan lapsed during the year ended June 30, 2006.

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Post June 30, 2006:

No options were issued under the Plan during the periodfrom June 30, 2006 to the date of this Annual Report.  However, during that period, a total of1,400,000 options lapsed unexercised.

As at the date of this Annual Report, there was a totalof 13,877,500 options outstanding, of which a total of 13,277,500 had beenissued under the Plan.  As of June 30,2006, no further options are to be granted to Directors of the Company as partof their compensation arrangements.

On August 2, 2001, the Company announced that it hadentered into an agreement with GTH Capital of New York to pursue its listing onthe National Association of Securities Dealers Automated Quotations (“NASDAQ”).  This agreement was assigned by GTH Capital toGMCG, LLC, the successor of GTH Capital, on April 1, 2002.  In accordance with the agreement, GeneticTechnologies issued 150,000 shares to GTH Capital on October 10, 2001 andagreed to issue 900,000 options at an exercise price of $0.36 (AUD0.70) to GTHCapital within three years, subject to it meeting certain performancecriteria.  On January 14, 2002, GTH wereentitled to receive 540,000 of the options. In accordance with SFAS 123, the Company has recorded an expense of $67,846during the year ended June 30, 2002. During the year ended June 30, 2004, GMCG, LLC became entitled to afurther 60,000 options which in accordance with SFAS 123 we have recorded as anexpense of $10,827 during that year.  Wehave now issued to GMCG, LLC the 600,000 options that have met specificperformance criteria.  Subsequent to June30, 2005, the parties agreed not to proceed with the issue of the 300,000remaining options, notwithstanding the successful listing of the Company’sLevel II ADR’s on NASDAQ on September 2, 2005, as certain performance criteriawere not met by GMCG, LLC.

On May 22, 2001, Gtech International Resources Limited, acontrolled entity issued 130,000 directors options to Dr. Mervyn Jacobson at anexercise price of $0.25 (CAD0.38) which vested immediately.  These options lapsed unexercised on May 22,2006.  Stock compensation expense inrespect of these options of $8,380 was recorded during the year ended June 30,2001.  On February 3, 2005, Fred Bart andIan Dennis exercised a total of 158,500 options in Gtech International at anexercise price of $0.16 (CAD0.20) each. On August 26, 2005, 100,000 options in Gtech International were grantedto Tom Howitt at an exercise price of $0.38 (CAD0.45) each.  Stock compensation expense in respect ofthese options of $7,234 was recorded during the year ended June 30, 2006.

On September 4, 2003, as part of the placement of13,333,333 shares at AUD0.75, we issued the subscriber with 6,666,667 optionsexercisable at AUD1.00 on or before September 30, 2005.  These options subsequently lapsed onSeptember 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 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 issueprice of the Company’s Ordinary Shares at the date of the option grant.  In the years ended June 30, 2006, 2005 and2004, the expense was $597,088, $591 and $976, 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, 2006, 2005 and 2004, this expense was $13,755, $nil and$51,101, respectively.

The following is additional information relatingto all options 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 |   |

 

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During 2006, no options (2005: 500,000) were issued at an exercise priceequal to the market price of the stock on the grant date.  The weighted average exercise price andweighted average fair value of the options issued in 2005 was $0.38 and $0.24,respectively.  In addition, no optionswere granted during 2006 (2005: 1,830,000) at exercise prices exceeding themarket prices of the stock on the respective grant dates.  The weighted average exercise price andweighted average fair value of the options issued in 2005 was $0.39 and $0.23, respectively.

Pro forma information regarding net income is required by SFAS 123, asamended by SFAS 148, and has been determined as if the Company had accountedfor its employee stock options under that fair value method of SFAS 123 as ofits effective date.  The fair value forthe options 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,** | ** ** |
|--------------------------|------------|-------------------|------------|
| ** **               | ** ** | **2006**          | ** ** | **2005** | ** ** | **2004** | ** ** |
|                     |       |              |       |   |   |   |   |
| Risk Free  Interest Rate |       | 5.62              | %          | 5.21 | % | 5.80 | % |
| Expected  Dividend Yield |       | —            |       | — |   | — |   |
| Expected  Volatility     |       | 0.53              |       | 0.55 |   | 0.89 |   |
| Expected Lives (years)   |       | 5.0               |       | 5.0 |   | 6.0 |   |

 

Had the Company elected to adoptthe fair value recognition provisions of SFAS 123, pro forma net loss would beas follows:
|                                                                                                                | ** ** | **Year ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                     | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                                                                                           |       |                                   |       |   |   |
| Net loss as  reported                                                                                          |       | $                                      | (5,742,949 | ) | $ | (4,816,726 | ) |
| Employee  stock-based compensation, net of taxes, as calculated under APB 25 included  in net loss as reported |       | 591                                    |       | 976 |   |
| Employee stock-based  compensation, net of taxes, as calculated under SFAS 123                                 |       | (606,418                               | )          | (532,408 | ) |
| Pro forma net  loss                                                                                            |       | $                                      | (6,348,776 | ) | $ | (5,348,158 | ) |
| Net loss per  ordinary share (basic and diluted) as reported                                                   |       | $                                      | (0.02      | ) | $ | (0.02 | ) |
| Pro forma net loss per  ordinary share (basic and diluted) as reported                                         |       | $                                      | (0.02      | ) | $ | (0.02 | ) |

 

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

**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 yearended June 30, 2006 compared to $4,970,007 for the corresponding period in 2005, a modest increase of $27,216 or1%.  The majority of our licensingrevenues for the year were generated as a result of our successful settlement of the dispute with Applera Corporation, towhom we granted a license to use our non-coding technology.  Inaddition, we received non-refundable up-front fees from six other licensees,including Innogenetics NV of Ghent, Belgium, Bovigen LLC of Harahan, Louisianaand various parties in New Zealand.  The2006 financial year also saw a significant 143% increase in the level ofannuity and royalty income we received from existing licensees.  Annuity and royalty income, which is includedin the total licensing revenue figure above, totaled $1,166,773, as compared to$480,468 for 2005.  As progressively morelicenses are granted, it is expected that this recurring revenue stream willcontinue to increase.

**Servicetesting revenues**

Our service testing revenues of $1,906,290 representedfees received from our genetic testing services in Melbourne, Australia.  This figure represented 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 the firstnon-Government laboratory in Australia to be able to undertake forensictesting.  The Company has already securedwork in this expanding area ofgenetic testing and has tendered for work that certain Australian StateGovernments are now seeking to outsource.  In addition, through theexecution of an agreement with Optigen LLC, the Company has secured theexclusive right to offer a range of genetic disease tests for dogs.  This agreement is expected to generate asignificant increase in testing revenue from dog testing.

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**Grant income**

We earned grant income of $426,574 for the year endedJune 30, 2006 which was consistent with the amount of $437,278 for thecorresponding period in 2005.  As in theprior year, the grants were received from Horticulture Australia Limited inrelation to a research project into the genetic of strawberries and from theAustralian Government as part of an Export Marketing Development Grant.

**Other income**

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

**Operating expenses**

Total operating expenses for 2006 of $11,922,340 were materially lessthan those incurred in the prior period, being $13,142,133.  An explanation of this $1,219,793 decrease isprovided below under the five respective expense categories.

**Service testing expenses**

Service testingexpenses increased by $1,036,993 or 30% to $4,547,437 for 2006 as compared to$3,510,444 in 2005.  During the 2006financial year, the Company expanded its current product range whilst continuingthe development of a range of new tests.  A major area of improvement has been thecontinued development of our Laboratory Information Management System (“LIMS”). The cost of maintaining and developingthe LIMS is necessary to ensure the accuracy, integrity and confidentiality ofthe genetic tests performed by the Company.  The LIMS also enables the reporting of resultsto be securely and accurately maintained more efficiently.  A further service testing expense incurredduring the year related to our successful accreditation by the NationalAssociation 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 additional costsshould lay the foundation for the further expansion of our genetic testingbusiness.  The business of genetictesting is still in its relative infancy and the creation of this valuableinfrastructure should ensure that we maintain our position at the forefront ofa developing industry.  The increase in testingrevenues during the year has also resulted in a modest increase in generallaboratory supply costs.

**Research and development expenses**

Research and development increased by $984,872 or approximately 53% to$2,815,804 in 2006 from $1,830,932 in 2005. During the 2006 financial year, the Company continued to fund its fiveprincipal research and development projects and to incur additional expenditurein an effort to accelerate the commercialization of its RareCellect andImmunAid projects, in particular.

**Patent and license fees**

Patent and license fees includes associated 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 in2005.  The significant decrease in feesincurred during the 2006 financial year related almost solely to the reductionin legal fees paid by the Company in respect of its dispute with AppleraCorporation, which was successfully settled in December 2005.

**Sales and marketing**

Sales and marketing expense has increased by $276,310 or 48% to $846,808for 2006 as compared to $570,498 in 2005. This increase is due to greater levels of marketing activity undertakenduring the year to expand the Company’s genetic testing business generally andto promote the services offered by the Company through attendances at variousindustry and trade shows.

**General and administrative expenses**

General and administration expense has reduced by $323,696 or 12% to$2,273,946 for 2006 as compared to $2,597,642in 2005.  General and administrationexpenses continue to be incurred in line with normal operating parameters, with the modest decrease reflecting certain expensereallocations, principally to sales and marketing, and other general efficienciesgenerated during the year.

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**Interest income**

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.

**Interest expense**

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.

**Net profit on sale of assets**

In 2005, the Company generated a net profit of $97,809 from thesale-and-hire-back of certain items of laboratory equipment to the NationalAustralia Bank Limited as part of its hire purchase arrangements.  No such profit was made during the 2006 year,however a gain of $1,735 was generated from the sale of other assets. 

**Net foreign exchange gains (losses)**

Foreign exchange gains of $92,403 were incurred during 2006 as comparedto losses of $140,861 in 2005.  Theforeign exchange gains were primarily due to changes in the value of theAustralian dollar as compared to the US dollar which had a positive impact onour cash deposits in US dollars.

**Taxes**

Taxes reduced by $127,690 or 65% to $67,649 in 2006 as compared to$195,339 in 2005.  This decrease islargely attributable to movements in the Australian dollar / US dollar exchangerate which reduced the balance of the withholding tax payable in respect of theUS licensing revenue generated by the granting of the license to companiesresident in the US.

**Comparison of the Year Ended June 30, 2005 to the YearEnded June 30, 2004**

**License revenues**

We earned licensing revenue of $4,970,007 for the yearended June 30, 2005 compared to $507,910 for the corresponding period in 2004,a significant increase of $4,462,097 or 878%. This increase was principally due to the $3,782,000 (AUD5,000,000)up-front license fee we received from Genzyme Corporation of Massachusetts inconsideration for us granting Genzyme a license to use our non-codingtechnology.  In addition, we receivedup-front fees from five other licensees, including MetaMorphix Inc. ofMaryland, Bionomics Limited of Adelaide, South Australia and the AustralianGenome Research Facility Limited of Melbourne, Victoria.  The 2005 financial year also saw a healthyincrease in the level of annuity and royalty income we received from existinglicensees.  Annuity income, which is included in the total licensing revenuefigure, totaled $480,468, as compared to $66,912 for 2004.  As progressively more licenses are granted, it is expected thatthis annuity stream will continue to increase.

As in the previous year, the ongoing patent dispute against AppleraCorporation has had a negative impact on the rate at which the Company is ableto secure additional licenses.  Giventhat this matter was satisfactorily resolved in December 2005, followingApplera’s decision to take a license from the Company, we anticipate that theCompany’s licensing activities should expand in future years.

**Service testing revenues**

Our service testing revenues of $1,809,301 represented fees receivedfrom our genetic testing services in Melbourne, Australia, compared to$1,969,963 for the previous year.  Thedecrease of $160,662 or 8% was due to a modest decrease in the volume ofgenetic testing performed by the Company. As additional marketing efforts start to have an impact, it is hopedthat revenues from several new genetic tests will increase service testingrevenues during the coming financial year. Further, recent accreditation has resulted in the Company becoming thefirst non-Government laboratory inAustralia to be able to undertake forensic testing.  The Company has already secured work in thisexpanding area of genetic testing andhas tendered for work that certain Australian State Governments are now seekingto outsource.  Finally, the Company hasexpended considerable energies in expanding its livestock testing businessduring the 2005 year which has already generated growing revenues.

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**Grant income**

We earned grant income of $437,278 for the year endedJune 30, 2005 compared to $154,702 for the corresponding period in 2004, anincrease of $282,576 or approximately 183%. The grants were received from Horticulture Australia Limited in relationto a research project into the genetic of strawberries and from the AustralianGovernment as part of an Export Marketing Development Grant.

**Other income**

We received other income of $3,469 for the year endedJune 30, 2005 compared to $12,427 for the corresponding period in 2004, a decrease of $8,958.

**Operating expenses**

Total operating expenses increased by $5,144,675 orapproximately 64% to $13,142,133 in 2005 compared to $7,997,458 in 2004.  An explanation of this increase is providedbelow under the five respective expense categories.

**Service testing expenses**

Service testing expenses have increased by $1,266,424 or56% to $3,510,444 for 2005 as compared to $2,244,020 in 2004.  During the 2005 financial year, the Companyhas diversified and expanded its product range to offer the tests that detectan individual’s susceptibility to contract certain forms of inherited cancers,determine their genetic disposition to either power or sprint sports events,and produce a genetic profile of various animals for stud book purposes.  The development of human genetic diseasetests is both complex and expensive and requires a specialist team to developand modify the respective tests.  Most ofthe increased expenses incurred in laboratory supplies can be directly attributedto this area.  The sports performancetesting area also required resources to develop the test with most of the reagent usage being allocated to a researchproject that was conducted for the group that found the original geneticvariant.  Approximately 1,000 samples were tested aspart of this project.  The new animaltests had to be developed from scratch with several hundred samples beinganalyzed to validate the test.  Thisdevelopment work will now enable the Company to offer these tests for manyyears to come.

**Research and development expenses**

Research and development increased by $161,448 orapproximately 10% to $1,830,932 in 2005 from $1,669,484 in 2004.  During the 2005 financial year, the Companycontinued to fund its five principal research and development projects and toincur additional expenditure in an effort to accelerate the commercializationof its RareCellect and ImmunAid projects, in particular.

**Patent and license fees**

Patent and license fees includes associated license andlegal fees.  Patent and license feesincreased by $3,828,277 or 476% to$4,632,617 for 2005 as compared to $804,340 in 2004.  The significant increase in fees incurredduring the 2005 financial year related almost solely to the legal fees paid bythe Company in respect of its patent dispute with Applera Corporation.  As the case gained momentum during the year,so did the levels of associated legal activity. Further, as our patentinsurance coverage expired, we had to meet a greater proportion of the legalfees that were incurred.  As mentioned elsewhere in this Annual Report,the satisfactory resolution of this matter in December 2005, following Applera’sdecision to take a license from the Company, should reduce the need for theCompany to instigate such legal action in the future, thereby reducing thelevel of patent and license fees incurred.

**Sales and marketing**

Sales and marketing expense has decreased by $423,329 or43% to $570,498 for 2005 as compared to $993,827 in 2004.  This reduction reflectsreduced numbers of promotional materials produced during the 2005 year andother related reductions.

**General and administrative expenses**

General andadministration expense has increased by $311,855 or 14% to $2,597,642 for 2005as compared to $2,285,787 in2004.  General and administrationexpenses continue to be incurred in line with normal operating parameters, with the modest increase reflecting a generalincrease in corporate activity.

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**Interest income**

Interest income has increased by $131,681 or 37% to$484,286 for 2005 as compared to $352,605 in 2004.  This additional interest income is dueprincipally to the increased cash and cash equivalents held by the Companyduring the 2005 financial year.  TheCompany’s cash and cash equivalents increased from approximately $7.9 millionat the beginning of the 2004 financial year to approximately $13.5 million atthe end.

**Interest expense**

Interestexpense increased by $31,750 for 2005 as compared to $nil in 2004.  This interest expense was incurred inrelation to the hire purchase agreements entered into by the Company during theyear to finance the purchase of certain items of office and laboratoryequipment.

**Net profit (loss) on sale of assets**

In 2004, a net profit was generated from the sale ofsecurities of $406,224.  As thisrepresented the final sale of the Company’s trading securities, no such profitwas generated during the 2005 financial year. In 2005, the Company generated a net profit of $97,809 from thesale-and-hire-back of certain items of laboratory equipment to the NationalAustralia Bank Limited as part of its hire purchase arrangements.  No such profit was made during the 2004 year.

**Net foreign exchange losses**

Foreign exchange losses decreased by $31,099 or 18% to$140,861 in 2005 as compared to $171,960 in 2004.  The foreign exchange losses were primarilydue to the increase in the value of the Australian dollar as compared to the USdollar which had a negative impact on our cash deposits in US dollars.  During 2005, the movement in the value ofAustralian dollar to US dollar was less than that in 2004.

**Taxes**

Taxesincreased by $167,760 or 608% to $195,339 in 2005 as compared to $27,579 in2004.  This increase is largelyattributable to the withholding tax payable in respect of the US licensingrevenue generated by the granting of the license to Genzyme Corporation ofMassachusetts.

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

**Summary**

Our overall cashposition depends on numerous factors, including the success of licensing ournon-coding patents, the numbers of genetic tests processed by our laboratory,completion of our product research and development activities, ability tocommercialize our products, market acceptance of our products and services andhow we choose to commercially exploit our technology**.**  We expect to devote additional capital resources to theexpansion of our licensing program on a worldwide basis, continue our researchand development programs with a view to commercializing our technology in ourtarget markets, hire and train additional staff, expand our research anddevelopment activities and acquire or make investments in businesses that arecomplementary to our existing business. Each of these activities will inevitably involve the outflow of cashreserves.

During the yearsended June 30, 2004, 2005 and 2006, we have incurred net losses of $4,816,726,$5,742,949 and $4,020,323, respectively. We anticipate incurring additional costs over at least the next severalyears as we expand our research and development activities and conduct furthertrials of our technology.  The extent towhich we will incur losses in future years depends largely on the success ofthe licensing of our non-coding technologies and the expansion of our genetictesting business.

Since inception, ouroperations have been financed primarily from capital contributions by ourstockholders, licensing and service testing revenues, grants, and interestearned on cash and cash equivalents.

We believe that ourcash and cash equivalents of approximately $8.2 million as of June 30, 2006,will provide us with sufficient capital to fund a base level of operations forthe next two years as from that date. During this period, we expect to be able to continue to adequately fundour research and development activities, licensing program, product developmentand 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.

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Our net cash used inoperating activities was $3,161,657, $5,016,397 and $4,545,189 for the yearsended June 30, 2004, 2005 and2006, respectively.  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, cash outflows typically consist ofstaff-related costs, service testingexpenses, general and administrative expenses, research and development costsand legal/patent fees.

Our net cash used ininvesting activities was $640,737, $19,276 and $116,047 for the years endedJune 30, 2004, 2005 and 2006, respectively.  Typically, cash used in investing activitiesrelated to the acquisition of laboratory equipment.  During the 2005 financial year, the establishment of theequipment finance facility described below reduced cash outflows for that year and future years.  In addition, the agreement reached withApplera Corporation in December 2005 has provided us with significant creditsfor laboratory equipment and reagents produced by the company.

Our net cash providedby financing activities was $6,994,357, $10,067,926 and $(337,042) for theyears ended June 30, 2004, 2005 and 2006, respectively.  The vast majority of these funds werereceived from the issue of Ordinary Shares in the Company, either as part of adirect placement of Shares (as during the year ended June 30, 2004) or as theresult of the exercise of options (as during the year ended June 30,2005).  During 2006, the cash flows usedin financing activities were attributable to the repayment of hire purchaseprincipal.

Apart from the purchase of laboratoryequipment of $640,737 in 2004, $467,689 in 2005 and $119,388 in 2006, we had nomaterial capital expenditures for the years ended June 30, 2004, 2005 and2006.  During the year ended June 30,2005, we acquired further laboratory equipment costing approximately $540,000,the majority of which was subsequently sold and hired-back under the equipmenthire purchase facility detailed below.

On January 14, 2005, the Company executed a Master AssetFinance Agreement with National Australia Bank Limited in respect of a$1,951,250 (AUD2.5 million) asset hire purchase facility (the “Facility”).  As at the date of this Annual Report,the Company had financed theacquisition of laboratory equipment under the Facility with a total value of$1,182,141 (AUD1,592,538).  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$519,610 (AUD700,000) as of June 30, 2006 represents an unsecured, non-interestbearing loan from theAustralian Commonwealth Government received under the Research &Development Start Program.  The loanrepresents a portion of a grant received by the Company, which has beendeferred in accordance with the grant agreement.  The loan will be repayable on or beforeJanuary 15, 2009, if the Company commercializes a product as a result of the research covered under the grant.  If no product is commercialized, the Companywill recognize grant revenue after January 15, 2009, when the loan is no longer repayable.  The costs associated with the research havebeen expensed.

**Future CashNeeds**

We expect thatoperating expenses and, to a lesser extent, capital expenditures will be amaterial use of our cash resources in future. As of June 30, 2006, we had cash and cash equivalents totaling approximately$8.2 million.  We believe that thisworking capital is sufficient for our anticipated needs for the next two yearsas from that date.  We do not have anylines of credit apart from the equipment finance facility with NationalAustralia Bank Limited and a nominal credit card facility with St. George BankLimited which, as of June 30, 2006, had available credit of $81,653(AUD110,000).  We anticipate generatingadditional cash in future years from our licensing activities and the expansionof our service testing business.

**OperatingLeases**

We are obligatedunder various operating leases for periods expiring through 2011.  Payments under non-cancelable operating leasearrangements for office premises and laboratory facilities expire on variousdates through June 30, 2011, resulting in the lease commitments over thatperiod which are stated in the following table.

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The following is a schedule of future minimum lease payments foroperating leases that had initial or remaining non-cancellable lease terms in excess of one year as of June 30,2006:
| Year ending,                  | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------|------------|
|                          |       |       |       |
| 2007                          |       | $          | 305,458    |   |
| 2008                          |       | 325,031    |       |
| 2009                          |       | 325,031    |       |
| 2010                          |       | 325,031    |       |
| 2011                          |       | 325,031    |       |
|                          |       |       |       |
| Total minimum lease  payments |       | $          | 1,605,582  |   |

 

Rent expense totaling $298,457, $293,100 and $266,731 for the years ended June30, 2006, 2005 and 2004, respectively, was paid to Bankberg Pty. Ltd.

The following is aschedule of future minimum hire purchase payments for equipment finance thathad initial or remaining non-cancelable lease terms in excess of one year as ofJune 30, 2006:
| Minimum hire purchase  payments                                          |   |    |    |
|--------------------------------------------------------------------------|--------|---------|---------|
|                                                                     |   |    |    |
| Year ending 2007                                                         |   | $       | 404,220 |   |
| Year ending 2008                                                         |   | 378,526 |    |
|                                                                     |   |    |    |
| Total minimum hire  purchase payments                                    |   | $       | 782,746 |   |
| Less: future finance  charges                                            |   | (53,728 | )       |
|                                                                     |   |    |    |
| Aggregate hire purchase  expenditure contracted for as at reporting date |   | $       | 729,018 |   |
|                                                                     |   |    |    |
| Aggregate expenditure  commitments comprise:                             |   |    |    |
| Current  liability                                                       |   | $       | 364,008 |   |
| Non-current  liability                                                   |   | 365,010 |    |
|                                                                     |   |    |    |
| Total expenditure  commitments                                           |   | $       | 729,018 |   |

 

**Item5.C****                         ****Research and Development, Patents and Licenses, etc.**

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

The following table details historic R&D expenditureby project.  All projects are describedat Item 4.B above.
|                                      | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                           | ** ** | **$(a)**   | ** ** | **$(b)**   | ** ** | **$(c)**   | ** ** |
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| RareCellect                          |       | $          | 891,841    |       | $          | 540,050    |       | $ | 694,989 |   |
| ImmunAid                             |       | 211,456    |       | 203,792    |       | 75,456     |       |
| Pathogens                            |       | 134,333    |       | 141,069    |       | 254,836    |       |
| Genomic Matching  Technique          |       | 1,232,535  |       | 689,940    |       | 321,225    |       |
| Addictive States                     |       | 189,304    |       | 96,754     |       | 74,330     |       |
| Other general R&D                |       | 156,335    |       | 159,327    |       | 248,648    |       |
|                                 |       |       |       |       |       |       |       |
| Total R&D expense                |       | $          | 2,815,804  |       | $          | 1,830,932  |       | $ | 1,669,484 |   |
| Other expenditure                    |       | 9,106,536  |       | 11,311,201 |       | 6,327,974  |       |
|                                 |       |       |       |       |       |       |       |
| Total expenditure                    |       | $          | 11,922,340 |       | $          | 13,142,133 |       | $ | 7,997,458 |   |
|                                 |       |       |       |       |       |       |       |
| R&D as a % of total  expenditure |       | 24         | %          | 14         | %          | 21         | %          |

 

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(a)  Convertedat AUD1.00=$0.7475

(b)  Convertedat AUD1.00=$0.7564

(c)  Convertedat AUD1.00=$0.7132

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

**Item 5.D****                          Trend Information**

**TheDirection of Genetic Research**

Following upon the original non-coding inventions made byGeneType AG and the publication and dissemination of this work in the early 1990’s, research groups world-wideincreasingly have sought to investigate and, if possible, establish non-codingassociations in a great number of diseases which were hitherto unexplained.

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

All of these projects depend significantly on the basicinventions owned by our Company.  Itremains our corporate objective to encourage all such research which we expectwill, in time, lead to a great number of new commercial licensing opportunitiesfor Genetic Technologies.  Suchopportunities are also not limited to human applications, given the recentexpansion of interest in the genetics of animals, plants and lower forms oflife, including parasites and many organisms that contribute to either diseaseor to recuperative environmental systems of our planet.  Such research is likely to expandsignificantly in the coming years.

Our ability to secure licensing agreements from theseareas of research as they develop into commercial operations will determine thelevel of revenue in the future.

**TheDirection of Genetic Testing**

Further to the completed first phase of the Human GenomeProject in mid-2001, and then the Mouse Genome Project in December 2002, thereis 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 with diseasediagnosis, and also in the improved assessment disease risk factors.  In addition, genetic testing will be appliedmore and more to help identify specific animal and plant traits that are eitherdesirable or undesirable, in order to help breeders better select their futureseed stock.  We believe the demand for anexpansion of genetic testing will grow substantially in the coming years.

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

Wehave no off-balance sheet arrangements that have or are reasonably likely tohave current 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 Contractual Obligations

The table below shows the contractual obligationsand commercial commitments as at June 30, 2006:
|                                                                            | ** ** | **0-1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **>5 years** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------|------------|--------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                                 | ** ** | ** **        | ** ** | ** **         | ** ** | ** **         | ** ** | ** **           | ** ** |
| Purchase obligations                                                       |       | $                 | 931,008    |               | $          | 1,447,485          |       | $                    | —     |   | $ | — |   |
| Operating lease and  hire purchase commitments                             |       | $                 | 709,678    |               | $          | 1,028,588          |       | $                    | 650,062    |   | $ | — |   |
| Other long-term  liabilities reflected on the Company’s balance sheet |       | $                 | —     |               | $          | 519,610            |       | $                    | —     |   | $ | — |   |

 

The Company’s purchase obligations are in respect of its subcontractedresearch and development activities and equipment purchases.

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**Item 6.**                                   Directors, SeniorManagement and Employees

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

The Directors of the Company as of the date ofthis Annual Report are:

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

Mr. Bosch, 75, was appointed to the Board on June 24, 2005 and wasappointed 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 aformer Chairman of the National Companies and Securities Commission, thepredecessor of the AustralianSecurities and Investments Commission, Australia’s principal corporateregulator.  He has also served asChairman of the Working Group on CorporatePractices and Conduct and Chairman of the committee which produced theAustralian Standard on corporate governance.  He has been chairman, or adirector, of over thirty companies and otherorganisations operating in both the government and private sectors.  He has served on a number of audit committeesand isan Honorary Fellow of the Institute of Internal Auditors.  His extensive business career has spanned thealuminium, steel, man-made fibres 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 anOfficer of the Order of Australia in January 1991.

**Dr. Mervyn Jacobson**,MBBS *(ChiefExecutive Officer)*

Dr. Jacobson, 64, isa legally qualified Medical Practitioner. He has more than 35 years experience in developing new medicaltechnology and in bringing new medical and biomedical goods and services to themarket, working with biotechnology enterprises in Australia, UK, Switzerland,USA, Canada, Mexico and China.  In 1989,he co-founded GeneType AG, the research start-up that subsequently led to theformation of Genetic Technologies Limited. In February 2000, he was appointed by the Governor of Colorado to theGovernor’s Advisory Council in Biotechnology. He was also a founding Director of the Colorado BiotechnologyAssociation, and Chairman and CEO of XY, Inc., a biotechnology company heco-founded in Colorado.  In June 2004,Dr. Jacobson was appointed Chief Technology Officer of the Scientific AdvisoryBoard of the China National Animal Breeding Stock Export/Import CorporationLimited (CABS), based in Tianjin, China. Also in 2004, Dr. Jacobson was elected Honorary Life Member of the RoyalZoological Society of South Australia.  In2006, Dr. Jacobson was appointed to the Scientific Advisory Committee of “IBREAM”- the Institute for the Breeding of Rare and Endangered African Mammals, basedat the University of Edinburgh, Scotland. He was appointed to the Company’sBoard of Directors in May 2000, and served as its Executive Chairman fromAugust 2000 until November 2005.  Dr.Jacobson also serves on the Company’s Corporate Governance Committee, is Chairman of its Canadian-listedsubsidiary, Gtech International Resources Limited, and is a member of theAustralian Institute of Company Directors.

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

Mr. Bart, 52, has been involved in the textile industryfor the last 25 years as well as being a significant investor in the resource and property sectors in Australia andoverseas.  He brings to the Companyextensive commercial experience from his involvement in the manufacturing andtextile industries.  He is also Chairmanof Electro Optic Systems Holdings Limited and Global Properties Limited and isa member of the Australian Institute of Company Directors.  He was appointed to the Board on October 26,1996 and also serves as a Director of theCompany’s Canadian-listed subsidiary, Gtech International Resources Limited.

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

Mr. Dawkins, 59, was appointed to the Board on November24, 2004 and serves as Chairman of the Company’s Audit Committee and as a member of its Corporate GovernanceCommittee.  Mr. Dawkins holdsqualifications in Agriculture fromRoseworthy College and Economics from the University of Western Australia and,for 18 years, served in theAustralian House 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 Elders Rural Bank and as Chairman of 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 theCentenary Medal in January 2000.

During the 2006year, Prof. Deon Venter served as a Director until his resignation on August23, 2006 and Robert Edge also served as a Director until his retirement onNovember 17, 2006.

56

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**Senior Management**

We have a professional team of qualified and experiencedresearch and development scientists and technicians.  The Company currently employees 55 people, ofwhich 10 have PhD qualifications.

The members ofSenior Management, and a brief summary of their relevant experience, is asfollows:

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

Mr. Howitt, 42, is a qualified Chartered Accountant andmember of the Taxation Institute of Australia and Institute of CharteredSecretaries.  On June 1, 2004, he wasappointed as the group’s first full-time Chief Financial Officer and as CompanySecretary on June 30, 2005.  During his20 year career, he has served as CFO and Company Secretary for a number ofcompanies, listed on both the ASX and foreign stock exchanges.  His experience covers all facets of financialmanagement and control across a variety of industries, including resources andtechnology (domestic and international), having been instrumental in thesuccessful development, patenting and commercialisation of various innovativetechnologies.  He has played key roles inthe raising of bank debt and equity capital and the management of complex duediligence programs and has worked as a senior Taxation Consultant for Ernst& Young and in the investment banking industry.  He alsoserves as a Director of the Company’s Canadian-listed subsidiary, GtechInternational Resources Limited, and is an International Associate of theAmerican Institute of Certified Public Accountants (AICPA).

**Geoffrey E. Newing**, BCom, *(Chief Operating Officer)*

Mr. Newing, 41, was appointed in November 2004 and hasworked at a senior level in both listed and private companies chieflyresponsible for business development and marketing to financial markets.  He was previously the CEO of Olea AustralisLimited where he oversaw the development of Australia’s most awarded brand ofolive oil.  He has also held a number ofsenior positions including an Executive Director of Ramsgate Resources Ltd.,CEO of the Hancock Group of Companies controlled by the daughter of the lateLang Hancock, Group Financial Controller for Toplis and Harding, London andspent three years in Melbourne with Elders Resources Limited.  Geoff was formerly responsible for businessdevelopment and investor relations until assuming the position of ChiefOperating Officer in August 2006.

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

Dr. Cobon, 57, was appointed as Chief Scientific Officer in November2005 and is a biochemist with more than 25 years experience managingcommercially oriented research and development projects in the biotechnologyarea.  He was with Biotech Australia for15 years as Senior Project Manager responsible for the development ofinnovative recombinant products to the marketplace including TickGARD.  He was subsequently Adjunct Professor,Biological Sciences Macquarie University, responsible for managing the majoruniversity spin-off companies. Concurrently, he was CEO of the Australian Proteome Analysis Facilitywhere he obtained Major National Research Facility grants for AUD19.25million.  In addition to understandingthe technical issues required for such projects, he has expertise in theevaluation of academic project proposals for commercial application, managementof collaborative commercially focused projects, intellectual propertymanagement, regulatory affairs required for the manufacture, quality controland registration of novel products and adopting lateral approaches to marketnew products and concepts.

**Scientific Advisors**

It is vital to the success of a company seeking to commercializeresearch, such as Genetic Technologies, to have access to pre-eminent scientiststo advise and critically review its research projects and the progress it makesover time.  As such, in August 2003, weestablished an outstanding Scientific Advisory Committee, consisting ofindependent scientists with expertise and reputations for excellence in theirrespective fields of endeavour that complement the major projects beingundertaken by the Company.  A briefbiography for each member of the Committee is provided below.

The Committee is chaired by Professor Colin Masters and is to meet on aregular basis to review in detail all aspects of the Company’s researchprojects and recommend the direction in which the projects should be taken overthe forthcoming period.  Importantly, theCommittee also attracts collaborations and new projects for consideration bythe Company as a result of the broad networks and international travels of itsmembers.

Wehave assembled a group of such internationally-renowned scientists which it isconfident will greatly assist the Company to successfully commercialize theinnovative research being undertaken now and in the future.

57

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**ProfessorColin Masters**

Professor Masters is the Professor of Pathology and Laureate Professorat the University of Melbourne.  Heresearches neurodegenerative diseases of humans, including Alzheimer’s diseaseand Creutzfeldt-Jakob disease.  He isalso Chief of Neuropathology at the Mental Health Research Institute ofVictoria and a Consultant in Pathology at the Royal Melbourne Hospital.  His achievements in the fields of Alzheimer’sdisease and Creutzfeldt-Jakob (“prion”) disease have been recognised by manyinternational prizes and awards. He is a prolific author coveringmultidisciplinary aspects of the neurodegenerative diseases.

**ProfessorMichael Quinn**

Professor Quinn is a Professor in the Department of Obstetrics andGynecology at the University of Melbourne and Director of theOncology/Dysplasia Unit at the Royal Women’s Hospital.  His main research involves studies ofproteins to identify putative markers for screening for Ovarian Cancer.  He has authored more than 170 publications inthe scientific literature and is on the Editorial Board of three scientificJournals.  He also serves on severalgynecological cancer committees.

**ProfessorNorbert Bachl**

Professor Bachl is Dean of the Faculty of Sports Science and UniversitySports at the University of Vienna in Austria. He also serves on multiple high-level sports committees, including theScientific and Education Group of the International Olympic Committee MedicalCommission and the European Olympic Committee Medical and ScientificCommittee.  His research interestsinclude aerobic and anaerobic exercise testing, strength testing and trainingregulation in weightlessness, determination of aerobic and anaerobic thresholdsin different test settings, the influence of different exercise on plasmaconcentration, biochemical cardiac markers and muscular growth factors insports and rehabilitation.  He has anextraordinary publication list.

**ProfessorSimon Easteal**

Professor Easteal is a Research Professor at the John Curtin School ofMedical Research in the Australian National University’s Institute of AdvancedStudies in Canberra.  He has more than 20years experience as a researcher in molecular genetics and bioinformatics, bothin Australia and overseas.  As head ofthe Predictive Medicine Group, he investigates the interaction between geneticand environmental factors in determining common forms of illness, personalityand human performance and the predictive value and utility of geneticinformation in managing health and wellbeing. He has authored two books and more than 100 research articles.

**AssociateProfessor Robert Richards**

Professor Richards is Chief Molecular Geneticist at the Women’s Children’sHospital in Adelaide.  He is also anAssociate Professor of Genetics at the University of Adelaide.  He holds several prestigious positions,including Deputy Director of the ARC Special Research Centre for MolecularGenetics of Development and Convenor of the ARC Research Network in Genes andEnvironmental development.  He conductsresearch into the genetics of human diseases such as Huntington’s Disease andcancer.  He is the author of a largenumber of publications in the scientific literature.

In addition toits Scientific Advisory Committee, we also retain a number of consultants onits Technical Review Committees and in advisory positions.  These consultants are generally leadingacademics from Australian universities. They include Professor Martyn French from Royal Perth Hospital, Dr.Stephen Kent at University of Melbourne, Associate Professor Nicholas Deacon,former Head of AIDS Molecular Biology Unit at the Macfarlane Burnett Centre forMedical Research, Dr. Manfred Beilharz from University of Western Australia andAssociate Professor Robin Gasser from Melbourne University.

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**Item 6.B**                          Compensation

Details of the nature and amount of each major element ofthe compensation of each director of the Company and each of the named officersof the Company and its subsidiaries, for services in all capacities to usduring 2006 and 2005 are listed below. All figures are stated in Australian dollars (AUD).

**Directors’remuneration**
|                                                  | ** ** | ** ** | ** ** | **Short-term**  | ** ** | **Post employment** | ** ** | **Share-based** | ** ** | ** **  | ** ** |
|--------------------------------------------------|------------|------------|------------|-----------------|------------|--------------------------|------------|-----------------|------------|-------------|------------|
| **Name of Director / Title** | ** ** | **Year**   | ** ** | **Salary/fees** | ** ** | **Superannuation**       | ** ** | **Options**     | ** ** | **Totals**  | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | **AUD**         | ** ** | **AUD**                  | ** ** | **AUD**         | ** ** | **AUD**     | ** ** |
| Henry Bosch AO (note)                            | ** ** | **2006**   | ** ** | **66,637**      |       | —                   | ** ** | **55,554**      | ** ** | **122,191** | ** ** |
| Chairman                                         |       | 2005       |       | —          |       | —                   |       | —          |       | —      |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Mervyn Jacobson                                  | ** ** | **2006**   | ** ** | **300,000**     |       | —                   |       | —          | ** ** | **300,000** | ** ** |
| Chief Executive Officer                          |       | 2005       |       | 300,000         |       | —                   |       | —          |       | 300,000     |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Fred Bart                                        | ** ** | **2006**   | ** ** | **30,000**      | ** ** | **2,700**                |       | —          | ** ** | **32,700**  | ** ** |
| Non-Executive Director                           |       | 2005       |       | 30,000          |       | 2,700                    |       | —          |       | 32,700      |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| John S. Dawkins AO                               | ** ** | **2006**   | ** ** | **30,000**      | ** ** | **2,700**                | ** ** | **55,554**      | ** ** | **88,254**  | ** ** |
| Non-Executive Director                           |       | 2005       |       | 18,044          |       | 1,624                    |       | —          |       | 19,668      |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Robert J. Edge (note)                            | ** ** | **2006**   | ** ** | **30,000**      | ** ** | **2,700**                | ** ** | **51,979**      | ** ** | **84,679**  | ** ** |
| Non-Executive Director                           |       | 2005       |       | 30,000          |       | 2,700                    |       | 40,508          |       | 73,208      |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Prof. Deon J. Venter (note)                      | ** ** | **2006**   | ** ** | **104,999**     | ** ** | **9,450**                | ** ** | **47,822**      | ** ** | **162,271** | ** ** |
| Executive Director                               |       | 2005       |       | 109,038         |       | 2,804                    |       | 85,600          |       | 197,442     |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Totals                                           | ** ** | **2006**   | ** ** | **561,636**     | ** ** | **17,550**               | ** ** | **210,909**     | ** ** | **790,095** | ** ** |
|                                                  |       | 2005       |       | 487,082         |       | 9,828                    |       | 126,108         |       | 623,018     |       |

 

Note:                  Mr.Bosch was appointed as Chairman of the Board on November 23, 2005.

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.

**Executives’ remuneration**
|                                                  | ** ** | ** ** | ** ** | **Short-term**  | ** ** | **Post employment** | ** ** | **Share-based** | ** ** | ** **  | ** ** |
|--------------------------------------------------|------------|------------|------------|-----------------|------------|--------------------------|------------|-----------------|------------|-------------|------------|
| **Name of Director / Title** | ** ** | **Year**   | ** ** | **Salary/fees** | ** ** | **Superannuation**       | ** ** | **Options**     | ** ** | **Totals**  | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | **AUD**         | ** ** | **AUD**                  | ** ** | **AUD**         | ** ** | **AUD**     | ** ** |
| Thomas G. Howitt                                 | ** ** | **2006**   | ** ** | **181,151**     | ** ** | **16,304**               | ** ** | **58,524**      | ** ** | **255,979** | ** ** |
| Chief Financial Officer and  Company Secretary   |       | 2005       |       | 166,153         |       | 14,953                   |       | 27,207          |       | 208,313     |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Geoffrey E. Newing (note)                        | ** ** | **2006**   | ** ** | **175,690**     | ** ** | **13,292**               | ** ** | **60,297**      | ** ** | **249,279** | ** ** |
| Chief Operating Officer                          |       | 2005       |       | 100,000         |       | —                   |       | —          |       | 100,000     |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Dr. Gary Cobon (note)                            | ** ** | **2006**   | ** ** | **101,807**     | ** ** | **8,982**                | ** ** | **4,062**       | ** ** | **114,851** | ** ** |
| Chief Scientific Officer                         |       | 2005       |       | —          |       | —                   |       | —          |       | —      |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Ian N. Christensen (note)                        | ** ** | **2006**   | ** ** | **127,149**     | ** ** | **17,929**               | ** ** | **9,677**       | ** ** | **154,755** | ** ** |
| Group General Manager -  Intellectual Property   |       | 2005       |       | 119,734         |       | 18,900                   |       | 9,791           |       | 148,425     |       |
|                                             |       |       |       |            |       |                     |       |            |       |        |       |
| Totals                                           | ** ** | **2006**   | ** ** | **585,797**     | ** ** | **56,507**               | ** ** | **132,560**     | ** ** | **774,864** | ** ** |
|                                                  |       | 2005       |       | 385,887         |       | 33,853                   |       | 36,998          |       | 456,738     |       |

 

Note:                  Mr.Newing was appointed as Chief Operating Officer on August 24, 2006.

Dr.Cobon was appointed as Chief Scientific Officer on November 2, 2005.

Mr.Christensen resigned as Group General Manager - Intellectual Property on August12, 2006.

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Executive officers are those officers involved in thestrategic direction, general management or control of the business at a company or operating divisionlevel.  The remuneration paid toExecutives is set with reference to prevailing market levels and comprises a fixed salary, various short termincentives (which are linked to agreed key performance indicators), and anoption component.  Options are granted toExecutives in line with their respective levels of experience andresponsibility.

**Options**

We introduced a Staff Share Plan on November 30,2001.  The Plan establishes the eligibilityof our employees and those of anysubsidiaries, and of consultants and independent contractors to a participatingcompany who are declared by the Boardto 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 and Insurance with Respect to Directors**

We are obligated pursuant to an indemnity agreement, toindemnify the current Directors and executive officers and former Directorsagainst all liabilities to third parties that may arise from their position asDirectors or officers of the Companyand our controlled entities, except where to do so would be prohibited bylaw.  Under the terms of this agreement, we are obligated to meet the full amount of anysuch liabilities, including costs and expenses. In connection with the GeneType AG acquisition, Fred Bart and Ian Dennisprovided counter-indemnities to us and to GeneType AG shareholders in respectof the existence of undisclosed liabilities as at May 15, 2000.  These counter-indemnities lapsed on May 15,2005.

In addition, we currently carry insurance in respect ofDirectors’ and officers’ liabilities for current and former Directors, CompanySecretary and executive officers or employees.

**Item 6.C**                          Board Practices

**The Board of Directors**

Under our Constitution, our Board of Directors is required tocomprise at least three Directors.  As ofthe date of this Annual Report, our Board comprised four Directors.

The role of the Board includes:

(a)                  Reviewing and making recommendations inremuneration packages and policies applicable to directors, senior executivesand consultants.

(b)                 Nomination of external auditors and reviewing theadequacy of external audit arrangements.

(c)                  Establishing the overall internal controlframework over financial reporting, quality and integrity of personnel andinvestment appraisal.  In establishing anappropriate framework, the board recognized that no cost effective internalcontrol systems will preclude all errors and irregularities.

(d)                 Establishing and maintaining appropriate ethicalstandards in dealings with business associates, suppliers, advisers andregulators, competitors, the community and other employees.

(e)                  Identifying areas of significant business risk andimplementing corrective action as soon as practicable after a risk isidentified.

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

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The Board meets to discuss business regularly throughoutthe year, with additional meetings being held when circumstances warrant.  Included in the table below are details ofthe meetings of the Board and the committees of the Board that were held duringthe 2006 financial year.
|                      | ** ** | ** **                        | ** ** | **Committees of the Board** | ** ** |
|----------------------|------------|-----------------------------------|------------|--------------------------------------------|------------|
| ** **           | ** ** | **Directors’ meetings** | ** ** | **Audit**                                  | ** ** | **Corporate Governance** | ** ** |
| ** **           | ** ** | **Eligible**                      | ** ** | **Attended**                               | ** ** | **Eligible** | ** ** | **Attended** | ** ** | **Eligible** | ** ** | **Attended** | ** ** |
| Henry Bosch AO       |       | 8                                 |       | 8                                          |       | 8 |   | 8 |   | 3 |   | 3 |   |
| Dr. Mervyn Jacobson  |       | 8                                 |       | 8                                          |       | — |   | — |   | 3 |   | 1 |   |
| Fred Bart            |       | 8                                 |       | 6                                          |       | — |   | — |   | — |   | — |   |
| John S. Dawkins AO   |       | 8                                 |       | 6                                          |       | 8 |   | 7 |   | 3 |   | 3 |   |
| Robert J. Edge       |       | 8                                 |       | 8                                          |       | 8 |   | 8 |   | 3 |   | 3 |   |
| Prof. Deon J. Venter |       | 8                                 |       | 7                                          |       | — |   | — |   | — |   | — |   |

Notes:             During the year ended June 30, 2006, a total offour Consent Resolutions of the Directors were also passed.

Mr.Bosch was appointed as a Director of the Company on June 24, 2005 and asChairman on November 23, 2005.

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

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

The auditor attended three meetings of the AuditCommittee at the request of the Committee.

**Audit Committee**

The Board has established an Audit Committee, whichoperates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internalcontrol framework exists within the entity. This includes internal controls to deal with both the effectiveness andefficiency of significant business processes, the safeguarding of assets, themaintenance of proper accounting records, and the reliability of financialinformation as well as non-financial considerations such as the benchmarking ofoperational key performance indicators. The Board has delegated the responsibility for the establishment andmaintenance of a framework of internal control and ethical standards for themanagement of the consolidated entity to the Audit Committee.

The Audit Committee also provides the Board withadditional assurance regarding the reliability of financial information forinclusion in the financial reports.

The members of the Audit Committee as of the date of thisAnnual Report were:
| Name                           |
|--------------------------------|
| John S. Dawkins AO*(Chairman)* |
| Henry Bosch AO                 |

 

On November 17, 2006, Robert Edge, who had previouslyserved as Chairman of the Audit Committee, retired as a Director of theCompany.  Mr. Dawkins assumed theposition of Chairman of the Committee upon Mr. Edge’s retirement.  As at the date of this Annual Report, areplacement for Mr. Edge on the Audit Committee is being sought.

**Corporate Governance Committee**

The Board established a Nomination and RemunerationCommittee in March 2005.  Later during2005, the Board resolved to change the name of the committee to the CorporateGovernance Committee and to expand its charter to include matters of corporategovernance.  The Committee provides theBoard with guidance on all matters relating to corporate governance and thenomination and remuneration of Directors and employees.

The members of the Corporate Governance Committee as ofthe date of this Annual Report were:
| Name                            |
|---------------------------------|
| John S. Dawkins AO *(Chairman)* |
| Henry Bosch AO                  |
| Dr. Mervyn Jacobson             |

 

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**Compliance with NASDAQ Rules**

NASDAQ listing rules require that we disclose the home country practicesthat we will follow in lieu of compliance with NASDAQ corporate governancerules.  The following describes the homecountry practices and the related NASDAQ rule:

Majority of Independent Directors:  We followhome country practice rather than NASDAQ’s requirement in Marketplace Rule4350(c)(1) that the majority of the Board of each issuer be comprised ofindependent directors as defined in Marketplace Rule 4200.  Our Board of Directors is not currentlycomprised of a majority of independent directors, a practice which is notprohibited by the laws of Australia.  TheASX does not have a requirement that each issuer’s Board be comprised of amajority of independent directors.  Furthermore,no law, rule or regulation of the Australian Securities and InvestmentsCommission (“ASIC”), the public authority which exercises securities law jurisdiction over the Company, has such arequirement nor does the Corporations Act (the “Act”), which is the applicable corporate law legislation.

Compensation of Officers:  We follow home country practicerather than NASDAQ’s requirement in Marketplace Rule 4350(c)(3) that chiefexecutive compensation be determined or recommended to the Board by the majority of independent directors or acompensation committee of independent directors.  Similarly, compensation of other officers is not determined orrecommended to the Board by a majority of the independent directors or acompensation committee comprised solely of independent directors.  These decisions are made by our corporategovernance committee and it is not comprised of a majority of independentdirectors.  The ASX does not have arequirement that each listed issuer have a remuneration committee or otherwisefollow the procedures embodied in NASDAQ’s Marketplace Rule.  Furthermore, no law, rule or regulation ofthe ASIC has such a requirement nor does the applicable corporate lawlegislation.  Such home country practicesare not prohibited by the laws of Australia.

Nomination:  We follow home country practice rather thanNASDAQ’s requirement in Marketplace Rule 4350(c)(4) that director nominees beselected 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’sMarketplace Rule.  Furthermore, no law,rule or regulation of the ASIC has such a requirement nor does the applicable corporate law legislation.  Accordingly, selections or recommendations ofdirector nominees by a committee that is not comprised of a majority ofdirectors that are not independent is not prohibited by the laws of Australia.

Quorum:  We follow home country practice rather thanNASDAQ’s requirement in Marketplace Rule 4350(f) that each issuer provide for aquorum of at least 33 1/3 percent of the outstanding shares of the issuer’sordinary stock (voting stock).  Pursuantto our Constitution we are currently required to have a quorum for a generalmeeting of three persons holding at least 10% of our Ordinary Shares.  The practice followed by us is not prohibitedby Australian law.

**Item 6.D**                          Employees

The Company currently employees 55 people, includingexecutive Directors.  The number ofemployees as at the end of each respective financial year ended June 30 are asfollows:
| 2006 |   | 49 |   |
|------|--------|----|--------|
| 2005 |   | 49 |   |

 

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**Item 6.E**                            Share Ownership

The relevant interest of each director in the sharecapital of the Company as notified by the directors to the AustralianSecurities Exchange in accordance with section 205G(1) of the Corporations Act2001 as of the date of this Annual Report is as follows:
| Director            | ** ** | **Ordinary Shares** | ** ** | **Options over Ordinary Shares** | ** ** |
|---------------------|------------|--------------------------|------------|-------------------------------------------------|------------|
| ** **          | ** ** | ** **               | ** ** | ** **                                      | ** ** |
| Henry Bosch AO      |       | 185,000                  |       | 500,000                                         | (b)        |
| Dr. Mervyn Jacobson |       | 154,625,210              |       | 2,000,000                                       | (a)        |
| Fred Bart (note)    |       | 25,918,214               |       | 500,000                                         | (a)        |
| John S. Dawkins AO  |       | —                   |       | 500,000                                         | (b)        |

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Note:         Mr. Bart also controls 88,500 ordinary shares inGtech International Resources Limited.

Details of the options held byDirectors are as follows:

(a)          exercisable at AUD0.61 on or before November 30,2007

(b)         exercisable at AUD0.56 on or before November 23,2011

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

**Item 7.A**                          Major Shareholders

The following table sets forth the beneficial owners of5% or more of our voting securities as of the date of this Annual Report:
| Name                | ** ** | **Number of Ordinary Shares held** | ** ** | **Percentage of Capital held** | ** ** |
|---------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **          | ** ** | ** **                                             | ** ** | ** **                                    | ** ** |
| Dr. Mervyn Jacobson |       | 154,625,210                                            | (a)        | 42.6                                          | %          |
|                |       |                                                   |       |                                          |       |
| Mr. Fred Bart       |       | 25,918,214                                             | (b)        | 7.2                                           | %          |

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(a)                   includesshares held by Mervyn Jacobson ApS, JGT ApS and XY, Inc., a number of which areregistered in the name of ANZ Nominees Limited.

(b)                  sharesregistered in the name of Security & Equity Resources Limited.

The number of Ordinary Shares on issuein 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 3,690.

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

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

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**Item 7.B**                          Related Party Transactions
|                                                                                                                                                                                                                                                                                                                                | ** ** | **Years ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                     | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| 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 |   | $ | 25,675 |   |
|                                                                                                                                                                                                                                                                                                                           |       |                                    |       |   |   |   |   |
| 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 |       | $                                       | 298,457    |   | $ | 293,100 |   | $ | 266,731 |   |
|                                                                                                                                                                                                                                                                                                                           |       |                                    |       |   |   |   |   |
| GrapeSeed International  is associated with Mr. Russell Granzow, a former director of the Company, and  provided management services to the Company for the period April 17, 2003 to  January 31, 2004 at a cost of                                                                                                            |       | $                                       | —     |   | $ | — |   | $ | 82,589 |   |

 

As stated in the 2006 Financial Statements, the Companyowns a total of 30,189 ordinary shares in XY, Inc. (a director-related entity)representing approximately 0.42% of the issued ordinary shares of XY, Inc.  As of June 30, 2006, these shares were valuedat $301,890 (2005: $301,890).

Premises leased by the Company are subleased todirector-related entities.  Rentalrecoveries are netted against rent expenses in the consolidated statement ofoperations.  Total rental recoveriesreceived by Genetic Technologies from itsdirector-related entities during the 2006 year totaled $nil (2005: $46,053,2004: $56,271, 2003: $30,995, 2002: $3,173; and 2001: $nil).

All transactions with directorsare undertaken on normal commercial terms and conditions. All managementfees were disclosed as general and administrative expenses in the respectiveyears.

**Item 7.C****                         ****Interests ofExperts and Counsel**

Not applicable.

**Item 8.**                                   Financial Information

**Item 8.A**                          Consolidated Statements and Other Financial Information

The informationincluded in Item 18 of this Annual Report is referred to and incorporated byreference into this Item 8.A.

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

On April 1, 2003, we reported to the market that we hadinitiated legal action against three U.S. biotechnology companies for patentinfringement under the terms of a patent insurance policy held by us.  Two of these actions were settled in November2003.  The third case, against AppleraCorporation of Foster City, California, the parent company of AppliedBiosystems, Celera Diagnostics and Celera Corporation, continued to run untilDecember 2005.  This proceeding was heard in the U.S. District Court for theNorthern District of California.  Asignificant proportion of the costs associated with this litigation were met by our patent insurance.  This policy was cancelled in 2002 and we nolonger receive any benefit from it.  Inthe Markman hearing (a claims construction hearing) held on September 1, 2004,in which the judge rules on the precise meaning of terms in the patent claims,the District Court ruled in favor of us in respect of 13 out of 15 disputedterms and, in respect of the remaining terms, the Court adopted positions ofits own constructions which were not inconsistent with our proposals.  The Company subsequently attended severalmediation conferences in San Francisco, California in respect of its action against Applera, under thesupervision of Judge Spero.  Following amediation conference held on August16, 2005, the Parties announced that they had reached a settlement in principleand that a Confidential Term Sheet had been executed by the Parties andsubmitted to the Court.  On December 12,2005, we announced that we had reached a final settlement of our patent disputewith Applera, further to a settlement conference held in San Francisco.  Theparties have executed a number of binding agreements, including a finalSettlement Agreement plus license agreements and a supply agreement, and subsequently they have jointly applied toNorthern California District Court requesting that all claims and counterclaimsin the legal action be dismissed forthwith. The total value of the consideration receivable by us is approximately AUD15 million, payable partlyin cash and partly in kind - including agreements supplying the Company with certain Applera 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.

OnAugust 13, 2004, Auckland District Health Board (“ADHB”) lodged a Statement ofClaim in the High Court of New Zealand alleging that the Company made “groundlessthreats of patent infringement” against ADHB. On October 22, 2004, the Company filed a Statement of Defense.  A further amended Statement of Defense wasfiled by the Company on October 29, 2004, together with a Memorandum ofCounsel.  A Judicial Conference wasattended by the attorneys for the parties in Auckland on February 23, 2005 inthe presence of an Associate Judge of the High Court of New Zealand AucklandRegistry, and a further timetable was set. On June 15, 16 and 17, 2005, the parties met in Auckland, New Zealand topursue mediation discussions following which we announced that all disputes with ADHB had been settled.  As a consequence of the settlement, the HighCourt proceedings between the parties were withdrawn, without payment by eitherparty to the other.  In addition, as partof the same settlement, we granted commercial licenses to our non-codingpatents to four commercial NZ entities - AgResearch, HortResearch, ForestResearch and Livestock Improvement Corporation, who together paid us a total ofNZD450,000.

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

**Item 8.C**                          Dividends

Until our businesses are profitable beyond our expectedresearch and development needs, our Directors will not be able to recommend thatany dividend be paid to our shareholders. Our Directors will not resolve a formal dividend policy until wegenerate profits.  Our current intentionis to reinvest our income in the continued development and operation of ourbusiness.

**Item 8.D****                         ****SignificantChanges**

Since June 30, 2006, there has not been any matter orcircumstance, other than as referred to elsewhere in this Annual Report, theFinancial Statements or the notes thereto, that has arisen that hassignificantly affected, or may significantly affect our operations, results ofthose operations or the state of our affairs in future years.

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**Item 9.****                                  ****The Offer And Listing**

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

The Company’s Ordinary Shares were listed on theAustralian Securities Exchange Limited (the “ASX”) in July 1987 (under the nameof Concord Mining NL).  In August 2000,the Company acquired GeneType AG and, as a result, changed its activities frommining to biotechnology.  The followingtable sets forth, for the periods indicated, the highest and lowest market quotations for the OrdinaryShares reported on the Daily Official List of the ASX since that acquisition.
| Financial Year | ** ** | **Quarter/ Month** | ** ** | **High**              | ** ** | **Low** | ** ** |
|---------------------|------------|-------------------------|------------|-----------------------|------------|---------|------------|
| ** **          | ** ** | ** **              | ** ** | **(in AUD0.00)** | ** ** |
| 2000                |       | Third Quarter 2000      |       | 1.05                  |       | 0.62    |       |
|                |       | Fourth Quarter 2000     |       | 0.85                  |       | 0.60    |       |
|                |       |                    |       |                  |       |    |       |
| 2001                |       | First Quarter 2001      |       | 0.75                  |       | 0.39    |       |
|                |       | Second Quarter 2001     |       | 0.79                  |       | 0.51    |       |
|                |       | Third Quarter 2001      |       | 0.62                  |       | 0.25    |       |
|                |       | Fourth Quarter 2001     |       | 0.59                  |       | 0.38    |       |
|                |       |                    |       |                  |       |    |       |
| 2002                |       | First Quarter 2002      |       | 0.58                  |       | 0.40    |       |
|                |       | Second Quarter 2002     |       | 0.76                  |       | 0.42    |       |
|                |       | Third Quarter 2002      |       | 0.47                  |       | 0.35    |       |
|                |       | Fourth Quarter 2002     |       | 0.40                  |       | 0.28    |       |
|                |       |                    |       |                  |       |    |       |
| 2003                |       | First Quarter 2003      |       | 0.33                  |       | 0.18    |       |
|                |       | Second Quarter 2003     |       | 0.53                  |       | 0.20    |       |
|                |       | Third Quarter 2003      |       | 1.30                  |       | 0.45    |       |
|                |       | Fourth Quarter 2003     |       | 0.69                  |       | 0.43    |       |
|                |       |                    |       |                  |       |    |       |
| 2004                |       | First Quarter 2004      |       | 0.59                  |       | 0.38    |       |
|                |       | Second Quarter 2004     |       | 0.46                  |       | 0.34    |       |
|                |       | Third Quarter 2004      |       | 0.67                  |       | 0.30    |       |
|                |       | Fourth Quarter 2004     |       | 0.64                  |       | 0.43    |       |
|                |       |                    |       |                  |       |    |       |
| 2005                |       | First Quarter 2005      |       | 0.61                  |       | 0.38    |       |
|                |       | Second Quarter 2005     |       | 0.445                 |       | 0.32    |       |
|                |       | Third Quarter 2005      |       | 0.61                  |       | 0.38    |       |
|                |       | Fourth Quarter 2005     |       | 0.445                 |       | 0.32    |       |
|                |       |                    |       |                  |       |    |       |
| 2006                |       | First Quarter 2006      |       | 0.49                  |       | 0.335   |       |
|                |       | Second Quarter 2006     |       | 0.595                 |       | 0.38    |       |
|                |       | Third Quarter 2006      |       | 0.435                 |       | 0.34    |       |
|                |       | Fourth Quarter 2006     |       | 0.38                  |       | 0.315   |       |
|                |       |                    |       |                  |       |    |       |
| 2007                |       | July 2006               |       | 0.36                  |       | 0.335   |       |
|                |       | August 2006             |       | 0.37                  |       | 0.33    |       |
|                |       | September 2006          |       | 0.365                 |       | 0.335   |       |
|                |       | October 2006            |       | 0.375                 |       | 0.34    |       |
|                |       | November 2006           |       | 0.42                  |       | 0.35    |       |

 

As of the date of this Annual Report, we had 362,389,899Ordinary Shares on issue, without par value. See Item 10B “Our Constitution” for a detailed description of the rightsattaching to our shares and Item 12D “American Depositary Receipts” for adescription of the rights attaching to the American Depositary Shares.

The Company’s securities are also listed on NASDAQ GlobalMarket (under the ticker GENE) in the form of American Depositary Shares.  Each American Depositary Share evidencesthirty Ordinary Shares.  Since listing onthe NASDAQ Global Market on September2, 2005, the ADRs have traded in a range from a low of $6.50 to a high of$13.85.  The most recent sale of the ADRs occurred ata price of $8.05.

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Following the listing of the Company’s ADRs in September2005, our Ordinary Shares are registered under Section 12 of the SecuritiesExchange Act of 1934 and we file an Annual Report with the Securities andExchange Commission on Form 20-F.  As aforeign private issuer, we are not be subject to the proxy rules under Section14 of the Securities Exchange Act of 1934, and our officers, Directors andprincipal stockholders are not be subject to the insider short-swing profitdisclosure and recovery provisions of Section 16 of that Act.

Starting in January 14, 2002, the ADSs have traded in theUSA over-the-counter market under the symbol “GNTLY” and dealers’ prices forthe ADSs have been quoted in the “pink sheets” published by the NationalQuotations Bureau, Inc.  Commencing onSeptember 2, 2005, our ADSs were listed on the NASDAQ Global Market under theticker “GENE”.

The Company has registered one class of AmericanDepositary Shares (ADSs) on Form F-6 pursuant to the U.S. Securities Act of1933, as amended.  One ADS representsthirty Ordinary Shares without par value. As of June 30, 2006, there were 160,134 ADSs outstanding, held throughtwo registered holders.

The table below sets forth the high and low sales pricesfor the ADSs during the periods indicated:
| Financial Year | ** ** | **Quarter/ Month** | ** ** | **High**            | ** ** | **Low** | ** ** |
|---------------------|------------|-------------------------|------------|---------------------|------------|---------|------------|
| ** **          | ** ** | ** **              | ** ** | **(in $0.00)** | ** ** |
| 2002                |       | First Quarter 2002      |       | —              |       | —  |       |
|                |       | Second Quarter 2002     |       | —              |       | —  |       |
|                |       | Third Quarter 2002      |       | —              |       | —  |       |
|                |       | Fourth Quarter 2002     |       | 5.16                |       | 5.16    |       |
|                |       |                    |       |                |       |    |       |
| 2003                |       | First Quarter 2003      |       | 4.26                |       | 4.26    |       |
|                |       | Second Quarter 2003     |       | —              |       | —  |       |
|                |       | Third Quarter 2003      |       | —              |       | —  |       |
|                |       | Fourth Quarter 2003     |       | —              |       | —  |       |
|                |       |                    |       |                |       |    |       |
| 2004                |       | First Quarter 2004      |       | —              |       | —  |       |
|                |       | Second Quarter 2004     |       | —              |       | —  |       |
|                |       | Third Quarter 2004      |       | —              |       | —  |       |
|                |       | Fourth Quarter 2004     |       | —              |       | —  |       |
|                |       |                    |       |                |       |    |       |
| 2005                |       | First Quarter 2005      |       | —              |       | —  |       |
|                |       | Second Quarter 2005     |       | —              |       | —  |       |
|                |       | Third Quarter 2005      |       | 13.15               |       | 9.00    |       |
|                |       | Fourth Quarter 2005     |       | 13.85               |       | 8.00    |       |
|                |       |                    |       |                |       |    |       |
| 2006                |       | First Quarter 2006      |       | 13.15               |       | 9.00    |       |
|                |       | Second Quarter 2006     |       | 13.85               |       | 8.00    |       |
|                |       | Third Quarter 2006      |       | 11.40               |       | 7.34    |       |
|                |       | Fourth Quarter 2006     |       | 10.00               |       | 7.25    |       |
|                |       |                    |       |                |       |    |       |
| 2007                |       | July 2006               |       | 9.00                |       | 7.53    |       |
|                |       | August 2006             |       | 8.48                |       | 6.80    |       |
|                |       | September 2006          |       | 8.20                |       | 6.50    |       |
|                |       | October 2006            |       | 10.00               |       | 6.65    |       |
|                |       | November 2006           |       | 9.20                |       | 7.60    |       |

 

Asof June 30, 2006, there was a total of 3,825 holders of our Ordinary Shares, ofwhich 8,354,062 shares (representing 2.3% of the total Ordinary Shares issuedand outstanding) were held by 48 U.S. residents (based solely on theiraddress).  These figures do not includeany Ordinary Shares which may held by U.S. residents in the form of AmericanDepositary Receipts (ADRs).

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**Item 9.B**                          Plan of Distribution

Not applicable.

**Item 9.C**                          Markets

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

**Item 9.D**                          Selling Shareholders

Not applicable.

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

Not applicable.

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

Not applicable.

**Item 10.**                                    Additional Information

**Item 10.A**                   ShareCapital

As of June 30, 2006, we had a total of 362,389,899Ordinary Shares on issue.  With theexception of 10,000,000 such Shareswhich were the subject of a voluntary escrow arrangement, all of these OrdinaryShares were listed on the Australian Securities Exchange and were freelytradable.  As of the date of this AnnualReport, we also had a total of 362,389,899 Ordinary Shares on issue.

Based on our review of shareholder records (based solelyon the addresses) there are as of June 30, 2006, 48 U.S. resident shareholdersof our Ordinary Shares holding 8,354,062 shares representing 2.3% of the totalissued and outstanding Ordinary Shares. Our Ordinary Shares do not have a par value.  These figures do not include any OrdinaryShares which may held by U.S. residents in the form of American DepositaryReceipts (ADRs).

During the last four years, our capital has increased, inconnection with acquisition transactions and the exercise of options.  In 2001, we issued 9,754,080 Ordinary Sharesto owners of shares of Cytomation Inc. resulting in a total of 257,793,804Ordinary Shares being on issue as of June 30, 2001.  On July 30, 2001, we acquired the business ofDNA-Id Labs of Perth, Western Australia, by payment of consideration thatincluded 94,340 Ordinary Shares, with further consideration being paid onAugust 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 totalof 4,440,621 Ordinary Shares resulting from the exercise of vendor options, theexercise of options granted under the Staff Share Plan, a small placement forcash of 1,000,000 shares, two exchanges of our shares for shares in XY, Inc.,and the issuance of shares in lieu of legal fees to our counsel, all of whichresulted in 262,234,425 Ordinary Shares being outstanding as of June 30,2003.  Subsequently, on September 4,2003, we completed a brokered private placement to professional Australianinvestors of 13,333,333 Ordinary Shares at AUD0.75 each, raisingAUD10,000,000.  As part of the placement,we also issued 6,666,667 options to the subscribers to the placement with anexercise price of AUD1.00 on or before September 30, 2005.

On June 15, 2004, we issued 16,666,667 Ordinary Shares tothe C.Y. O’Connor ERADE Village Foundation, as consideration under our licensing agreement with that Foundation (seepoint 17).  During the year ended June30, 2005, we issued a further65,561,338 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.

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As at June 30, 2006 and 2005, the following outstandingunlisted options, together with their respective ASX codes and expiry dates,were convertible into Ordinary Shares. The exercise prices are quoted in Australian dollars.
|                                           | ** ** | **2006**       | ** ** | **Weighted ave.  exercise price** | ** ** | **2005**   | ** ** | **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**   |       | 500,000    |                                        | $          | 0.48 |   |
| GTGAD (expiring August  12, 2011)         | ** ** | **950,000**    | ** ** | **$**                                       | **0.43**   |       | —     |                                        | —     |   |
| GTGAE (expiring August  12, 2011)         | ** ** | **1,000,000**  | ** ** | **$**                                       | **0.53**   |       | —     |                                        | —     |   |
| GTGAF (expiring  November 23, 2011)       | ** ** | **1,000,000**  | ** ** | **$**                                       | **0.56**   |       | —     |                                        | —     |   |
| GTGAG (expiring  February 1, 2012)        | ** ** | **750,000**    | ** ** | **$**                                       | **0.46**   |       | —     |                                        | —     |   |
| GTGAH (expiring May 31,  2012)            | ** ** | **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**    | ** ** | **$**                                       | **0.45**   |       | —     |                                        | —     |   |
| GTGAM (expiring  November 30, 2007)       | ** ** | **2,500,000**  | ** ** | **$**                                       | **0.61**   |       | 4,250,000  |                                        | $          | 0.61 |   |
| GTGAO (expiring  November 30, 2007)       | ** ** | **902,500**    | ** ** | **$**                                       | **0.49**   |       | 902,500    |                                        | $          | 0.49 |   |
| GTGAP (expiring May 20,  2009)            | ** ** | **1,000,000**  | ** ** | **$**                                       | **0.48**   |       | 1,000,000  |                                        | $          | 0.48 |   |
| GTGAQ (expiring May 20,  2009)            | ** ** | **1,400,000**  | ** ** | **$**                                       | **0.44**   |       | 1,600,000  |                                        | $          | 0.44 |   |
| GTGAS (expiring May 20,  2009)            | ** ** | **175,000**    | ** ** | **$**                                       | **0.38**   |       | 175,000    |                                        | $          | 0.38 |   |
| GTGAU (expiring  September 30, 2005)      | ** ** | **—**     | ** ** | **—**                                  |       | 6,666,667  |       | $                                           | 1.00       |   |
| GTGAU (expiring January  17, 2012)        | ** ** | **200,000**    | ** ** | **$**                                       | **0.45**   |       | —     |                                        | —     |   |
| GTGAZ (expiring  February 27, 2010)       | ** ** | **400,000**    | ** ** | **$**                                       | **0.56**   |       | 580,000    |                                        | $          | 0.56 |   |
| GTGAZ (expiring  February 27, 2010)       | ** ** | **500,000**    | ** ** | **$**                                       | **0.49**   |       | 500,000    |                                        | $          | 0.49 |   |
|                                      | ** ** | ** **     | ** ** | ** **                                  |       |       |       |                                        |       |
| Balance at the end of  the financial year | ** ** | **15,277,500** | ** ** | **$**                                       | **0.52**   |       | 19,274,167 |                                        | $          | 0.70 |   |

 

As of June 30, 2006, a total of 4,800,000 options hadbeen granted to Executives of the Company as part of their compensationarrangements.  See Item 6B “Compensation”for a description of the terms of options granted as executivecompensation.  See also Note 13 to the Financial Statements for adescription of other options granted by us.

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**Item 10.B**                   OurConstitution

Atthe Annual General Meeting of the Company held on November 23, 2005, theshareholders resolved to replace the existing Constitution with a revisedversion.  A copy of the new Constitutionhas been posted on the Company’s website: www.gtg.com.au.  The principal changes which have beenimplemented in the new Constitution may be summarized as follows:

·          General changes – general changes are proposed to make the Constitutionconsistent with best practice, updatelegal matters under the existing Constitution consistent with legislative andregulatory developments and to address certain content and language aspects.

·          ASX Listing Rules – it provides that the Listing Rules prevail in theevent of any inconsistency.

·          Shares – it allows the Directors to issue shares subject to theCorporations Act and the Listing Rules.

·          Proportionate takeover power – the existing Constitution has a clause init requiring shareholder approval to be obtained before any proportionatetakeover is made.  However, that clauseis ineffective because it needs to have been renewed at least every three yearsin accordance 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 sellholdings of less than a marketable parcel in accordance with the procedural andtiming requirements of the Listing Rules. This only applies if a shareholder has an opportunity to opt out of anyproposed sale arrangement and does not do so.

·          Notice of shareholders’ meetings – the new Constitution enables noticeof shareholders’ meetings to be givenby electronic means.

·          Changes to general meetings – the new Constitution enables theDirectors to change the venue for, and postpone or cancel a general meeting ifsuch meeting is unnecessary, in the interests of shareholders, if the venuewould be unreasonable or impractical, or for reasons of efficiency.  This does not apply in the event of a meetingrequisitioned by shareholders.

·          Quorum for shareholders’ meetings – a quorum of three shareholdersrepresents a quorum for shareholders’ meetings, whether by way of beingpersonally present, attorney, proxy or corporate representative.

·          Casting vote – the Chairman of a shareholders’ meeting does not have acasting vote.

·          Number of Directors – it contemplates that the number of Directors needto be not less than three nor more than the number determined by the Directorswhich, until otherwise determined, is ten.

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

·          Alternate directors – there are no provisions entitling the Directors toappoint alternate directors, on the basis that this is an outdated andundesirable approach.

·          Directors’ tenure of office – a Director must retire from office or seekre-election by no later than the third Annual General Meeting following his orher appointment or re-election or three years, whichever is longer (other thanthe Managing Director).

·          Vacation of office – the office of a Director is automatically vacatedif the Director is an Executive Director under an employment agreement and thatagreement terminates, unless the Board otherwise determines.

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

·          Meetings of Directors – the Directors may meet in person or byelectronic means.

·          Quorum for Directors’ meetings – the quorum for Directors’ meetings isthree, unless otherwise determined.

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

·          Indemnity – the new Constitution contains an updated indemnity clause infavour of the current and former Directors, Secretaries indemnifying them fromliability consistent with the Corporations Act provisions and to the maximumextent permitted by law.

·          Insurance – the Company must maintain and pay insurance premiums withrespect to its current and former Directors, Secretaries and other officers tothe extent permitted by law.

·          Access – current and former Directors may access the financial and otherrecords of the Company for the purposes of legal proceedings involving theperson.

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**Item 10.C         MaterialContracts**

There were no material contracts entered into during thetwo years preceding the date of this Annual Report which were outside theordinary course of business.  See alsoItem 4B “Our Licenses and Commercial Collaborations”.

**Item 10.D      Exchange Controlsand Other Limitations Affecting Security Holders**

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

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

**TakeoversAct**

There are no limitations, either under the laws ofAustralia or under the Company’s Constitution, to the right of non-residents tohold or vote Genetic Technologies Ordinary Shares other than the CommonwealthForeign Acquisitions and Takeovers Act 1975 (the “Takeovers Act”).  The Takeovers Act may affect the right ofnon-Australian residents, including US residents, to hold Ordinary Shares butdoes not affect the right to vote, or any other rights associated with, anyOrdinary Shares held in compliance with its provisions.  Acquisitions of shares in Australiancompanies by foreign interests are subject to review and approval by theTreasurer of the Commonwealth of Australia under the Takeovers Act.  The Takeovers Act applies to any acquisitionof outstanding shares of an Australian company that exceeds, or results in aforeign person or persons controlling the voting power of more than a certainpercentage of those shares.  Thethresholds are 15% where the shares are acquired by a foreign person, or groupof associated foreign persons, or 40% in aggregate in the case of foreignpersons who are not associated.  Anyproposed acquisition that would result in an individual foreign person (withassociates) holding more than 15% must be notified to the Treasurer in advanceof the acquisition.  As of the date ofthis Annual Report, approximately 5.8% of the outstanding Ordinary Shares inthe Company were held by shareholders whose registered addresses were locatedoutside Australia.  In addition to theTakeovers Act, there are statutory limitations in Australia on foreignownership of certain businesses, such as banks and airlines, not relevant tothe Company.  However, there are no otherstatutory or regulatory provisions of Australian law or Australian SecuritiesExchange requirements that restrict foreign ownership or control of GeneticTechnologies.

**CorporationsAct 2001**

As applied to Genetic Technologies, the Corporations Act2001 (the “Corporations Act 2001”) prohibits any legal person (including acorporation) from acquiring a relevant interest in Ordinary Shares if after theacquisition that person or any other person’s voting power in GeneticTechnologies increases from 20% or below to more than 20%, or from a startingpoint that is above 20% and below 90%.

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

In general terms, a person is considered to have a “relevantinterest” in a share in Genetic Technologies if that person is the holder ofthat share, has the power to exercise, or control the exercise of, a right tovote attached to that share, or has the power to dispose of, or to control theexercise of a power to dispose of that share.

It does not matter how remote the relevant interest is orhow it arises.  The concepts of “power”and “control” are given wide andextended meanings in this context in order to deem certain persons to hold arelevant interest.  For example, eachperson 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 arelevant interest in those Genetic Technologies shares.  Certain situations (set out in section 609 ofthe Corporations Act 2001) which would otherwise constitute the holding of arelevant interest are excluded from the definition.

A person’s voting power in Genetic Technologies is thatpercentage of the total votes attached to Ordinary Shares in which that personand its associates (as defined in the Corporations Act 2001) holds a relevantinterest.

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**Item 10.E       Taxation**

This summary of materialtax consequences is based on the tax laws of the United States (includingthe Internal Revenue Code of 1986, as amended, its legislative history,existing and proposed regulations thereunder, published rulings and courtdecisions) and on the Australian tax law and practice as in effect on the date hereof.  In addition, this summary is based on the incometax convention between the United States and Australia (the “Treaty”).  The foregoing laws and legal authorities aswell as the Treaty are subject to change (or changes in interpretation),possibly with retroactive effect. Finally, this summary is based in part upon the representations of our ADR Depositaryand the assumption that each obligation in the Deposit Agreement and anyrelated agreement will be performed in accordance with its terms.

The discussion doesnot address any aspects of U.S. taxation other than federal income taxation orany aspects of Australian taxation other than federal income taxation, stampduty and goods and services tax.  Thisdiscussion does not address all aspects of U.S. or Australian federal taxconsiderations that may be important to particular investors in light of theirindividual investment circumstances or investors subject to special taxregimes, like broker-dealers, insurance companies or financialinstitutions, tax-exempt organizations, regulated investment companies, realestate investment trusts or financial asset securitization investment trusts,persons who actually or constructively own 10% or more of our ADRs or OrdinaryShares, persons who hold ADRs or Ordinary Shares as part of a straddle, “hedge”or “conversion transaction” with other investments, persons who have electedmark-to-market accounting, or persons who acquired their ADRs or OrdinaryShares through the exercise of options or similar derivative securities orotherwise as compensation.  Prospective investors are urged toconsult their tax advisers regarding the U.S. and Australian federal, state andlocal tax consequences and any other tax consequences of owning and disposingof ADRs and shares.

**Australian Tax Consequences**

In this section, we discuss Australian tax considerationsthat apply to non-Australian tax residents who are residents of the UnitedStates with respect to the ownership and disposal by the absolute beneficialowners of ADRs.  This summary does notdiscuss any foreign or state tax considerations, other than stamp duty.

**Nature of ADRs for Australian Taxation Purposes**

ADRs held by a U.S. holder will be treated for Australiantaxation purposes as being held under a “bare trust” for that holder.  Consequently, the underlying Ordinary Shareswill be regarded as owned by the ADR holder for Australian income tax andcapital gains tax purposes.  Dividends paidon the underlying Ordinary Shares will also be treated as dividends paid to theADR holder, as the person beneficially entitled to those dividends.  Therefore, in the following analysis, wediscuss the tax consequences to non-Australian resident holders of OrdinaryShares which, for Australian taxation purposes, will be the same as to U.S.holders of ADRs.

**Taxation of Dividends**

Australia operates a dividend imputation system underwhich dividends may be declared to be “franked” to the extent of tax paid oncompany profits.  Fully franked dividendsare not subject to dividend withholding tax. Dividends payable by our company to non-Australian resident stockholderswill be subject to dividend withholding tax, to the extent the dividends areunfranked.  Dividend withholding tax willbe imposed at 30%, unless a stockholder is a resident of a country with whichAustralia has a double taxation agreement. Under the provisions of the Treaty, the Australian tax withheld onunfranked dividends paid by us to which a resident of the United States isbeneficially entitled is generally limited to 15% if the U.S. resident holdsless than 10% of the voting rights of our company, unless the shares areeffectively connected to a permanent establishment or fixed base in Australiathrough which the stockholder carries on business or provides independentpersonal services, respectively.  Wherethe U.S. resident holds 10% or more of the voting rights of our company, thewithholding tax rate is reduced to 5%.

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**Tax on Sales or other Dispositions of Shares - CapitalGains Tax**

Non-Australianresident stockholders will not be subject to Australian capital gains tax onthe gain made on a sale or other disposal of our shares, unless they, togetherwith their associates, hold 10%or more of our issued capital at any time during the five years before thedisposal of the shares.  If anon-Australian resident stockholder did,together with his or her associates,own a 10% or more interest, that stockholder would be subject to Australiancapital gains tax to the same extent as Australian resident stockholders.  The Australian Taxation Office maintains theview that the Double Taxation Convention between the United States andAustralia does not limit Australian capital gains tax. Australian capital gainstax applies to net capital gains chargedat a taxpayer’s marginal tax rate but,for certain stockholders, a discount of the capital gain mayapply if the shares have been held for 12 months or more.  For individuals, this discount is 50%.  For superannuation funds, the discount is33%.  There is no discount for a companythat derives a capital gain.  Netcapital gains are calculated after deducting capital losses, which may only beoffset against such gains.

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

Some non-Australian resident stockholders may hold shareson revenue rather than on capital account, for example, share traders.  These stockholders may have the gains made onthe sale or other disposal of the shares included in their assessable income under theordinary income provisions of the income tax law, if the gains are sourced inAustralia.  Non-Australian resident stockholders assessable under these ordinary income provisions in respect of gainsmade on shares held on revenue account would be assessed for those gains at theAustralian tax rates for non-Australian residents, which start at a marginalrate of 29%.  Some relief from theAustralian income tax may be available to non-Australian resident stockholdersunder the Double Taxation Convention between the United States and Australia,for example, because the stockholder does not have a permanent establishment inAustralia.

To the extent an amount would be included in anon-Australian resident stockholder’s assessable income under both the capital gains tax provisions and theordinary income provisions, the capital gain amount would generally be reduced,so that the stockholder would not be subject to double tax on any part of theincome gain or capital gain.

**Dual Residency**

If a stockholder were a resident of both Australia andthe United States under those countries’ domestic taxation laws, thatstockholder may be subject to tax as an Australian resident.  If, however, the stockholder is determined tobe a U.S. resident for the purposesof the Double Taxation Convention between the United States and Australia, theAustralian tax would be subject tolimitation by the Double Taxation Convention. Stockholders should obtain specialist taxation advice in thesecircumstances.

**Stamp Duty**

Any transfer of shares through trading on the AustralianSecurities Exchange, whether by Australian residents or foreign residents, isnot subject to stamp duty within Australia.

**Australian Death Duty**

Australia does not have estate or death duties.  No capital gains tax liability is realizedupon 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 Services Tax**

The issue or transfer of shares will not incur Australiangoods and services tax and does not require a stockholder to register for Australian goods and services taxpurposes.

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**United States Federal Income Taxation**

As used below, a “U.S. holder” is a beneficial owner ofan ADR that is, for U.S. federal income tax purposes, (i) a citizen or residentalien individual of the United States, (ii) a corporation (or an entity treatedas a corporation) organized under the law of the United States, any Statethereof or the District of Columbia, (iii) an estate the income of which is subject to U.S.federal income tax without regard to its source or (iv) a trust if (1) a courtwithin the United States is able to exercise primary supervision over theadministration of the trust, and one or more United States persons have theauthority to control all substantial decisions of the trust, or (2) the trustwas in existence on August 20, 1996 and properly elected to continue to betreated as a United States person.  Forpurposes of this discussion, a “non-U.S. holder” is a beneficial owner of anADR that is (i) a nonresident alien individual, (ii) a corporation (or anentity treated as a corporation) created or organized in or under the law of acountry other than the United States or a political subdivision thereof or(iii) an estate or trust that is not a U.S. Holder.  If a partnership (including for this purposeany entity treated as a partnership for U.S. federal tax purposes) is abeneficial owner of an ADR, the U.S. federal tax 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 and partners in thatpartnership should consult their own tax advisers regarding the U.S. federalincome tax consequences of holding and disposing of ADRs.

**Nature of ADRs for U.S. Federal Income 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 noted below, the tax consequencesdiscussed below with respect to ADRs will be the same as for shares in theCompany, and exchanges of shares for ADRs, and ADRs for shares, generally willnot 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 it ismade from the Company’s current or accumulated earnings and profits asdetermined under U.S. federal income tax principles.  If a distribution exceeds the Company’scurrent and accumulated earnings and profits, it will be treated as anon-taxable reduction of basis to the extent of the U.S. holder’s tax basis inthe ADR on which it is paid, and to the extent it exceeds that basis it will betreated as capital gain.  For purposes ofthis discussion, the term “dividend” means a distribution that constitutes adividend for U.S. federal income tax purposes.

The gross amount of any dividend on an ADR will besubject to U.S. federal income tax as foreign source dividend income.  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.  Any gain or loss realized on aconversion or other disposition of Australian dollars generally will be treatedas U.S. source ordinary income or loss. A dividend generally will constitute foreign source “passive income” or,in the case of certain holders, “financial services income” for purposes of theforeign tax credit limitation rules.  Fortaxable years beginning after December 31, 2006, “financial services income”generally will be treated as “general category income,” and “passive income”generally will be treated as “passive 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 underlying Ordinary Shares represented by the ADRs to theextent the U.S. holder has not held the ADRs for at least 16 days of the 30-dayperiod beginning on the date which is 15 days before the ex-dividend date or tothe extent the U.S. holder is underan obligation to make related payments with respect to substantially similar orrelated property.  Any days during which a U.S. holder has substantiallydiminished its risk of loss on the ADRs are not counted toward meeting the16-day holding period required by the statute. The rules relating to the determination of the foreign tax credit arecomplex, and you should consult with your own tax advisers to determine whetherand to what extent you would be entitled to this credit.  A dividend will not be eligible for thecorporate dividends received deduction.

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Subject to certain exceptions for short-term and hedgedpositions, a dividend an individual receives on an ADR before January 1, 2009will be subject to a maximum tax rate of 15% if the dividend is a “qualifieddividend”.  A dividend on an ADR will bea qualified dividend if (i) we are eligible for the benefits of a comprehensiveincome tax treaty with the United States that the Secretary of the Treasurydetermines is satisfactory for purposes of these rules and that includes anexchange of information program, and (ii) the Company was not, in the yearprior to the year the dividend was paid, and is not, in the year the dividendis paid, a passive foreign investment company (“PFIC”), foreign personalholding company (“FPHC”) or foreign investment company (“FIC”).  The Treaty satisfies the requirements ofclause (i), and we are a resident of Australia entitled to the benefits of theTreaty.  Based on our audited financialstatements and relevant market and shareholder data, we believe we were not aPFIC, FPHC or FIC for U.S. federal income tax purposes for our 2005 or 2006taxable year.  However, because thedetermination of whether we are a PFIC is based upon the composition of ourincome and assets from time to time, it is possible that we may become a PFICfor any future taxable year. Effective for taxable years of foreigncorporations beginning after December 31, 2004, the rules relating to FPHCs andFICs have been repealed.  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 Internal Revenue Service takesthe position that that rule will apply for purposes of determining whether anADR is an interest in a PFIC in the year a dividend is paid or in the prioryear, even if we do not satisfy the tests to be a PFIC in either of thoseyears.  Even if we have not been a PFICin any prior year and we are not currently a PFIC, because the composition ofour income and assets will vary over time, there can be no assurance that wewill not be considered a PFIC for any taxable year.  The U.S. Treasury has announced its intentionto promulgate rules pursuant to which holders of stock of non-U.S.corporations, and intermediaries though whom the stock is held, will bepermitted to rely on certifications from issuers to establish that dividendsare treated as qualified dividends. Because those procedures have not yet been issued, it is not clearwhether the Company will be able to comply with them.  Special limitations on foreign tax creditsapply to dividends subject to the reduced rate of tax.  Holders of ADRs and shares should consulttheir own tax advisers regarding the availability of the reduced dividend taxrate in the light of their own particular circumstances.

**Non-U.S. holders****.** A dividend paid to a non-U.S. holder of an ADR will not be subject toU.S. federal income tax unless the dividend is effectively connected with theconduct of trade or business by the non-U.S. holder within the United States(and is attributable to a permanent establishment or fixed base the non-U.S.holder maintains in the United States if an applicable income tax treaty sorequires as a condition for the non-U.S. holder to be subject to U.S. taxationon a net income basis on income from the ADR). A non-U.S. holder generally will be subject to tax on an effectivelyconnected dividend in the same manner as a U.S. holder.  A corporate non-U.S. holder under certaincircumstances may also be subject to an additional “branch profits tax,” therate of which may be reduced pursuant to an applicable income tax treaty.

**Taxationof Capital Gains**

**U.S. holders.**  Subject to the passive foreigninvestment company rules discussed below, on a sale or other taxabledisposition of an ADR, a U.S. holder will recognize capital gain or loss in anamount equal to the difference between the U.S. holder’s adjusted basis in theADR and the amount realized on the sale or other disposition, each determined in U.S. dollars.  Any gain a U.S. holder recognizes generallywill be U.S. source income for U.S. foreign tax credit purposes and, subject to certain exceptions, any loss generallywill be a U.S. source loss.  If anAustralian tax is paid on a sale or other disposition of an ADR, the generallyapplicable limitations under U.S. federal income tax law on crediting foreignincome taxes may preclude a U.S. holder from obtaining a foreign tax credit forthe Australian tax.

In general, any adjusted net capital gain of anindividual in a taxable year beginning before January 1, 2011 is subject to a maximumtax rate of 15%.  In later years, themaximum tax rate on the net capital gain of an individual will be 20%.  The deductibility of capital losses issubject to limitations.

**Non-U.S. holders****.** A non-U.S. holder will not be subject to U.S. federal incometax on gain 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, the holderis present in the United States for 183 or more days in the taxable year of thesale or other disposition and certain other conditions apply.  Any effectively connected gain of a corporatenon-U.S. holder may also be subject under certain circumstances to anadditional “branch profits tax,” the rate of which may be reduced pursuant toan applicable income tax treaty.

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**PassiveForeign Investment Company Rules**

A special set of U.S. federal income tax rules applies toa foreign corporation that is a PFIC for U.S. federal income tax purposes.  As noted above, based on our auditedfinancial statements and relevant market and shareholder data, we believe wewere not a PFIC for U.S. federal income tax purposes for our 2005 or 2006taxable years.

The PFIC rules are designed generally to eliminate anybenefits of deferral of U.S. federal income tax that a U.S. holder could derivefrom investing in a corporation that is organized outside the United States (a “foreigncorporation”).  In general, a foreigncorporation is a PFIC if at least 75% of its gross income for the taxable yearis passive income or if at least 50% of its assets for the taxable year producepassive income or are held for the production of passive income.  In general, passive income for this purposemeans, with certain designated exceptions, dividends, interest, rents, royalties (other than certainrents and royalties derived in the active conduct of trade or business),annuities, net gains fromdispositions of certain assets, net foreign currency gains, income equivalentto interest, income from notional principal contracts and payments in lieu ofdividends.  The determination of whethera foreign corporation is a PFIC is a factual determination made annually and istherefore subject to change.  Subject toexceptions pursuant to certain elections that generally require the payment oftax, once stock in a foreign corporation is stock in a PFIC in the hands of a particular shareholder that is a UnitedStates person, it remains 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 respect to (i) any gain realized on a sale or otherdisposition of an ADR and (ii) any “excess distribution” by the Company to the U.S. holder (generally,any distribution during a taxable year in which distributions to the U.S.holder on the ADR exceed 125% of the average annual taxable distributions theU.S. holder received on the ADR during the preceding three taxable years or, ifshorter, the U.S. holder’s holding period for the ADR).  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 the gain orexcess distribution is realized would be taxable as ordinary income and (iii)the amount allocated to each prior year, with certain exceptions, would besubject to tax at the highest tax rate in effect for that year, and the interestcharge generally applicable to underpayments of tax would be imposed in respectof the tax attributable to each of those years. A U.S. holder who owns an ADR during any year we are a PFIC must fileInternal Revenue Service Form 8621.

The special PFIC rules described above will not apply toa U.S. holder if the U.S. holder makes a timely election to treat the Companyas a “qualified electing fund” (“QEF”) in the first taxable year in which theU.S. holder owns an ADR and the Company is a PFIC and if the Company complieswith certain reporting requirements. Instead, a shareholder of a QEF generally is currently taxable on a prorata share of the Company’s ordinary earnings and net capital gain as ordinaryincome and long-term capital gain, respectively.  Neither that ordinary income nor any actual dividend from the Company would qualify for the15% maximum tax rate on dividends described above if the Company is a PFIC in the taxable year the ordinary incomeis realized or the dividend is paid or in the preceding taxable year. We havenot yet determined whether, if we are a PFIC, we would make the computationsnecessary to supply U.S. holders withthe information needed to report income and gain pursuant to a QEF election.  It is, therefore, possible that U.S. holders would not be able to make or retainthat election 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.

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In lieu of a QEF election, a U.S. holder of stock in aPFIC 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 the mark-to-marketelection were made, the rules set forth in the second preceding paragraph wouldnot apply for periods covered by the election. A mark-to-market election will not apply during any later taxable yearin which the Company does not satisfy the tests to be a PFIC.  In general, the ADRs will be marketable stockif the ADRs are traded, other than in *deminimis* quantities, on at least 15 days during each calendar quarteron a national securities exchange that is registered with the SEC or on adesignated national market system or on any exchange or market that theTreasury Department determines to have rules sufficient to ensure that themarket price accurately represents the fair market value of the stock.  The ADRs will be listed on the NASDAQ GlobalMarket.  It is not clear whether theirtrading on that market will qualify them as readily tradable on an establishedsecurities market in the United States. Thus, there is no certainty that the ADRs will be considered “marketablestock” for this purpose unless and until the Internal Revenue Servicedesignates the Australian Securities Exchange as having rules adequate to carryout the purposes of the PFIC rules. There can be no assurance that the Internal Revenue Service will makethat designation.

**Information Reporting andBackup Withholding**

Dividends paid on, andproceeds from the sale or other disposition of, an ADR to a U.S.holder generally may be subject to information reporting requirements and maybe subject to backup withholding at the rate of 28% unless the U.S. holderprovides an accurate taxpayer identification number or otherwiseestablishes an exemption.  The amount ofany backup withholding collected from a payment to a U.S. holder will beallowed as a credit against the U.S. holder’s U.S. federal income tax liabilityand may entitle the U.S. holder to a refund, provided certain requiredinformation 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 or Ordinary Shares.  A holder should consult your tax adviserconcerning the tax consequences to you in your particular situation.

**Item 10.F       Dividends andPaying Agents**

No dividendshave been paid by the Company or recommended by the directors since the end ofthe previous financial year.

**Item 10.G      Statement by Experts**

Not applicable.

**Item 10.H      Documents on Display**

The documents concerning the Companywhich are referred to in this Annual Report may be inspected at the offices ofthe Company 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 of theU.S. Securities Exchange Act of 1934, as amended, and, in accordance therewith,we are required to file reports, including annual reports on Form 20-F, andother 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 website linked to it do not constitute a part of this AnnualReport.

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**Item 10.I        SubsidiaryInformation**

The following isa list of the Company’s subsidiaries as at the date of this Annual Report:
| GeneType AG                                 |   | Switzerland        |   | 100  | % |
|---------------------------------------------|--------|--------------------|--------|------|---|
| GeneType Corporation                        |   | California, U.S.A. |   | 100  | % |
| GeneType Pty. Ltd.                          |   | Australia          |   | 100  | % |
| Simons GeneType  Diagnostics Pty. Ltd.      |   | Australia          |   | 100  | % |
| Genetic Technologies  Corporation Pty. Ltd. |   | Australia          |   | 100  | % |
| Silbase Scientific  Services Pty. Ltd.      |   | Australia          |   | 100  | % |
| RareCellect Pty. Ltd.                       |   | Australia          |   | 100  | % |
| ImmunAid Pty. Ltd.                          |   | Australia          |   | 65   | % |
| Gtech International  Resources Limited      |   | Canada             |   | 75.8 | % |
| AgGenomics Pty. Ltd.                        |   | Australia          |   | 50.1 | % |

 

**Item 11.         QuantitativeAnd Qualitative Disclosures About Market Risk**

Genetic Technologies has exposure to changes in foreigncurrency exchange rates and interest rates.

We invest excess cash in interest-bearing,investment-grade securities and time deposits in high-quality institutions.  We do notutilize derivative financial instruments, derivative commodity instruments,positions or transactions in any materialmatter.  Accordingly, we believe that,while the investment-grade securities and time-deposits we hold are subject to changes in financial standing of the issuer ofsuch securities, the principal is not subject to any material risks arisingfrom changes in interest rates, foreign currency exchange rates, commodityprices, equity prices or other market changes that affect market risk sensitiveinstruments.  Since we invest inlocations outside Australia, we are subject to certain cross-border risks.

We operate in Australia, and we will be subject tocertain foreign currency exposure. Historically, currency translation gains and losses have been reflectedas adjustments to stockholders’ equity, while transaction gains and losses havebeen reflected as components of income and loss.  Transaction gains and losses could bematerial depending upon changes in the exchange rate relationships between the Australiandollar and the U.S. dollar.  Asignificant amount of our license revenue is denominated in U.S. dollars.

Credit risk represents the accounting loss that would berecognized at the reporting date if counterparties failed completely to perform as contracted.  Concentrations of credit risk (whether on oroff-balance sheet) that arise from financial instruments exist for groups ofcustomers or counterparties when they have similar economic characteristicsthat would cause their ability to meet contractual obligations to be similarlyaffected 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 quality institutions holding superior credit ratings in orderto limit the degree of credit exposure. The Company has established guidelines relative to credit ratings,diversification and maturities that seek to maintain safety and liquidity.  The Company does not require collateral toprovide credit.  In addition, themajority of the Company’s licensingcustomers are large, reputable organizations, which also reduces the risk ofcredit exposure.  The Company has notentered into any transactions that would qualify as a financial derivativeinstrument.

At June 30, 2006, one customer accounted for 72% ($637,934) of accountsreceivable.  At June 30, 2005, onecustomer accounted for 31% ($137,444) of accounts receivable.  All accounts receivable relate to thebiotechnology segment in Australia.

At June 30, 2006, one supplier accounted for 15% ($102,969) of accountspayable.  At June 30, 2005, one supplier accounted for 62% ($1,210,825) ofaccounts payable.  All accounts payablerelate to the biotechnology segment in Australia.

In 2006, one customer accountedfor 35% ($2,788,232) of the Company’s revenue. In 2005, one customer accounted for 46% ($3,782,000) of the Company’srevenue.  All revenues relate to thebiotechnology segment in Australia.

Export sales, principally to the USA, were $4,864,001, $4,560,862 and$306,938 in 2006, 2005 and 2004, respectively.

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**Item 12.         DescriptionOf Securities Other Than Equity Securities**

**Item 12.A      Debt Securities**

Not applicable.

**Item 12.B      Warrants and Rights**

Not applicable.

**Item 12.C      Other Securities**

Not applicable

**Item 12.D      American DepositaryShares**

Not applicable.

**PART II**

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

Not applicable.

**Item 14.         MaterialModifications to The Rights Of Security Holders and Use Of Proceeds**

Not applicable.

**Item 15.         Controls and Procedures**

**Item 15A.      Controlsand Procedures**

We maintain disclosure controls and procedures that are designed toensure that information required to be disclosed in the reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the Securities and Exchange Commission.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed in our reports filed or submitted under the SecuritiesExchange Act of 1934 is accumulated and communicated to management, includingour Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allowtimely decisions regarding required disclosure.

Our Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of ourdisclosure controls and procedures as of June 30, 2006 and, based on thatevaluation, our Chief Executive Officer and ChiefFinancial Officer have concluded thatsuch disclosure controls and procedures were effective as of such date.

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

Not applicable.

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

Not applicable.

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

In connection with the audits of our fiscal years ended June 30, 2006 and 2005, Ernst & Young, the Company’s independent auditors, informed our AuditCommittee that they consider the following matters represent material weaknesses in the operation of ourinternal control over financial reporting:

·      Thefinancial statement close process and knowledge of US GAAP; and

·      Adequatesegregation of duties which are incompatible with effective control.

In order to address any potential weaknesses in our knowledge of USGAAP, our senior finance staff are committed to attending targeted US GAAP andSEC reporting courses and subscribing to additional information publicationsand updates of SEC and US GAAP releases and rule changes and of information aboutthe 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.

Our Management and Audit Committee continually assess the level ofsegregation of duties existing within the financial reporting function and arecommitted to segregating duties where practically possible.  Given the number of staff employed in ourfinance department it is sometimes not practicable to segregate all duties.

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

Our Management, including our Chief ExecutiveOfficer and Chief Financial Officer,does not expect that our disclosure controls and procedures or our internalcontrol over financial reporting will assure that all appropriate informationwill, in fact, be communicated to management to allow timely decisions to bemade or prevent all error and fraud.  Acontrol system, no matter how well conceived and operated, can provide onlyreasonable, not absolute, assurance that the objectives of the control systemare met.  Additionally, the design of acontrol system must reflect the factthat there are resource constraints, and the benefit of controls must beconsidered relative to their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within thecompany have been detected or that our control system will operate effectivelyunder all circumstances.  Moreover, thedesign of any system of controls is based in part upon certain assumptionsabout the likelihood of future events, and there can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions.

**Item 16A.      Audit Committee Financial Expert**

Since Robert Edge did not stand for re-election to our Board at theAnnual General Meeting held in November 2006, we currently do not have an auditcommittee financial expert within the meaning of Sarbanes-Oxley and relatedregulations.  We are currently takingsteps to appoint an additional Director who will serve also on our AuditCommittee and it is our intention that such individual should be qualified as afinancial expert.

**Item 16B.      Code Of Ethics**

We have adopted a Code of Ethics (styled Code ofConduct) that applies to all of our Directors employees, including our principalexecutive officer, principal financial officer, principal accounting officer orcontroller.  The Code can be downloaded at ourwebsite (www.gtg.com.au).  Additionally,any person, upon request, can ask for a hard copy or electronic file of suchCode.  If we make any substantive amendmentto the Code of Ethics or grant any waivers, including any implicit waiver, froma provision of the Code of Ethics, we will disclose the nature of suchamendment or waiver on our website. During the year ended June 30, 2006, no such amendment was made orwaiver granted. Our Board ofDirectors is responsible for the corporate governance of the consolidatedentity and guides and monitors the business and affairs of Genetic TechnologiesLimited on behalf of the shareholders by whom they are elected and to whom theyare accountable.  We are required to publisha Corporate Governance Statement annually that accords with the introductionlast year of the Australian Securities Exchange Corporate Governance Council’s(the “Council’s”) “Principles of Good Corporate Governance and Best PracticeRecommendations”.  In accordance with theCouncil’s recommendations, the Corporate Governance Statement must now containcertain specific information and must disclose the extent to which we havefollowed the guidelines during the period. Where a recommendation has not been followed, that fact must be disclosed, together with thereasons for the departure.  The Company’sCorporate Governance Statement is nowstructured with reference to the Corporate Governance Council’s principles andrecommendations.  Below is an extractfrom the Company’s most recent Corporate Governance Statement:

80

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As of the date of this Annual Report, the followingeleven Corporate Governance documents had been adopted by the Board, inaddition to the Company’s Constitution which was revised and approved by the shareholdersof the Company in November 2005:

·                  a Board Charter which definesthe role of the Board and that of management;

·                  an Audit Committee Charter;

·                  a Corporate GovernanceCommittee Charter;

·                  a Board Protocol whichclarifies the responsibilities of Directors and the Company’s expectations ofthem;

·                  a Code of Conduct;

·                  a Board Performance Evaluation Policy;

·                  a Risk and Compliance Policy;

·                  a Continuous Disclosure Policy;

·                  a Securities Trading Policy;

·                  a Shareholder Communications Policy; and

·                  a Whistleblower Policy.

Since the completion of the 2005 Corporate Governance Statement, theCompany has restructured its Board so that it complies with ASX Recommendations2.1 [by appointing a majority of independent Directors], and 2.2 and 2.3 [byappointing an independent Chairman, separate from the Chief ExecutiveOfficer].  Steps have also been taken tocomply with Recommendation 9.3 [with respect to remuneration paid to Directorsand Executives].

Work is continuing on other areas of the Company’s governance structure.

**Item 16C.      Principal AccountantFees And Services**

The following table sets forth the fees billed to usby our Independent Registered Public Accounting Firm, Ernst & Young, during the fiscal years ended June30, 2006 and 2005, respectively:
|                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit fees             |       | $        | 301,929    |     | $          | 227,880 |   |
| Audit-related services |       | —   |       | 94,969   |       |
| Tax fees               |       | 59,142   |       | 61,042   |       |
| Other services         |       | —   |       | —   |       |
| Total                  |       | $        | 361,071    |     | $          | 383,891 |   |

 

Audit fees in the above table arethe aggregate fees billed by Ernst & Young in connection with the audit ofour annual financial statements and review of our semi-annual financialinformation.

*Audit Committee Pre-Approval Policies and Procedures*

Our Board of Directors hasestablished pre-approval and procedures for the engagement of its IndependentRegistered Public Accounting Firm for audit and non-audit services.

The Board of Directors reviewsthe scope of the services to be provided, before their commencement, in orderto ensure that there are no independence issues and the services are notprohibited services, as defined by Sarbanes-Oxley Act of 2002.

**Item 16D.**                   Exemptions From TheListing Standards For Audit Committees

Not applicable.

**Item 16E.**                     Purchases Of EquitySecurities By The Issuer And Affiliated Purchasers

Not applicable.

81

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**PART III**

**Item 17.         FinancialStatements**

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

**Item 18.         FinancialStatements**

82

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**GENETICTECHNOLOGIES LIMITED**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**
| Genetic Technologies Limited - Report of Independent  Registered Public Accounting Firm                                 |   |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                    |   |   |
| Genetic Technologies Limited - Consolidated Balance  Sheets for the years ended June 30, 2006 and 2005                  |   |   |
|                                                                                                                    |   |   |
| Genetic Technologies Limited - Consolidated Statements of Operations for the years ended June 30, 2006,  2005 and 2004  |   |   |
|                                                                                                                    |   |   |
| Genetic Technologies Limited - Consolidated Statements  of Changes in Shareholders’ Equity                         |   |   |
|                                                                                                                    |   |   |
| Genetic Technologies Limited - Consolidated Statements  of Cash Flows for the years ended June 30,  2006, 2005 and 2004 |   |   |
|                                                                                                                    |   |   |
| Genetic Technologies Limited - Notes to Consolidated  Financial Statements                                              |   |   |

 

**Item 19.         Exhibits**

The following documents are filed as exhibits to thisAnnual Report on Form 20-F:

1.1                                 Constitution of the Registrant.#

2.1                                 Deposit Agreement, dated as of January 14,2002, by and among Genetic Technologies Limited, The Bank of New York, asDepositary, and the Owners and Holders of American Depositary Receipts (suchagreement is incorporated herein by reference to the Annual Report on Form F-6relating to the ADSs (File No. 333-14270) filed with the Commission onJanuary 14, 2002).

2.2.                              The total indebtedness authorized under anyinstrument relating to long term debt of the Company does not exceed 10% of ourtotal consolidated assets.  Anyinstrument relating to indebtedness will be supplied to the Commission upon itsrequest.

4.1                                 Consulting contract with Dr. Stephen Kent forTechnical Review Committee for ImmunAid Pty. Ltd., dated September 14, 2001.+

4.2                                 Staff Share Plan 2001 dated November 30, 2001. +

4.3                                 License agreement with an effective date of 7March 2003 between Genetic Technologies Limited and Pyrosequencing AB. +

4.4                                 Research license dated as of July 22, 2003 betweenGenetic Technologies Limited and University of Sydney, and Agreement to AssignIntellectual Property dated September 4, 2003. +

4.5                                 License agreement dated as of August 1, 2003between Genetic Technologies Limited and Quest Diagnostics Inc. +

4.6                                 License Agreement dated as of December 31, 2003between Genetic Technologies Limited and TM Bioscience Corporation. +

4.7                                 License Agreement dated as of February 5, 2004between Genetic Technologies Limited and Laboratory Corporation of AmericaHoldings.* ++

4.8                                 Settlement and License Agreement dated as of June15, 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 Research Agreement dated as of June 15,2004 between Genetic Technologies Limited and the C.Y.  O’Connor ERADE Village Foundation. +

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

83

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4.11                           License Agreement dated as of September 17, 2004between the Company and Genzyme Corporation.* ++

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

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

12.01                     Certification by the Company’s Chief ExecutiveOfficer required by Item 15.

12.02                     Certification by the Company’s Chief FinancialOfficer required by Item 15.

13.01                     Certification pursuant to 18 U.S.C. Section 1350.

13.02                     Certification pursuant to 18 U.S.C. Section 1350

----

*  Certainprovisions of this exhibit have been omitted and filed separately with theCommission pursuant to an application for confidential treatment under Rule24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

+ Previously filed with the Company’s Registration Statement on Form 20-F(File No. 0-51504), filed with the Commission on August 19, 2005 andincorporated herein by reference.

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

#Previously filed with the Company’s Annual Reporton Form 20-F (File No. 0-51504), filed with the Commission on December 30,2005.

84

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**SIGNATURES**

The registranthereby certifies that it meets all of the requirements for filing on Form 20-Fand that it has duly caused and authorized the undersigned to sign this AnnualReport on its behalf.
|                           | GENETIC TECHNOLOGIES LIMITED |
|---------------------------|------------------------------|
|                      |                         |
|                      |                         |
| Dated: December  22, 2006 | By:                          | /s/ Dr. Mervyn Jacobson |   |
|                      |                         | Name:  Dr.  Mervyn Jacobson |
|                      |                         | Title:    Chief Executive Officer |

 

85

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**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, 2006 and 2005, and the related consolidated statements of operations, statements of changes in shareholders’ equity, and statements of cash flows for each of the three years in the period ended June 30, 2006.  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, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2006, in conformity with U.S. generally accepted accounting principles.

 
| /s/ Ernst & Young |   |
|-----------------------|--------|
|                  |
| Melbourne, Australia  |
| December 22, 2006     |

 

F1

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

| ** **                                                                                                   | ** ** | ** ** | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                                                   | ** ** | **Note**   | ** ** | **2006**          | ** ** | **2005** | ** ** |
| ***Assets***                                                                                                 |       |       |       |              |       |   |   |
| **Current assets**                                                                                           |       |       |       |              |       |   |   |
| Cash and cash  equivalents                                                                                   |       |       |       | $                 | 8,238,434  |   | $ | 13,464,416 |   |
| Trade accounts  receivable                                                                                   |       |       |       | 892,113           |       | 382,258 |   |
| GST receivable                                                                                               |       |       |       | 147,237           |       | 54,161 |   |
| Other current  assets                                                                                        |       |       |       | 959               |       | 93,687 |   |
| Prepayments                                                                                                  |       |       |       | 436,463           |       | 377,803 |   |
|                                                                                                         |       |       |       |              |       |   |   |
| **Total current assets**                                                                                     |       |       |       | $                 | 9,715,206  |   | $ | 14,372,325 |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| **Non-current assets**                                                                                       |       |       |       |              |       |   |   |
| Prepayments                                                                                                  |       |       |       | $                 | 31,624     |   | $ | 63,865 |   |
| Restricted  security deposits                                                                                |       |       |       | 647,795           |       | 630,050 |   |
| Cost-method  investments *                                                                                   |       | 3          |       | 500,010           |       | 500,010 |   |
| Property, plant  and equipment, net of accumulated depreciation of $2,346,643 (2005:  $1,479,791)            |       | 4          |       | 1,681,894         |       | 1,985,302 |   |
| Patents, net                                                                                                 |       | 5          |       | 3,819,752         |       | 4,415,266 |   |
| Goodwill, net                                                                                                |       | 6          |       | 256,819           |       | 346,983 |   |
|                                                                                                         |       |       |       |              |       |   |   |
| **Total non-current assets**                                                                                 |       |       |       | $                 | 6,937,894  |   | $ | 7,941,476 |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| **Total assets**                                                                                             |       |       |       | $                 | 16,653,100 |   | $ | 22,313,801 |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| ***Liabilities  and Shareholders’ equity***                                                             |       |       |       |              |       |   |   |
| **Current liabilities**                                                                                      |       |       |       |              |       |   |   |
| Trade accounts  payable                                                                                      |       |       |       | $                 | 1,046,924  |   | $ | 2,288,975 |   |
| Provision for  tax                                                                                           |       | 7          |       | 445,726           |       | 491,986 |   |
| Provision for  employee entitlements                                                                         |       |       |       | 305,315           |       | 231,779 |   |
| Deferred revenue                                                                                             |       | 8          |       | 25,000            |       | 366,790 |   |
| Hire purchase  finance liability                                                                             |       | 11         |       | 364,008           |       | 331,711 |   |
|                                                                                                         |       |       |       |              |       |   |   |
| **Total current liabilities**                                                                                |       |       |       | $                 | 2,186,973  |   | $ | 3,711,241 |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| **Non-current liabilities**                                                                                  |       |       |       |              |       |   |   |
| Unsecured loan                                                                                               |       | 9          |       | $                 | 519,610    |   | $ | 533,260 |   |
| Provision for  employee entitlements                                                                         |       |       |       | 27,337            |       | 27,549 |   |
| Hire purchase  finance liability                                                                             |       | 11         |       | 365,010           |       | 691,700 |   |
|                                                                                                         |       |       |       |              |       |   |   |
| **Total non-current liabilities**                                                                            |       |       |       | $                 | 911,957    |   | $ | 1,252,509 |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| **Total liabilities**                                                                                        |       |       |       | $                 | 3,098,930  |   | $ | 4,963,750 |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| **Commitments and contingencies**                                                                            |       |       |       | $                 | —     |   | $ | — |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| **Minority interest**                                                                                        |       |       |       | $                 | 130,033    |   | $ | 125,336 |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| **Shareholders’ equity**                                                                                |       |       |       |              |       |   |   |
| Ordinary shares,  no par value, issued and outstanding – 362,389,899 shares (2005: 362,369,899  shares) |       | 12         |       | $                 | 28,192,441 |   | $ | 27,575,104 |   |
| Accumulated  deficit                                                                                         |       |       |       | (17,002,436       | )          | (12,982,113 | ) |
| Accumulated  other comprehensive income                                                                      |       |       |       | 2,234,132         |       | 2,631,724 |   |
|                                                                                                         |       |       |       |              |       |   |   |
| **Total shareholders’ equity**                                                                          |       |       |       | $                 | 13,424,137 |   | $ | 17,224,715 |   |
| ** **                                                                                                   |       |       |       |              |       |   |   |
| **Total liabilities and shareholders’ equity**                                                          |       |       |       | $                 | 16,653,100 |   | $ | 22,313,801 |   |

 

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*            Includes shares in XY, Inc. (a related party, see Notes 3and 10) carried at cost of $301,890 (2006) and $301,890 (2005).

Seeaccompanying notes to financial statements.

F2

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# **CONSOLIDATEDSTATEMENTS OF OPERATIONS     (U.S. DOLLARS)**

 
| ** **                                                   | ** ** | ** ** | ** ** | **Year ended June 30,** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|----------------------------------------|------------|
| ** **                                                   | ** ** | **Note**   | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenues**                                                 |       |       |       |                                   |       |   |   |   |   |
| License revenues                                             |       |       |       | $                                      | 4,997,223  |   | $ | 4,970,007 |   | $ | 507,910 |   |
| Service testing revenues                                     |       |       |       | 1,906,290                              |       | 1,809,301 |   | 1,969,963 |   |
| Grant income                                                 |       |       |       | 426,574                                |       | 437,278 |   | 154,702 |   |
| Other income                                                 |       |       |       | 14,915                                 |       | 3,469 |   | 12,427 |   |
|                                                         |       |       |       |                                   |       |   |   |   |   |
| **Total  revenues**                                          |       |       |       | $                                      | 7,345,002  |   | $ | 7,220,055 |   | $ | 2,645,002 |   |
| ** **                                                   |       |       |       |                                   |       |   |   |   |   |
| **Total  operating income**                                  |       |       |       | $                                      | 7,345,002  |   | $ | 7,220,055 |   | $ | 2,645,002 |   |
| ** **                                                   |       |       |       |                                   |       |   |   |   |   |
| **Operating  expenses**                                      |       |       |       |                                   |       |   |   |   |   |
| Service testing expenses                                     |       |       |       | $                                      | 4,547,437  |   | $ | 3,510,444 |   | $ | 2,244,020 |   |
| Research and development                                     |       |       |       | 2,815,804                              |       | 1,830,932 |   | 1,669,484 |   |
| Patent and license fees                                      |       |       |       | 1,438,345                              |       | 4,632,617 |   | 804,340 |   |
| Sales and marketing                                          |       |       |       | 846,808                                |       | 570,498 |   | 993,827 |   |
| General and administrative                                   |       |       |       | 2,273,946                              |       | 2,597,642 |   | 2,285,787 |   |
|                                                         |       |       |       |                                   |       |   |   |   |   |
| **Total  operating expenses**                                |       |       |       | $                                      | 11,922,340 |   | $ | 13,142,133 |   | $ | 7,997,458 |   |
| ** **                                                   |       |       |       |                                   |       |   |   |   |   |
| **Loss  from operations**                                    |       |       |       | $                                      | (4,577,338 | ) | $ | (5,922,078 | ) | $ | (5,352,456 | ) |
|                                                         |       |       |       |                                   |       |   |   |   |   |
| **Other  income (expenses)**                                 |       |       |       |                                   |       |   |   |   |   |
| Interest income                                              |       |       |       | $                                      | 601,803    |   | $ | 484,286 |   | $ | 352,605 |   |
| Net profit on sale of assets                                 |       |       |       | 1,735                                  |       | 97,809 |   | 406,224 |   |
| Net foreign exchange gains (losses)                          |       |       |       | 92,403                                 |       | (140,861 | ) | (171,960 | ) |
| Interest expense                                             |       |       |       | (63,316                                | )          | (31,750 | ) | — |   |
|                                                         |       |       |       |                                   |       |   |   |   |   |
| **Total  other income (expenses)**                           |       |       |       | $                                      | 632,625    |   | $ | 409,484 |   | $ | 586,869 |   |
| ** **                                                   |       |       |       |                                   |       |   |   |   |   |
| **Net  loss before income taxes**                            |       |       |       | $                                      | (3,944,713 | ) | $ | (5,512,594 | ) | $ | (4,765,587 | ) |
| ** **                                                   |       |       |       |                                   |       |   |   |   |   |
| Income taxes                                                 |       | 7          |       | (67,649                                | )          | (195,339 | ) | (27,579 | ) |
|                                                         |       |       |       |                                   |       |   |   |   |   |
| **Net  loss before minority interest**                       |       |       |       | $                                      | (4,012,362 | ) | $ | (5,707,933 | ) | $ | (4,793,166 | ) |
| ** **                                                   |       |       |       |                                   |       |   |   |   |   |
| Minority  interest                                           |       |       |       | (7,961                                 | )          | (35,016 | ) | (23,560 | ) |
|                                                         |       |       |       |                                   |       |   |   |   |   |
| **Net  loss**                                                |       |       |       | $                                      | (4,020,323 | ) | $ | (5,742,949 | ) | $ | (4,816,726 | ) |
| ** **                                                   |       |       |       |                                   |       |   |   |   |   |
| **Net  loss per ordinary share (basic and diluted)**         |       |       |       | $                                      | (0.01      | ) | $ | (0.02 | ) | $ | (0.02 | ) |
| ** **                                                   |       |       |       |                                   |       |   |   |   |   |
| **Weighted average shares  outstanding (basic and diluted)** |       |       |       | 362,386,940                            |       | 315,264,068 |   | 277,806,689 |   |

 

See accompanying notes to financial statements.

F3

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

| ** **                                                               | ** ** | **Note** | ** ** | **Number of  Ordinary Shares** | ** ** | **Paid in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated Other  Comprehensive  Income** | ** ** | **Totals** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|------------------------------------------|------------|---------------------------|------------|--------------------------|------------|---------------------------------------------------|------------|------------|------------|
| ** **                                                               |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| **Balance  - July 1, 2003**                                              |       |     |       | 262,234,425                              |       | $                         | 5,715,441  |                     | $          | (2,422,438                                        | )          | $          | 911,307    |   | $ | 4,204,310 |   |
| ** **                                                               |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Issuance of  ordinary shares at 48 cents each as part of capital raising |       |     |       | 13,333,333                               |       | 6,395,000                 |       | —                   |       | —                                            |       | 6,395,000  |       |
| Less associated transaction costs                                        |       |     |       | —                                   |       | (223,825                  | )          | —                   |       | —                                            |       | (223,825   | )          |
| Issuance of  ordinary shares at 13 cents on exercise of Vendor options   |       | 13       |       | 3,336,636                                |       | 440,190                   |       | —                   |       | —                                            |       | 440,190    |       |
| Issuance of  ordinary shares at 27 cents to acquire patents              |       |     |       | 16,666,667                               |       | 4,524,000                 |       | —                   |       | —                                            |       | 4,524,000  |       |
| Issuance of  ordinary shares at 30 cents on exercise of Director options |       | 13       |       | 1,000,000                                |       | 295,560                   |       | —                   |       | —                                            |       | 295,560    |       |
| Issuance of  ordinary shares at 32 cents on exercise of Staff options    |       | 13       |       | 112,500                                  |       | 36,032                    |       | —                   |       | —                                            |       | 36,032     |       |
| Issuance of  ordinary shares at 37 cents on exercise of Staff options    |       | 13       |       | 125,000                                  |       | 46,200                    |       | —                   |       | —                                            |       | 46,200     |       |
| Stock options  issued as compensation                                    |       |     |       | —                                   |       | 62,904                    |       | —                   |       | —                                            |       | 62,904     |       |
| Other  comprehensive income (loss), net of tax of $nil:                  |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Foreign Currency Translation adjustment                                  |       |     |       | —                                   |       | —                    |       | —                   |       | 887,685                                           |       | 887,685    |       |
| Net loss                                                                 |       |     |       | —                                   |       | —                    |       | (4,816,726               | )          | —                                            |       | (4,816,726 | )          |
|                                                                     |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| Comprehensive  loss                                                      |       |     |       |                                     |       |                      |       |                     |       |                                              |       | (3,929,041 | )          |
|                                                                     |       |     |       |                                     |       |                      |       |                     |       |                                              |       |       |       |
| **Balance  - June 30, 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     |       |
| Stock options  issued as compensation                                    |       |     |       | —                                   |       | —                    |       | —                   |       | —                                            |       | —     |       |
| 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 |   |

 

F4

----

# **CONSOLIDATEDSTATEMENTS OF CASH FLOWS     (U.S. DOLLARS)**

 
| ** **                                                    | ** ** | **Year ended June 30,** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                    | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating  activities**                                     |       |                                   |       |   |   |   |   |
| Net loss                                                      |       | $                                      | (4,020,323 | ) | $ | (5,742,949 | ) | $ | (4,816,726 | ) |
|                                                          |       |                                   |       |   |   |   |   |
| Depreciation                                                  |       | 521,966                                |       | 550,477 |   | 399,542 |   |
| Amortization of patents                                       |       | 492,304                                |       | 491,669 |   | 38,632 |   |
| Amortization of leased assets                                 |       | 390,700                                |       | 96,684 |   | — |   |
| Amortization of prepayments                                   |       | 370,712                                |       | — |   | — |   |
| Net gain from sale of assets                                  |       | (1,735                                 | )          | (97,809 | ) | (406,224 | ) |
| Write-off of goodwill                                         |       | 81,851                                 |       | — |   | — |   |
| Proceeds from the sale of marketable securities               |       | —                                 |       | — |   | 593,647 |   |
| Stock-based compensation                                      |       | 610,843                                |       | — |   | 62,904 |   |
| Net foreign exchange (gains) losses                           |       | (37,968                                | )          | (45,565 | ) | 34,141 |   |
| Net drawdown under Applera settlement                         |       | (479,644                               | )          | — |   | — |   |
| Minority interest                                             |       | 7,961                                  |       | 35,016 |   | 23,560 |   |
|                                                          |       |                                   |       |   |   |   |   |
| Net changes in operating assets and liabilities               |       |                                   |       |   |   |   |   |
|                                                          |       |                                   |       |   |   |   |   |
| (Increase) decrease in trade accounts receivable              |       | (509,855                               | )          | (138,727 | ) | (960,727 | ) |
| (Increase) decrease in GST receivable                         |       | (93,076                                | )          | (54,161 | ) | — |   |
| (Increase) decrease in other current assets                   |       | 92,728                                 |       | (69,003 | ) | (20,797 | ) |
| (Increase) decrease in prepayments                            |       | (397,131                               | )          | (441,668 | ) | — |   |
| (Increase) decrease in restricted security deposits           |       | (17,745                                | )          | (603,177 | ) | 6,494 |   |
|                                                          |       |                                   |       |   |   |   |   |
| Increase (decrease) in trade accounts payable                 |       | (1,242,051                             | )          | 887,873 |   | 1,340,951 |   |
| Increase (decrease) in provisions                             |       | 27,064                                 |       | 211,084 |   | 80,015 |   |
| Increase (decrease) in deferred revenue                       |       | (341,790                               | )          | (96,141 | ) | 462,931 |   |
| ** **                                                    |       |                                   |       |   |   |   |   |
| **Net  cash used in operating activities**                    |       | $                                      | (4,545,189 | ) | $ | (5,016,397 | ) | $ | (3,161,657 | ) |
| ** **                                                    |       |                                   |       |   |   |   |   |
| **Investing  activities**                                     |       |                                   |       |   |   |   |   |
| Payment for plant and equipment                               |       | $                                      | (119,388   | ) | $ | (467,689 | ) | $ | (640,737 | ) |
| Proceeds from the sale of plant and equipment                 |       | 3,341                                  |       | 448,413 |   | — |   |
|                                                          |       |                                   |       |   |   |   |   |
| **Net  cash used in investing activities**                    |       | $                                      | (116,047   | ) | $ | (19,276 | ) | $ | (640,737 | ) |
| ** **                                                    |       |                                   |       |   |   |   |   |
| **Financing  activities**                                     |       |                                   |       |   |   |   |   |
| Proceeds from stock options exercised                         |       | $                                      | —     |   | $ | 10,283,602 |   | $ | 817,982 |   |
| Repayment of hire purchase principal                          |       | (337,042                               | )          | (215,676 | ) | — |   |
| Proceeds from issuance of ordinary shares                     |       | —                                 |       | — |   | 6,400,200 |   |
| Share issue costs                                             |       | —                                 |       | — |   | (223,825 | ) |
|                                                          |       |                                   |       |   |   |   |   |
| **Net  cash (used in) provided by financing activities**      |       | $                                      | (337,042   | ) | $ | 10,067,926 |   | $ | 6,994,357 |   |
| ** **                                                    |       |                                   |       |   |   |   |   |
| **Net  change before the effect of exchange rate changes**    |       | $                                      | (4,998,278 | ) | $ | 5,032,253 |   | $ | 3,191,963 |   |
| ** **                                                    |       |                                   |       |   |   |   |   |
| Effect of  exchange rate changes on cash and cash equivalents |       | (227,704                               | )          | 532,403 |   | 798,595 |   |
|                                                          |       |                                   |       |   |   |   |   |
| **Net  change in cash and cash equivalents**                  |       | $                                      | (5,225,982 | ) | $ | 5,564,656 |   | $ | 3,990,558 |   |
| ** **                                                    |       |                                   |       |   |   |   |   |
| Cash and cash  equivalents, beginning of year                 |       | 13,464,416                             |       | 7,899,760 |   | 3,909,202 |   |
|                                                          |       |                                   |       |   |   |   |   |
| **Cash  and cash equivalents, end of year**                   |       | $                                      | 8,238,434  |   | $ | 13,464,416 |   | $ | 7,899,760 |   |
| ** **                                                    |       |                                   |       |   |   |   |   |
| **Supplemental  disclosure of cashflow information**          |       |                                   |       |   |   |   |   |
| Cash interest received                                        |       | $                                      | 694,531    |   | $ | 409,422 |   | $ | 333,782 |   |
| Cash interest  paid                                           |       | $                                      | 63,316     |   | $ | 31,750 |   | $ | — |   |

 

ReferNote 16 for non-cash investing and financing transactions.

Seeaccompanying notes to financial statements.

F5

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

*Organization and nature of operations*

GeneType AG (“GeneType”) was incorporated in Switzerland on February 13,1989 as an enterprise engaged in research and development in the area ofgenetics and the licensing of its patented genetic technologies.  In August 2000, an Australian company,Duketon Goldfields Ltd. (“Duketon”), acquired GeneType as a wholly-ownedsubsidiary.  Under accounting principlesgenerally accepted in the United States of America (“US GAAP”), the companywhose former shareholders retain the majority of the voting rights in thecombined business must be treated as the acquirer for accounting purposes.  Accordingly, this transaction was accountedfor as a reverse acquisition for financial reporting purposes, with GeneTypeidentified as the accounting acquirer.

Concurrentwith the reverse acquisition, the combined company changed its name to GeneticTechnologies Limited (“Genetic Technologies” or the “Company”).  Since the reverse acquisition, the Company’sactivities have focused primarily on biotechnology, particularly in the area ofgenetics.

The Company is a public company incorporated in Australia and listed onthe Australian Securities Exchange (“ASX”).On September 2, 2005, the Companyalso completed a Level II listing of its American Depositary Receipts (“ADRs”)on the NASDAQ Global Market (“NASDAQ”). Genetic Technologies operates in Australia, Canada and Europe and ownspatents in the areas of human, animal and plant genetic diagnostics andgenomics.  The Company is pursuing commercialopportunities in three main areas of activity:

(i)                           licensing of itsnon-coding patents globally;

(ii)                        expanding its geneticservice-testing business throughout the Asia-Pacific Region; and

(iii)                     supporting certainresearch projects in various fields of biotechnology, particularly genetics andgenomics.

TheCompany generates revenue from two principal sources: firstly, by entering intolicensing agreements with companies wishing to use Genetic Technologies’intellectual property relating to non-coding DNA; and secondly, from theprovision of a wide range of genetic tests on a fee-for-service basis.  In addition, the Company performs research inother areas relating to genetics and genomics and receives funds from grantsmade by the private and government sectors.

*RegisteredOffice and Principal Place of Business*

60-66 Hanover Street

Fitzroy Victoria 3065

Australia

***2.      Basisof presentation and summary of significant 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 from licensefees 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 consolidated financial statements include the accountsof the Company and its subsidiaries, including those in which the Company hasless than 100% ownership interest, all of which are controlled by theCompany.  All significant intercompanybalances and transactions have been eliminated on consolidation.  The consolidated financial statements includeinformation and results of each subsidiary from the date on which the Companyobtains control and until such time as the Company ceases to control suchentities.  The entities whose financialstatements are consolidated by the Company and which the Company’s ownership inthem is less than 100% are AgGenomics Pty. Ltd., ImmunAid Pty. Ltd. and GtechInternational Resources Limited.  Thesethree entities are consolidated by the Company as it has effective control overthem.  AgGenomics Pty. Ltd. is treated asa Variable Interest Entity in accordance with FASB Interpretation No. 46: *Consolidation of Variable Interest Entities,*for which theCompany is the primary beneficiary.

F6

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***Foreign currency translation***

The accounts of the Company are translated to the reporting currency inaccordance with 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”), thereporting currency.  The Australiandollar (“AUD”) is the functional currency for the Company.  The method of foreign exchange translationadopted for foreign subsidiaries depends on the functional currency of suchentities.  In all cases for the Company,the functional currency of foreign, self-sustaining subsidiaries is theirforeign currency, being the currency of the primary environment in which theyoperate.  The financial statements ofthese entities are translated into AUD and consolidated into the parentcompany.  The consolidated financialstatements are then translated into USD, the reporting currency.  Accordingly;

(i)                           assets and liabilities aretranslated using the current rate on the balance sheet date;

(ii)                        revenues and expenses aretranslated at the weighted-average exchange rates prevailing throughout theperiod; and

(iii)                     equity accounts are translated athistorical exchange rates.

(iv)                    Any resulting translationadjustment is presented as a separate component of accumulated othercomprehensive income (loss) in the consolidated financial statements and isincluded in earnings only upon sale or liquidation of the underlying foreignsubsidiary or associated company.

Receivables and liabilities denominated in foreign currencies areremeasured at period-end exchange rates. Gains and losses resulting from foreign currency transactions arereported in the consolidated statements of operations.

The rates used to translate AUD to USD for assets and liabilities were:
| June 30, | ** ** |
|---------------|------------|
| **2006**      | ** ** | **2005** | ** ** |
| ** **    | ** ** | ** ** | ** ** |
| $             | 0.7423     |   | $ | 0.7618 |   |
|               |            |  |  |  |  |

 

Revenues and expenses are translated at the average exchange rate duringthe year.  The rates used to translaterevenues and expenses were:
| June 30, | ** ** |
|---------------|------------|
| **2006**      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| $             | 0.7475     |   | $ | 0.7564 |   | $ | 0.7132 |   |
|               |            |  |  |  |  |  |  |  |  |

 

Commitments, contingencies and expected future income detailed in thenotes have been translated into U.S. currency at the rate of exchange at June30, 2006 of AUD1.00 = $0.7423.

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

Thepreparation of financial statements requires Management to make estimates andassumptions 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 operations during the reporting period.  In preparing these consolidated financialstatements, accounting estimates have been applied to calculate the provisionsfor tax and employee entitlements and determining the useful lives of theproperty, plant and equipment, while assumptions have been used for computingstock options.  Actual results may varyfrom those estimates.

***Cash and cash equivalents***

Cashand cash equivalents primarily are comprised of cash on deposit and short-term,highly liquid investments with original maturity dates of three months or less.

***Receivables***

Trade accounts receivable and other receivables arerecorded at amounts due less any estimate for doubtful debts.  Bad debts are charged off directly toaccounts receivable.  Amounts are chargedoff 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 economic environment.  The Company recorded bad debt expenses of$nil, $nil and $28,597 during the years ended June 30, 2006, 2005 and2004, respectively.

F7

----

***Goods and services tax***

Revenues, expenses and assets are recognized net of the amount of goodsand services tax (“GST”), except where the amount of GST incurred is notrecoverable 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.

***Restrictedsecurity deposits***

Restrictedsecurity deposits include cash deposits held as security for the Company’s hirepurchase agreements and as performance bonds in respect of its passive interestin a mining 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 to therecoverable amount.  The resultingrealized loss is included in the consolidated statements of operations in the period in which thedecline was deemed to be other than temporary. The fair value of the cost-method investments is not estimated as thereare no identified events or changes in circumstances that may have asignificant adverse effect on the fair value of the investment and it is notpracticable to do so.

***Marketable securities***

Thesecurities consist of equity securities, which are stated at fair value.  Unrealized gains or losses on the changes inthe fair value of the securities are recorded in the consolidated statements ofoperations.  Dividends on securitiesclassified as trading are included in dividend income when declared.

***Property, plant and equipment***

Property, plant and equipment aremeasured 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* the Company evaluates the recoverability of its long-lived assets 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 useful lives.  An impairment loss is recognized when thecarrying amount of the asset exceeds its fair value.  The resulting impairment loss is classified as acomponent of loss from operations.  Noimpairment losses have been recognized.

***Patents***

Externalcosts incurred in filing, defending and protecting patent applications forwhich no future benefit is reasonably assured are expensed as patent fees asincurred.  As of June 30, 2006 and 2005,none of these external costs have been capitalized.  Acquired patents, for which a future benefitis reasonably assured, are capitalized and amortized using the straight-linemethod over their useful life, being 10 years.

F8

----

***Goodwill***

Goodwill represents the excess of the cost of businesses acquired overthe fair value of the identifiable net assets acquired.  Priorto the adoption of 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 between 10 to20 years.  Subsequent to the adoption ofSFAS 142 on July 1, 2002,amortization of goodwill ceased. Goodwill attributable to purchased business combinations completedsubsequent to June 30, 2001 was neveramortized pursuant to SFAS 142.

The Company tests goodwill for impairment annuallyand on an interim basis if events or changes in circumstances between annualtests indicate that the asset might be impaired using the two-step processprescribed in SFAS 142.  The first stepis a comparison of the fair value of the reporting unit with its carrying amount,including goodwill.  If this step reflectsimpairment, then the loss is measured as the excess of the recorded goodwillover its implied fair value.  Impliedfair value is the excess of the fair value of the reporting unit over the fairvalue of all identified assets and liabilities. Since the adoption of SFAS 142, no impairment losses have beenrecognized.  However, in fiscal year2006, the Company recorded a write-off of goodwill amounting to $81,851.

***Exchangesof nonmonetary assets***

InDecember 2004, the FASB issued SFAS No. 153: *Exchanges ofNonmonetary Assets*(“SFAS 153”), which is applicable for fiscalperiods beginning after June 15, 2005. The Company adopted SFAS 153 on July 1, 2005.  SFAS 153 amends Accounting Principles BoardOpinion No. 29: *Accounting for NonmonetaryTransactions* (“APB 29”), by eliminating the exception fornonmonetary exchanges of similar productive assets and replaces it with ageneral exception for exchanges of nonmonetary assets that do not havecommercial substance.  A nonmonetaryexchange has commercial substance if the future cash flows of the entity areexpected to change significantly as a result of the exchange.  SFAS 153 requires entities to measureexchanges of monetary assets based on the fair values of the assets exchanged.  Prior to July 1, 2005, the Company appliedAPB 29, which required that the accounting for an exchange of a productiveasset for a similar productive asset should be based on the recorded amount ofthe asset relinquished.  Certain of theCompany’s licensing arrangements involve the exchange of non-monetaryassets.  Refer further disclosure underthe heading *Revenue Recognition*.

***Accruals for employee entitlements***

TheCompany accrues compensated absences and related benefits as current charges toearnings when the following criteria are met: (1) the employee’s right toreceive compensation for the future absences is attributable to servicesalready performed by the employee; (2) the employee’s right to receive thecompensation for the future absences is vested, or accumulates; (3) it is probablethat the compensation will be paid; and (4) the amount of compensation isreasonably estimable.

***Finance leases and hire purchase agreements***

Leases and hire purchaseagreements which effectively transfer substantially all of the risks andbenefits incidental to ownership ofthe leased item to the group are capitalized at the present value of theminimum lease payments and disclosed as laboratory equipment.  A lease or hire purchase liability of equalvalue is also recognised.  Capitalizedlease and hire purchase assets are amortized over the term of the respectiveagreement.  Minimum lease or hirepurchase payments are allocated between interest expense and reduction of thelease or hire purchase liability, with the interest expense calculated using theinterest rate implicit in the lease and recognised directly in net profit.  The cost of improvements to or on leaseholdproperty is capitalized, disclosed asleasehold improvements, and amortized over the unexpired period of the lease orthe estimated useful lives of the improvements, whichever is the shorter.

***Income taxes***

The Company accounts for income taxes under the provisions of SFAS No.109: *Accounting for Income Taxes* (“SFAS 109”).  SFAS 109 requires recognition of deferred taxassets and liabilities for the estimated future tax consequences of events attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective 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 consolidatedstatement of 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.

F9

----

***Revenue recognition***

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*

TheCompany licenses the use of its patented genetic technologies.  Royalties from these licenses are recognizedwhen earned and no future performanceis required by the Company, and collection is reasonably assured.

*Rendering of services*

TheCompany generates revenue principally from the licensing of patents and theprovision of genetic testing services. Revenue is recognized when the four basic criteria of revenuerecognition are met: (1) a contractual agreement exists; (2) services have beenrendered; (3) the fee is fixed or determinable; and (4) collectibility isreasonably assured.  For each source ofrevenue, the Company complies with the above revenue recognition criteria inthe following manner:

·                  A sale is recorded when services have beenrendered to and accepted by the customer pursuant to a fixed price sales order,collectibility of the selling price is reasonably assured, and the associatedrisks have passed to the customer.  TheCompany grants no refund or return rights.

·                  Revenues from services rendered are recognized asthe service is performed, and no additional services are required to beprovided.

*Research and development grants*

The Company receives non-refundablegrants that assist the Company to fund specific research and developmentprojects.  Thesegrants generally provide for reimbursement of approved costs incurred asdefined in the various agreements. Government grants are recorded as revenue when key milestones setwithin each agreement are achieved and accepted by all parties to the grant, noperformance obligation remains and collectibility is reasonably assured.  Grant funds received in advance of the Companycompleting its performance obligations are deferred.  Whenthe Company is required to make cash payments or purchases from the issuer ofthe grant as a requirement for the grant to be issued, the income is recordednet of the consideration payable by the Company.

*Interest income*

Interest income is recognized as earned and when collectibility is assured.

***Salesand marketing expenses***

Sales and marketingexpenses, including advertising expenses, are expensed as incurred.  Total advertising expenses incurred duringthe years ended June 30, 2006, 2005 and 2004 were $126,736, $101,522 and$405,372, respectively.

***Research and development***

Researchand development costs are charged to expense as incurred.  Such costs include direct salaries,laboratory expenses, contractor fees, rent, utilities, and certain relatedadministrative expenses.

***Operatingleases***

The Company has operating leases in respect of business premises.  The minimum lease payments of operatingleases, where the lessor effectively retains substantially all of the risks andbenefits of ownership of the leased item, are recognised as an expense.

F10

----

***Stock-based compensation***

TheCompany currently sponsors stock option plans. Prior to July 1, 2005, the Company accounted for its stock option plans in accordance with Accounting Principles BoardOpinion No. 25: *Accounting for Stock Issued to Employees*and related interpretations (“APB 25”) and adopted the disclosure-onlyprovisions of SFAS No. 123: *Accounting for Stock-BasedCompensation* (“SFAS 123”). Under APB 25, the Company recognized compensation expense for stockoption grants on the date of the grant only if the current market price of theunderlying stock exceeded the exercise price. Unearned compensation expensewas charged against operations ratably over the vesting period of theoptions.  For disclosure purposes underSFAS 123, stock options were valuedat the measurement date using the Black-Scholes option valuation model andcompensation costs were recognized ratably over the vesting period.

Effectivefrom July 1, 2005, the Company adopted the requirements of SFAS 123 (revised2004): *Share-Based Payments*(“SFAS 123R”) using the “modified prospective”method thereby recognising the compensation cost in the financial statements 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.

As aresult of adopting SFAS 123R on July 1, 2005, the Company’s loss before incometaxes and net loss for the year ended June 30, 2006 are both $610,843 higherthan if it had continued to account for share-based compensation under APB 25.  Basic and diluted loss per share for the yearended June 30, 2006 was $0.002 higher than if the Company had continued to account for the share-based compensation under APB25.  The adoption of SFAS 123R had noeffect on the cash flow statement.

TheCompany utilizes a Black-Scholes option pricing model to measure the fair valueof 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 98-18: *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.

Proforma information regarding net loss is required by SFAS 123, as amended bySFAS 148, and has been determined as if the Company had accounted for itsemployee stock options under the fair value method of SFAS 123 as of itseffective date.  The fair value of theoptions issued to employees was estimated at the date of grant using theBlack-Scholes option-pricing model with the following weighted-averageassumptions:
|                          | ** ** | **June 30,** | ** ** |
|--------------------------|------------|-------------------|------------|
| ** **               | ** ** | **2006**          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **               | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Risk Free  Interest Rate |       | 5.62              | %          | 5.21 | % | 5.80 | % |
| Expected  Dividend Yield |       | —            |       | — |   | — |   |
| Expected  Volatility     |       | 0.53              |       | 0.55 |   | 0.89 |   |
| Expected Lives (years)   |       | 5.0               |       | 5.0 |   | 6.0 |   |

Had the Company elected to adoptthe fair value recognition provisions of SFAS 123, pro forma net loss would beas follows:
| ** **                                                                                                     | ** ** | **Year ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                     | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **                                                                                                     | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Net loss as  reported                                                                                          |       | $                                      | (5,742,949 | ) | $ | (4,816,726 | ) |
| Employee  stock-based compensation, net of taxes, as calculated under APB 25 included  in net loss as reported |       | 591                                    |       | 976 |   |
|                                                                                                           |       |                                   |       |   |   |
| Employee  stock-based compensation, net of taxes, as calculated under SFAS 123                                 |       | (606,418                               | )          | (532,408 | ) |
|                                                                                                           |       |                                   |       |   |   |
| Pro forma net  loss                                                                                            |       | $                                      | (6,348,776 | ) | $ | (5,348,158 | ) |
|                                                                                                           |       |                                   |       |   |   |
| Net loss per  ordinary share (basic and diluted)                                                               |       | $                                      | (0.02      | ) | $ | (0.02 | ) |
|                                                                                                           |       |                                   |       |   |   |
| Pro forma net loss per  ordinary share (basic and diluted)                                                     |       | $                                      | (0.02      | ) | $ | (0.02 | ) |

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

F11

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***Net loss per share***

Basic net loss per ordinary 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 loss***

SFAS No. 130: *Reporting ComprehensiveIncome* establishes standards for reporting and display ofcomprehensive 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 loss consists of net loss and foreigncurrency translation adjustments, and is presented in the consolidatedstatements of changes in shareholders’ equity.

***Variable interest entities***

InJanuary 2003, the FASB issued Interpretation No. 46: *Consolidationof Variable Interest Entities*(“FIN 46”), which addresses theconsolidation of business enterprises (variable interest entities) to which theusual condition of consolidation, a controlling financial interest, does notapply.  FIN 46 requires an entity toassess its business relationships to determine if they are variable interestentities.  As defined in FIN 46, variableinterests are contractual, ownership or other interests in an entity thatchange with changes in the entity’s net asset value.  Variable interests in an entity may arisefrom financial instruments, service contracts, guarantees, leases or otherarrangements with the variable interest entity. An entity that will absorb a majority of the variable interest entity’sexpected losses or expected residual returns, as defined in FIN 46, isconsidered the primary beneficiary of the variable interest entity.  The primary beneficiary must include thevariable interest entity’s assets, liabilities and results of operations in itsconsolidated financial statements.  FIN46 was immediately effective for all variable interest entities created afterJanuary 31, 2003.  For variable interestentities created prior to this date, the provisions of FIN 46 were originallyrequired to be applied no later than the Company’s first quarter of Fiscal2004.  In December 2003, the FASB issuedFASB Staff 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 FIN46 for 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 formedan incorporated joint venture with Agriculture Victoria Services Pty. Ltd. (“AVS”)for the purpose of using ultra-high throughput genomic technologies andfacilities to accelerate breeding programs in both the plant and animal agricultural industries.  The Company owns 50.1% of the shares in thejoint venture company AgGenomics Pty. Ltd. (“AgGenomics”).  Under the termsof the agreement, the Company is required to provide working capital to AgGenomicsto help fund AgGenomics’ operations.  TheCompany’s maximum exposure to loss as a result of its involvement in AgGenomicsis the balance of the working capitalloans provided to AgGenomics.  At June30, 2006 and 2005, AgGenomics has outstanding loans payable to the Company in the amount of $325,616 and $364,642,respectively.  These amounts wereeliminated for consolidationpurposes.  AgGenomics has no otheroutstanding debt.  The Company alsoreceives a management fee for variousservices provided to AgGenomics.  AVS isnot required to provide funding in addition to its capital contribution of $28.The Company is the primary beneficiary of AgGenomics and, accordinglyconsolidates AgGenomics in the accompanying financial statements.  The total assets and net liabilities ofAgGenomics as of June 30, 2006 (net of eliminating balances) were $55,586 and$4,759, respectively.

***Taxconsolidation system***

Legislation to allow groups, comprising a parent entity and itsAustralian resident wholly owned entities, to elect to consolidate and betreated as a single entity for income tax purposes, was substantively enactedon October 21, 2002.  The legislation,which includes both mandatory and elective elements, is applicable to theCompany.  Effective July 1, 2003, for thepurposes of income tax, Genetic Technologies and its wholly-owned subsidiarieshave formed a tax consolidation group. Members of the group propose to enter into a tax sharing arrangement inorder to allocate income tax expense to the wholly owned Australiansubsidiaries on a pro-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.

F12

----

***Recent pronouncements***

*Accounting Changesand Error Corrections*

InMay 2005, the Financial Accounting Standards Board (“FASB”) issued SFASNo. 154, *Accounting Changes and Error Corrections*,a replacement of Accounting Principles Board (“APB”) Opinion No. 20 and FASBStatement No. 3 (“SFAS 154”).  SFAS 154provides guidance on the accounting for and reporting of accounting changes,including changes in principle, accounting estimates, and the reporting entity,as well as, corrections of errors in previously issued financialstatements.  SFAS 154 requiresretrospective application of voluntary changes in accounting principle to priorperiod financial statements, unless it is impracticable to do so.  SFAS 154 also provides that a change inaccounting estimate that is affected by a change in accounting principle isaccounted for as a change in estimate. SFAS 154 carries forward from APB 20, *AccountingChanges*, the reporting for a correction of an error, a change in thereporting entity, and the requirement to justify a voluntary change inaccounting principle on the basis of preferability.  SFAS 154 is effective for accounting changesand corrections of errors made in fiscal years beginning after December 15,2005 with early adoption permitted for accounting changes and corrections oferrors made in fiscal years beginning after the date SFAS 154 was issued.  The Company plans to adopt this pronouncementin fiscal years beginning July 1, 2006 and does not believe the adoption of SFAS154 will have a material effect on the financial statements.

*Uncertainty inIncome Taxes*

InJuly 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, *Accounting for Uncertainty in Income Taxes*, aninterpretation of FASB No. 109, *Accounting for IncomeTaxes* (“FIN 48”).  FIN 48creates a single model to address uncertainty in tax positions and clarifiesthe accounting for income taxes by prescribing the minimum recognitionthreshold a tax position is required to meet before being recognized in thefinancial statements.  FIN 48 alsoprovides guidance on derecognition, measurement, classification, interest andpenalties, accounting in interim periods, disclosure, and transition.  In addition, FIN 48 clearly scopes out incometaxes from SFAS No. 5, *Accounting forContingencies*.  FIN 48 appliesto all tax positions related to income taxes subject to SFAS No. 109.  This includes tax positions considered to be “routine”as well as those with a high degree of uncertainty.  The guidance contained in FIN 48 is alsoapplicable to pass-through entities, non-taxable entities, and entities whosetax 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 anenterprise concludes that a tax position, based solely on its technical merits,is more-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 on ultimate settlement.  Derecognition of a tax position that waspreviously recognized would occur when a company subsequently determines that a tax position no longer meetsthe 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.  The Companyplans to adopt this pronouncement in fiscal year beginning July 1, 2007 anddoes not believe the adoption of FIN 48 will have a material effect on thefinancial statements.

*Fair ValueMeasurements*

InSeptember 2006, the FASB issued SFAS No. 157, *Fair ValueMeasurements* (“SFAS 157”).  SFAS157 provides enhanced guidance for using fair value to measure assets andliabilities 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 does not expand the use of fair valuein any new circumstances.  Under SFAS157, fair value refers to the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between market participants in the market in which the reportingentity transacts.  SFAS 157 clarifies theprinciple that fair value should be based on the assumptions market participants would use when pricing the assetor liability.  In support of thisprinciple, SFAS 157 establishes afair value hierarchy that prioritizes the information used to develop thoseassumptions.  The fair value hierarchygives the highest priority to quotedprices in active markets and the lowest priority to unobservable data.  Under SFAS 157, fair value measurements wouldbe separately disclosed by level within the fair value hierarchy.  SFAS 157 is effective for financial statements issued for fiscal years beginningafter November 15, 2007.  The Companyplans to adopt this pronouncement in fiscal years beginning July 1, 2008 anddoes not believe the adoption of SFAS 157 will have a material effect onthe financial statements.

F13

----

***Reclassifications***

Asdescribed in Note 18, certain reclassifications have been made to theconsolidated financial statements for the years ended June 30, 2005 and 2004 to conform to thepresentation of the consolidated financial statements for the year ended June30, 2006.

***3.      Cost-methodinvestments***

OnDecember 13, 2001, the Company acquired 12,689 ordinary shares, orapproximately 1% of the outstanding share capital, of XY, Inc., an unlistedcompany based in Fort Collins, Colorado. This acquisition was financed by the issuance of 507,560 ordinary sharesof the Company valued at $138,407.  OnMay 12, 2003, the Company increased its holding in XY, Inc. by acquiring 17,500ordinary shares through the issuance of 700,000 ordinary shares of the Company,valued at $171,676.  The CEO and Chairmanof XY, Inc. is also the CEO of the Company. As of June 30, 2006 and 2005, the Company owned a total of 30,189ordinary shares in XY, Inc. (representing approximately 0.42% and 0.42% of theissued ordinary shares of XY, Inc., respectively), valued at $301,890 (2005:$301,890).

InSeptember 2002, the Company issued a limited license to Perlegen Sciences, Inc.(“Perlegen”), at which time Perlegen paid $860,000 in up-front fees.  Thesefees were satisfied by the payment of cash and the issuance of 127,000 Series B shares, giving the Company an insignificant shareholding in Perlegen.  As of June 30, 2006and 2005, the Company owned a total of 127,000 Series B shares in Perlegen,valued at $198,120 (2005: $198,120).

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

Property,plant and equipment consists of the following:

|                                                    | ** ** | **June 30,** | ** ** |
|----------------------------------------------------|------------|-------------------|------------|
| ** **                                         | ** ** | **2006**          | ** ** | **2005** | ** ** |
| ** **                                         | ** ** | ** **        | ** ** | ** ** | ** ** |
| Laboratory  equipment, at cost                     |       | $                 | 2,244,493  |   | $ | 1,787,858 |   |
| Accumulated  amortization                          |       | (1,486,140        | )          | (1,095,260 | ) |
|                                               |       |              |       |   |   |
| Net laboratory  equipment                          |       | $                 | 758,353    |   | $ | 692,598 |   |
|                                               |       |              |       |   |   |
| Computer  equipment, at cost                       |       | $                 | 443,215    |   | $ | 396,509 |   |
| Accumulated  amortization                          |       | (277,543          | )          | (194,209 | ) |
|                                               |       |              |       |   |   |
| Net computer  equipment                            |       | $                 | 165,672    |   | $ | 202,300 |   |
|                                               |       |              |       |   |   |
| Office  equipment, at cost                         |       | $                 | 94,863     |   | $ | 80,697 |   |
| Accumulated  amortization                          |       | (57,558           | )          | (49,292 | ) |
|                                               |       |              |       |   |   |
| Net office  equipment                              |       | $                 | 37,305     |   | $ | 31,405 |   |
|                                               |       |              |       |   |   |
| Laboratory  equipment under hire purchase, at cost |       | $                 | 1,182,141  |   | $ | 1,151,151 |   |
| Accumulated  amortization                          |       | (512,282          | )          | (136,590 | ) |
|                                               |       |              |       |   |   |
| Net laboratory  equipment under hire purchase      |       | $                 | 669,859    |   | $ | 1,014,561 |   |
|                                               |       |              |       |   |   |
| Leasehold  improvements, at cost                   |       | $                 | 63,825     |   | $ | 48,877 |   |
| Accumulated  amortization                          |       | (13,120           | )          | (4,439 | ) |
|                                               |       |              |       |   |   |
| Net leasehold  improvements                        |       | $                 | 50,705     |   | $ | 44,438 |   |
|                                               |       |              |       |   |   |
| Total net property,  plant and equipment           |       | $                 | 1,681,894  |   | $ | 1,985,302 |   |

*** ***

F14

----

***5.      Patents, net***

OnJune 15, 2004, Genetic Technologies acquired a suite of intellectual propertyfrom the C.Y. O’Connor ERADE Village Foundation (“CYO”) in Perth, WesternAustralia.  Consideration for theacquisition was satisfied via the issue by the Company of 16,666,667 ordinary shares with a market valueof $0.27 (AUD0.39) each on the date of issue, or $4,524,000 (AUD6,500,000) in total.

Patentsconsist of the following:
|                           | ** ** | **June 30,** | ** ** |
|---------------------------|------------|-------------------|------------|
| ** **                | ** ** | **2006**          | ** ** | **2005** | ** ** |
| ** **                | ** ** | ** **        | ** ** | ** ** | ** ** |
| Patents                   |       | $                 | 4,831,334  |   | $ | 4,951,700 |   |
| Accumulated  amortization |       | (1,011,582        | )          | (536,434 | ) |
| Patents, net              |       | $                 | 3,819,752  |   | $ | 4,415,266 |   |

Patents are reported entirely by the Australian segmentof the Company.  The change in thecarrying value of patents is represented by:
|                                         | ** ** | **June 30,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|
| ** **                              | ** ** | **2006**          | ** ** | **2005** | ** ** |
| ** **                              | ** ** | ** **        | ** ** | ** ** | ** ** |
| Patents, opening  cost                  |       | $                 | 4,951,700  |   | $ | 4,518,800 |   |
| Purchases                               |       | 6,494             |       | — |   |
| Foreign currency  exchange fluctuations |       | (126,860          | )          | 432,900 |   |
| Patents, closing  cost                  |       | $                 | 4,831,334  |   | $ | 4,951,700 |   |
|                                    |       |              |       |   |   |
| Accumulated  amortization, opening      |       | $                 | 536,434    |   | $ | 37,657 |   |
| Amortization  expense                   |       | 492,304           |       | 491,669 |   |
| Foreign currency  exchange fluctuations |       | (17,156           | )          | 7,108 |   |
| Accumulated amortization,  closing      |       | $                 | 1,011,582  |   | $ | 536,434 |   |

Below is a schedule of estimatedaggregate amortization expense for patents for all succeeding years, as at June30, 2006:
| Year ending June 30, | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------|------------|
| ** **                          | ** ** | ** ** | ** ** |
| 2007                                |       | $          | 482,495    |   |
| 2008                                |       | 482,495    |       |
| 2009                                |       | 482,495    |       |
| 2010                                |       | 482,495    |       |
| 2011                                |       | 482,495    |       |
| 2012 and thereafter                 |       | 1,407,277  |       |
|                                |       |       |       |
| Total estimated  amortization       |       | $          | 3,819,752  |   |

 

***6.      Goodwill, net***

Goodwillconsists of the following:
| ** **               | ** ** | **June 30,** | ** ** |
|--------------------------|------------|-------------------|------------|
| ** **               | ** ** | **2006**          | ** ** | **2005** | ** ** |
| ** **               | ** ** | ** **        | ** ** | ** ** | ** ** |
| Goodwill                 |       | $                 | 265,752    |   | $ | 364,150 |   |
| Accumulated amortization |       | (8,933            | )          | (17,167 | ) |
|                     |       |              |       |   |   |
| Goodwill, net            |       | $                 | 256,819    |   | $ | 346,983 |   |

 

 

F15

----

Goodwill is reportedentirely by the Australian segment of the Company.  The change in the carrying value of goodwillis represented by:
|                                         | ** ** | **June 30,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|
| ** **                              | ** ** | **2006**          | ** ** | **2005** | ** ** |
|                                    |       |              |       |   |   |
| Goodwill,  opening cost                 |       | $                 | 364,150    |   | $ | 332,314 |   |
| Goodwill written-off                    |       | (81,851           | )          | — |   |
| Foreign currency  exchange fluctuations |       | (16,547           | )          | 31,836 |   |
|                                    |       |              |       |   |   |
| Goodwill,  closing cost                 |       | $                 | 265,752    |   | $ | 364,150 |   |
|                                    |       |              |       |   |   |
| Accumulated  amortization, opening      |       | $                 | 17,167     |   | $ | 15,666 |   |
| Accumulated  amortization written back  |       | (8,970            | )          | — |   |
| Foreign currency  exchange fluctuations |       | 736               |       | 1,501 |   |
|                                    |       |              |       |   |   |
| Accumulated  amortization, closing      |       | $                 | 8,933      |   | $ | 17,167 |   |

 

In prior years, theCompany had acquired several businesses providing genetic testingservices.  As part of these acquisitions,amounts of goodwill were ascribed to the value of the various brand namesacquired.  During 2006, the Companyrestructured its genetic testing business to streamline its operations.  As part of this restructure, two of thesebrand names were abandoned.  Accordingly,goodwill related to these names amounting to $81,851was written off.

***7.      Incometaxes***

Loss before income taxes for theyears ended June 30, 2006, 2005 and 2004 was realized in the followingjurisdictions:
| ** **               | ** ** | **Year ended June 30,** | ** ** |
|--------------------------|------------|----------------------------------------|------------|
| ** **               | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
|                     |       |                                   |       |   |   |   |   |
| Australia                |       | $                                      | (3,889,195 | ) | $ | (5,477,481 | ) | $ | (4,668,845 | ) |
| Switzerland              |       | (15,043                                | )          | (16,902 | ) | (181,292 | ) |
| Canada                   |       | (38,569                                | )          | (18,211 | ) | 84,550 |   |
| USA                      |       | (1,907                                 | )          | — |   | — |   |
|                     |       |                                   |       |   |   |   |   |
| Loss before income taxes |       | $                                      | (3,944,714 | ) | $ | (5,512,594 | ) | $ | (4,765,587 | ) |

 

Significant components of theCompany’s deferred income tax assets at June 30, 2006, 2005 and 2004 are asfollows:
| ** **                                 | ** ** | **Year ended June 30,** | ** ** |
|--------------------------------------------|------------|----------------------------------------|------------|
| ** **                                 | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Deferred tax asset**                     |       |                                   |       |   |   |   |   |
| Temporary differences                      |       |                                   |       |   |   |   |   |
| Patents                                    |       | $                                      | 751,645    |   | $ | 892,823 |   | $ | 927,409 |   |
| Foreign withholding  taxes                 |       | 445,726                                |       | 491,986 |   | 277,991 |   |
| Employee  provisions and other differences |       | 111,581                                |       | 188,657 |   | 96,725 |   |
| Proceeds from  Applera settlement          |       | 1,672,711                              |       | — |   | — |   |
| Net operating (income)  loss carry forward |       | 5,111,462                              |       | 4,643,253 |   | 5,399,517 |   |
| Total deferred tax  asset                  |       | $                                      | 8,093,125  |   | $ | 6,216,719 |   | $ | 6,701,642 |   |
| Valuation allowance                        |       | (8,093,125                             | )          | (6,216,719 | ) | (6,701,642 | ) |
|                                       |       |                                   |       |   |   |   |   |
| Net                                        |       | $                                      | —     |   | $ | — |   | $ | — |   |

 

The net movement in valuation allowance was $(1,876,406),$484,923 and $1,736,619 for the years ended June 30, 2006, 2005 and 2004,respectively.

F16

----

Impact of foreign currency movement in gross deferred taxassets relating to tax losses:
| ** **                                            | ** ** | **Year ended June 30,** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                            | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Deferred tax asset relating to  tax losses**        |       |                                   |       |   |   |   |   |
| Tax losses brought  forward from prior year           |       | $                                      | 4,643,253  |   | $ | 5,399,517 |   | $ | 3,637,387 |   |
| Current year tax losses                               |       | 372,192                                |       | 1,879,394 |   | 1,451,205 |   |
| Tax losses lost                                       |       | —                                 |       | (2,265,920 | ) | — |   |
| Effect of foreign  currency translations              |       | 96,017                                 |       | (369,738 | ) | 310,925 |   |
| Total gross deferred tax asset relating to tax losses |       | $                                      | 5,111,462  |   | $ | 4,643,253 |   | $ | 5,399,517 |   |

 

In assessing the realizability ofdeferred tax assets, Management considers whether it is more-likely-than-notthat some or 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 any future periods.

The deferred tax asset arisingfrom tax losses generated in Australia of $4,102,188 is indefinite as touse.  The deferred tax asset arising fromtax losses generated in Switzerland of $60,255 expires over seven yearscommencing the financial year ending June 30, 2008.  The deferred tax asset arising from taxlosses generated in the United States of America of $789,267 expires overfifteen years commencing with the financial year ending June 30, 2007 up to andincluding financial year ending June 30, 2021. Finally, the deferred tax asset arising from tax losses generated inCanada of $159,752 expires over seven years commencing the financial yearending June 30, 2008. Tax losses lost in 2005 of $2,265,920 arose in connectionwith 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:
| ** **                                      | ** ** | **Year ended June 30,** | ** ** |
|-------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                      | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Loss before income  taxes and minority interest |       | $                                      | (3,944,714 | ) | $ | (5,512,594 | ) | $ | (4,765,587 | ) |
| Income tax rate                                 |       | 30                                     | %          | 30 | % | 30 | % |
| Income tax benefit at  statutory rate           |       | $                                      | (1,183,414 | ) | $ | (1,653,778 | ) | $ | (1,429,676 | ) |
| Tax losses utilized                             |       | 715,176                                |       | — |   | 38,985 |   |
| Adjust for permanent  differences:              |       |                                   |       |   |   |   |   |
| Stock  compensation                             |       | 183,253                                |       | — |   | 13,732 |   |
| Write-off of  goodwill                          |       | 24,555                                 |       | — |   | — |   |
| Difference in  tax rates                        |       | 363                                    |       | 2,359 |   | 44,896 |   |
| Research and  development concessions           |       | (112,125                               | )          | (227,975 | ) | (119,142 | ) |
| Benefits of operating  loss carry forward       |       | $                                      | (372,192   | ) | $ | (1,879,394 | ) | $ | (1,451,205 | ) |
| Increase in valuation  allowance                |       | 372,192                                |       | 1,879,394 |   | 1,451,205 |   |
| Foreign taxes - current                         |       | 67,649                                 |       | 195,338 |   | 27,579 |   |
| Income tax expense -  current                   |       | $                                      | 67,649     |   | $ | 195,338 |   | $ | 27,579 |   |
| Tax withheld directly                           |       | (101,481                               | )          | — |   | — |   |
| Other foreign currency  movements               |       | (12,428                                | )          | 18,657 |   | — |   |
| Opening provision for  income tax               |       | 491,986                                |       | 277,991 |   | 250,412 |   |
| Closing provision for income tax                |       | $                                      | 445,726    |   | $ | 491,986 |   | $ | 277,991 |   |

 

F17

----

 
|               | ** ** | **Year ended June 30,** | ** ** |
|---------------|------------|----------------------------------------|------------|
| ** **    | ** ** | **2006**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Tax rates** |       |                                   |       |   |   |   |   |
| Australia     |       | 30                                     | %          | 30 | % | 30 | % |
| United States |       | 39                                     | %          | 39 | % | 39 | % |
| Switzerland   |       | 8.5                                    | %          | 8.5 | % | 8.5 | % |
| Canada        |       | 37                                     | %          | 37 | % | 37 | % |

 

***8.      Deferred revenue***
|                                                 | ** ** | **June 30,** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|
| ** **                                      | ** ** | **2006**          | ** ** | **2005** | ** ** |
| Opening balance                                 |       | $                 | 366,790    |   | $ | 462,931 |   |
| Add: cash receipts  from customers              |       | —            |       | 326,361 |   |
| Less: amount of  revenue recognized in earnings |       | (326,532          | )          | (439,779 | ) |
| Add: foreign  exchange movements                |       | (15,258           | )          | 17,277 |   |
| Closing balance                                 |       | $                 | 25,000     |   | $ | 366,790 |   |

 

***9.      Unsecured loan***
|                | ** ** | **June 30,** | ** ** |
|----------------|------------|-------------------|------------|
| ** **     | ** ** | **2006**          | ** ** | **2005** | ** ** |
| Unsecured loan |       | $                 | 519,610    |   | $ | 533,260 |   |
|           |       | $                 | 519,610    |   | $ | 533,260 |   |

 

Thelong-term loan represents an unsecured, non-interest bearing loan from theAustralian Commonwealth Government received under the Research &Development Start Program.  The loan representsa portion 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 Company commercializes a product asa result of the research covered under the grant.  If no product is commercialized, the Companywill recognize grant revenue after January 15, 2009, when the loan is no longerrepayable.  The costs associated with theresearch have been expensed prior to 2004.

***10.    Relatedparty transactions and balances***
| ** **                                                                                                                                                                                                                                                                                                                      | ** ** | **Years ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                      | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| 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 |   | $ | 25,675 |   |
|                                                                                                                                                                                                                                                                                                                            |       |                                    |       |   |   |   |   |
| 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 |       | $                                       | 298,457    |   | $ | 293,100 |   | $ | 266,731 |   |
|                                                                                                                                                                                                                                                                                                                            |       |                                    |       |   |   |   |   |
| GrapeSeed International  is associated with Mr. Russell Granzow, a former director of the Company, and  provided management services to the Company for the period April 17, 2003 to  January 31, 2004 at a cost of                                                                                                             |       | $                                       | —     |   | $ | — |   | $ | 82,589 |   |

 

F18

----

On May 12, 2003, the Company increased its holding in XY,Inc. by acquiring 17,500 ordinary shares through the issuance of 700,000ordinary shares of the Company, valued at $171,676.  As of June 30, 2006 and 2005, the Companyowned a total of 30,189 ordinary shares in XY, Inc. (representing approximately0.42% of the issued ordinary shares of XY, Inc. at both dates), valued at$301,890 and $301,890, respectively.

Premises previously leased by theCompany were subleased to director related entities.  Rental recoveries were included against rentexpenses in the consolidated statement of operations.  Total rental recoveries for cancelable leasesreceived by the Company from director related entities during the years endedJune 30, 2006, 2005 and 2004 amounted to $nil, $46,053 and $56,271,respectively.

All management fees weredisclosed as general and administrative expenses in the consolidated statementsof operations in the respective years.

***11.    Commitments and contingencies***

***Capital expenditurecommitments***

The Company does not have anysignificant capital expenditure commitments that are subject to bindingcontracts.  However, the Company hascontinuing minimal expenditure requirements of the Western Australian MinesDepartment in respect of its prospecting and exploration licenses and miningleases, which are met by its joint venture partners.

TheCompany has an investment in the Duketon Belt Joint Venture with Johnson’s WellMining 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, 2006and 2005, respectively.  As a result ofthis election not to contribute its share of expenditures, the Company’sinterest in the joint venture was diluted down to 17.45% as of June 30, 2006(2005: 18.11%).

***Hire purchase commitments***

On January 14, 2005, the Companyexecuted a Master Asset Finance Agreement with National Australia Bank Limited(the “Bank”) in respect of a$1,855,750 (AUD2,500,000) asset finance facility (the “Facility”).  During the period up to June 30, 2006, theCompany financed the acquisition oflaboratory and office equipment under the Facility with a total value of$1,182,141 (AUD1,592,538).  A cashsecurity deposit of $583,985 (AUD786,724) was held by the Bank as of June 30,2006.  Interest on the Facility ischarged at rates ranging from 6.93% to 7.38% per annum.  The hire purchase contracts have a term ofthree years with a 10% residual being payable at the conclusion of thecontract.  Each of the Company’sAustralian-resident controlled entities has provided a guarantee to the Companyin respect of the Facility.

On February 9, 2005, the Companyentered into a sale-and-hire-back transaction pursuant to which it sold threeitems of laboratory 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 futurehire purchase commitments under the Facility as of June 30, 2006 are asfollows:
| Minimum hire purchase  payments                                          |   |    |    |
|--------------------------------------------------------------------------|--------|---------|---------|
|                                                                     |   |    |    |
| Year ending 2007                                                         |   | $       | 404,220 |   |
| Year ending 2008                                                         |   | 378,526 |    |
|                                                                     |   |    |    |
| Total minimum  hire purchase payments                                    |   | $       | 782,746 |   |
| Less: future  finance charges                                            |   | (53,728 | )       |
|                                                                     |   |    |    |
| Aggregate hire  purchase expenditure contracted for as at reporting date |   | $       | 729,018 |   |
|                                                                     |   |    |    |
| Aggregate  expenditure commitments comprise:                             |   |    |    |
| Current liability                                                        |   | $       | 364,008 |   |
| Non-current liability                                                    |   | 365,010 |    |
|                                                                     |   |    |    |
| Total expenditure  commitments                                           |   | $       | 729,018 |   |

 

F19

----

***Research and developmentcommitments***

As of June 30, 2006, the Company funded five separate research anddevelopment projects.  Refer Note 17 fordetails of the various commitments and contingencies pertaining to theseprojects.

***Leases***

Operatingleases relate to office and laboratory premises in Fitzroy, Victoria and officepremises in Sydney, New South Wales that were occupied by the Company.  The lease over the Fitzroy premises is in thename of GeneType Pty. Ltd. (a wholly-owned subsidiary of the Company) andexpires on June, 30 2011.  GeneType Pty.Ltd. has an option to extend the lease at its expiration for a further ten yearperiod.  Having previously vacated theSydney premises in November 2005, the Company negotiated with the existingco-tenants for them to assume all rights and obligations with respect to thosepremises as from January 1, 2006.  TheFitzroy premises are owned by Bankberg Pty. Ltd., a company associated with theCompany’s Chief Executive Officer, Dr. Mervyn Jacobson.  The lease contains market review clauses inthe 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.

Thefollowing is a schedule of future minimum lease payments for operating leasesthat had initial or remaining non-cancellable lease terms in excess of one year as of June 30, 2006:
| Year ending,             | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------|------------|
| 2007                          |       | $          | 305,458    |   |
| 2008                          |       | 325,031    |       |
| 2009                          |       | 325,031    |       |
| 2010                          |       | 325,031    |       |
| 2011                          |       | 325,031    |       |
| Total minimum lease  payments |       | $          | 1,605,582  |   |

 

Rentexpense totalling $298,457, $293,100and $266,731 for the years ended June 30, 2006, 2005 and 2004, respectively,was paid to Bankberg Pty. Ltd. and allocatedacross the five expense categories as follows:
| ** **                  | ** ** | **As of and for the year ended June 30,** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **Expense category**   | ** ** | **2006**                                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service testing  expenses   |       | $                                                                                 | 133,294    |   | $ | 130,901 |   | $ | 119,125 |   |
| Research and  development   |       | 38,894                                                                            |       | 38,196 |   | 34,759 |   |
| Patent and license fees     |       | 38,388                                                                            |       | 37,699 |   | 34,307 |   |
| Sales and marketing         |       | 31,398                                                                            |       | 30,834 |   | 28,060 |   |
| General and  administrative |       | 56,483                                                                            |       | 55,470 |   | 50,480 |   |
| Total rent expense          |       | $                                                                                 | 298,457    |   | $ | 293,100 |   | $ | 266,731 |   |

 

***Other contingencies***

TheCompany has been notified of a number of native title claims coveringexploration tenements in the Duketon Belt Joint Venture in Western Australiaheld by the Company under the Commonwealth Native Title Act, 1993.  Until further information regarding theclaims and the affected area is available, the Company will not be in aposition to assess the likely effect, if any, of any claim.  However, the directors expect that any futureexploration will not be materially affected by any claim or the claims inaggregate.

F20

----

***12.    Shareholders’equity***

***Terms and conditions***

Ordinary shares have the right to receive dividends as declared and, inthe event of winding up the Company, to participate in the proceeds from sale of all surplus assets inproportion to the number of and amounts paid up on shares held.  Ordinary shares entitle their holder to one vote, either in person or by proxy, at ameeting of the Company.

***Restricted securities***

On June 15, 2004, the Company issued a total of 16,666,667 ordinaryshares to C.Y. O’Connor ERADE Village Foundation pursuant to a SponsoredResearch Agreement between the parties. Under the terms of the Agreement, these ordinary shares are subject to avoluntary escrow period contractually agreed by the parties the details ofwhich are tabled below.  A total of6,666,667 shares have already been released from escrow:
| Date of escrow expiry | ** ** | **Number of ordinary shares released from escrow** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| December 15,  2006                   |       | 3,333,333                                                                        |       |
| December 15,  2007                   |       | 3,333,333                                                                        |       |
| December 15,  2008                   |       | 3,333,334                                                                        |       |
| Total number of  ordinary shares     |       | 10,000,000                                                                       |       |

 

Restricted securities have all the rights and obligations ofunrestricted securities during the escrow period, other than the ability tosell the shares.

***13.    Stock options***

OnAugust 29, 2000, the shareholders of Duketon approved the grant of 70,000,000stock options (“Vendor Options”) at an exercise price of $0.11 (AUD0.20) aspartial consideration for the acquisition of GeneType AG.  Each option was exercisable into one ordinaryshare of the Company at any time on or before April 14, 2005.  During the year ended June 30, 2005, a totalof 65,418,838 Vendor Options were exercised. The remaining 416,776 Vendor Options lapsed on April 14, 2005.

Alsoon August 29, 2000, the shareholders of Duketon approved the grant of 3,000,000stock options to employee-directors (“DirectorOptions”) at an exercise price of $0.26 (AUD0.45).  Each of these Director Options wasexercisable into one ordinary shareat any time on or before April 14, 2005. No expense was previously recognised. During the year ended June 30, 2004,  a total of 1,000,000 Director Options were exercised.  The remaining 2,000,000 DirectorOptions lapsed on April 14, 2005.

OnMay 22, 2001, Gtech International Resources Limited, a subsidiary of theCompany, issued 130,000 directors’ options to Dr. Mervyn Jacobson at anexercise price of $0.25 (CAD0.38).  Theseoptions lapsed unexercised on May 22, 2006. On February 3, 2005, Mr. FredBart exercised a total of 38,500 directors’options in Gtech International Resources Limited at an exercise price of $0.16 (CAD0.20). No expense was recognised for 2006, 2005 or 2004.

OnAugust 2, 2001, the Company announced that it had entered into an agreementwith GTH Capital of New York to pursue its listing on the National Associationof Securities Dealers Automated Quotations (“NASDAQ”).  In accordance with the agreement, the Companyagreed to issue 900,000 options at an exercise price of $0.36 (AUD0.70) to GTHCapital within three years.  GTH Capitalsubsequently assigned its rights to GMCG, LLC. The issue of the options is subject to meeting specified performancecriteria in achieving the NASDAQ listing. The options have a contractual life of six years.  As of June 30, 2005, the Company had issuedto GMCG, LLC a total of 600,000 options that have met specific performancecriteria.  Subsequent to June 30, 2005, the parties agreed not to proceedwith the issue of the 300,000 remaining options, notwithstanding the successfullisting of the Company’s Level II ADRson NASDAQ on September 2, 2005, as certain performance criteria were not met byGMCG, LLC.  In accordance with SFAS 123,the Company recorded an expense of $10,827 in the year ended June 30, 2004.  No expense was recognised for 2006 and2005.  All of the 600,000 options areoutstanding and exercisable as of June 30, 2006.

OnSeptember 4, 2003, the Company granted 6,666,667 stock options at an exerciseprice of $0.64 (AUD1.00) as part of a placement of ordinary shares.  Each option was exercisable into one ordinaryshare of the Company at any time on or before September 30, 2005.  These options vested immediately and carriedno rights to dividends and no voting rights. These options werenon-compensatory and were accounted for in permanent equity.  These options subsequently lapsed onSeptember 30, 2005.

F21

----

On November 30, 2001, the Company established a StaffShare Plan that permits the Company, at the discretion of the Board, to issueincentive stock options to directors, employees and consultants.  The Company is required to receiveshareholder 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.

Optionsissued under the Staff Share Plan carry no rights to dividends and no voting rights.  In accordance with the terms of the StaffShare Plan, options generally vest on the basis of 25% per annum and can beexercised 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 granted prior to the effective date of SFAS123R.  In 2005 and 2004, the Companyrecorded an expense based upon the difference between the exercise price andthe issue price of the Company’s ordinary shares at the date of the optiongrant.  In the years ended June 30, 2006,2005 and 2004, the expense was $597,088, $591 and $976, 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 APB 25 based on the fair value of the options issued inexchange for the services and the vesting period.  In the years ended June 30, 2006, 2005 and2004, this expense was $13,755, $nil and $51,101, respectively.  Inaccordance with SFAS 123 and SFAS 123R, the Company recorded a totalcompensation expense of $610,843, $nil and $62,904 in the years ended June 30,2006, 2005 and 2004, respectively, which has been dissected in the followingtable.
| ** **                  | ** ** | **As of and for the year ended June 30,** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **Expense category**   | ** ** | **2006**                                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service testing  expenses   |       | $                                                                                 | 174,767    |   | $ | — |   | $ | — |   |
| Research and  development   |       | 56,136                                                                            |       | — |   | 52,077 |   |
| Patent and license fees     |       | 91,903                                                                            |       | — |   | — |   |
| Sales and marketing         |       | 43,584                                                                            |       | — |   | — |   |
| General and  administrative |       | 244,453                                                                           |       | — |   | 10,827 |   |
| Total compensation expense  |       | $                                                                                 | 610,843    |   | $ | — |   | $ | 62,904 |   |

 

Asummary of the Company’s stock option activity for years ended June 30, 2006,2005 and 2004 follows:
|                                 | ** ** | **Number of  share options** | ** ** | **Exercise price per  option** | ** ** | **Weighted average  exercise price per option** | ** ** |
|---------------------------------|------------|----------------------------------------|------------|------------------------------------------|------------|---------------------------------------------------------------------|------------|
| Outstanding at  June 30, 2003 * |       | 82,432,250                             |       | $0.11 - $0.36                            |       | $                                                                   | 0.14       |   |
|                            |       |                                   |       |                                     |       |                                                                |       |
| Granted                         |       | 9,476,667                              |       | $0.36 - $0.64                            |       | $                                                                   | 0.56       |   |
| Exercised                       |       | (4,574,136                             | )          | $0.13 - $0.37                            |       | $                                                                   | 0.18       |   |
| Forfeited                       |       | (1,225,000                             | )          | $0.30 - $0.40                            |       | $                                                                   | 0.36       |   |
| 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       |   |

 

----

* includes a total of 65,835,614 Vendor Options(2003: 69,172,250).

The number of unissued ordinary shares subject to optionsissued under the Staff Share Plan at June 30, 2006 was 14,677,500 (2005:12,007,500).  In addition, a total of600,000 options had been issued to GMCG, LLC, as stated above.  The weighted-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 15,277,500 options outstanding asof June 30, 2006 was $nil.  The aggregateintrinsic value of the 8,896,250options exercisable as of June 30, 2006 was also $nil.  The total intrinsic value of optionsexercised for each year was $nil.

F22

----

Thetotal fair value of the options which vested during the years ended June 30,2006, 2005 and 2004 was $262,436, $660,919  and $654,391, respectively.  The weighted average fair values of thoseoptions were $0.18, $0.22 and $0.24, respectively.  Theweighted average fair value of the 9,296,667 options which wereforfeited or expired during 2006 was $0.21.

The total compensation expense related to the 6,381,250 (2005:5,793,125) non-vested options as of June 30, 2006 was $985,343 (2005:$1,138,020).  The periods over whichthese amounts will be recognized are disclosed in the tables below.  The weighted average fair valueof the non-vested options as of June 30, 2006 and 2005 were $0.15 and $0.20,respectively.

During2006, no options (2005: 500,000) were issued at an exercise price equal to themarket price of the stock on the grant date.  The weighted average exercise price andweighted average fair value of the options issued in 2005 was $0.38 and $0.24, respectively. In addition, no options were granted during 2006 (2005: 1,830,000) atexercise prices exceeding the market pricesof the stock on the respective grant dates. The weighted average exercise price and weighted average fair value ofthe options issued in 2005 was $0.39and $0.23, respectively.

The following is additional information relating to all optionsoutstanding 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 |   |

 

The following is additional information relating to alloptions outstanding as of June 30, 2004:
| ** **                          | ** ** | **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** | ** ** |
| $0.10 - $0.20                       |       | * 65,835,614                 |       | $                                          | 0.11       |   | 0.79 |   | * 65,835,614 |   | $ | 0.11 |   |
| $0.21 - $0.30                       |       | 6,807,500                    |       | $                                          | 0.27       |   | 3.05 |   | 3,910,000 |   | $ | 0.27 |   |
| $0.31 - $0.40                       |       | 5,990,000                    |       | $                                          | 0.33       |   | 3.70 |   | 2,715,000 |   | $ | 0.33 |   |
| $0.41 - $0.50                       |       | 810,000                      |       | $                                          | 0.44       |   | 3.19 |   | 60,000 |   | $ | 0.49 |   |
| $0.61 - $0.70                       |       | 6,666,667                    |       | $                                          | 0.64       |   | 1.25 |   | 6,666,667 |   | $ | 0.64 |   |
|                                |       | 86,109,781                   |       | $                                          | 0.19       |   | 1.25 |   | 79,187,281 |   | $ | 0.17 |   |

 

----

* represents Vendor Options

F23

----

***14.    Financial instruments***

***Fair value of financial instruments***

The following table presents the carrying amounts and fair values of theCompany’s financial instruments for which it is practicable to estimate fairvalue.  SFAS No. 107: *Disclosures about Fair Value of Financial Instruments*defines the fair value of a financial instrument as the amount at which theinstrument could be exchanged in a current transaction between willing parties,other than in a forced or liquidation sale.
| ** **                       | ** ** | **June 30,**        | ** ** |
|----------------------------------|------------|--------------------------|------------|
| ** **                       | ** ** | **2006**                 | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **Carrying amount** | ** ** | **Estimated fair value** | ** ** | **Carrying amount** | ** ** | **Estimated fair value** | ** ** |
| **Assets**                       |       |                     |       |   |   |   |   |   |   |
| Cash and cash  equivalents       |       | $                        | 8,238,434  |   | $ | 8,238,434 |   | $ | 13,464,416 |   | $ | 13,464,416 |   |
| Trade accounts  receivable       |       | 892,113                  |       | 892,113 |   | 382,258 |   | 382,258 |   |
| GST receivable                   |       | 147,237                  |       | 147,237 |   | 54,161 |   | 54,161 |   |
| Restricted security  deposits    |       | 647,795                  |       | 647,795 |   | 630,050 |   | 630,050 |   |
|                             |       |                     |       |   |   |   |   |   |   |
| **Liabilities**                  |       |                     |       |   |   |   |   |   |   |
| Trade accounts payable           |       | $                        | 1,046,924  |   | $ | 1,046,924 |   | $ | 2,288,975 |   | $ | 2,288,975 |   |
| Hire purchase finance  liability |       | 729,018                  |       | 729,018 |   | 1,023,411 |   | 1,023,411 |   |
| Unsecured loan                   |       | 519,610                  |       | Refer below |   | 533,260 |   | Refer below |   |

 

The values provided are representative of the fair values as of June 30,2006 and 2005 and do not reflect subsequent changes in the economy, interestand tax rates, and other variables that may impact determination of fair value.

The following methods and assumptions were used in estimating fairvalues for financial instruments for which it is practicable to estimatevalues:

***Cash and cash equivalents -***The carrying amountreported in the balance sheet for cash and cash equivalents approximates fairvalue due to the short maturity of these instruments.

***Trade accounts receivable -***The carrying amountsreported in the balance sheet for trade accounts receivable, GST receivable andsundry debtors approximate fair values due to the short-term nature of thebalances.

***Restricted security deposits -***The carrying amounts reported in the balance sheet for restrictedsecurity deposits approximate fair values due to the short-term nature of thebalances.

***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 finance liability -***The carrying amountsreported in the balance sheet for hire purchase finance liabilities approximatefair values due to the short-term nature 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.

Itis not practicable to estimate the fair value of the Company’s cost-methodinvestments because of the lack of quoted market prices and the inability toestimate fair value without incurring excessive costs.

***Concentrations of credit risk***

Creditrisk represents the accounting loss that would be recognized at the reportingdate if counterparties failed completely to perform as contracted.  Concentrations of credit risk (whether on oroff-balance sheet) that arise from financial instruments exist for groups ofcustomers or counterparties when they have similar economic characteristicsthat would cause their ability to meet contractual obligations to be similarlyaffected 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 has establishedguidelines relative to credit ratings, diversification and maturities that seekto maintain safety and liquidity.  TheCompany does not require collateral to provide credit.  Inaddition, the majority of the Company’s customers are large, reputable organizations,which also reduces the risk of credit exposure. The Company has not entered into any transactions that would qualify asa financial derivative instrument.

F24

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AtJune 30, 2006, one customer accounted for 72% ($637,934) of accountsreceivable.  At June 30, 2005, onecustomer accounted for 31% ($137,444) of accounts receivable.  All accounts receivable relate to thebiotechnology segment in Australia.

AtJune 30, 2006, one supplier accounted for 10% ($102,969) of accountspayable.  At June 30, 2005, one supplieraccounted for 62% ($1,210,825) of accounts payable.  All accounts payable relate to thebiotechnology segment in Australia.

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. In 2004, one customer accounted for 19% ($513,434) of the Company’srevenue.   All revenues relate to thebiotechnology segment in Australia.

Exportsales, principally to the USA, were $4,864,001, $4,560,862 and $306,938 in2006, 2005 and 2004, respectively.

***Interest rate risk exposures***

Cashassets totaling $8,238,434 (2005: $13,464,416) have a weighted average floatinginterest rate of 4.95% (2005: 5.13%).   A weighted floating interest rate of 5.32% (2005: 5.53%) on securitydeposits totaling $647,795 (2005: $630,050) is included in non-currentfinancial assets.  Other accountsreceivable, security deposits, accounts payable and the unsecured loan arenon-interest bearing.

***Foreign exchange rate risk exposures***

TheCompany is exposed to foreign currency exchange rate risk through primaryfinancial assets and liabilities.  It isthe Company’s policy not to hedgethese transactions as the exposure is considered to be minimal from aconsolidated operations perspective.

***Financing facilities available***

At reporting date, the followingfinancing facilities had been negotiated and were available:
|                                          | ** ** | **June 30,** | ** ** |
|------------------------------------------|------------|-------------------|------------|
| ** **                               | ** ** | **2006**          | ** ** | **2005** | ** ** |
| **Total  facilities**                    |       |              |       |   |   |
| Hire purchase  facility                  |       | $                 | 1,855,750  |   | $ | 1,904,500 |   |
| Credit cards                             |       | $                 | 81,653     |   | $ | 83,798 |   |
|                                     |       |              |       |   |   |
| **Facilities  used at reporting date**   |       |              |       |   |   |
| Hire purchase  facility                  |       | $                 | 1,182,141  |   | $ | 1,151,151 |   |
| Credit cards                             |       | $                 | 20,699     |   | $ | 12,777 |   |
|                                     |       |              |       |   |   |
| **Facilities  unused at reporting date** |       |              |       |   |   |
| Hire purchase  facility                  |       | $                 | 673,609    |   | $ | 753,349 |   |
| Credit cards                             |       | $                 | 60,954     |   | $ | 71,021 |   |

 

***15.    Employee superannuation***

Asrequired by Australian superannuation legislation, the Company contributes 9%(2005: 9%) of every employee’s salary to an approved superannuation fundnominated by the employee for their retirement benefit; such funds representsdefined contribution plans.  During theyears ended June 30, 2006, 2005 and 2004, the Company incurred expenses inrelation to superannuation amounting to $256,979, $211,372 and $158,943,respectively.

F25

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***16.    Non-cash investing and financing activities***

As stated below, Genetic Technologies executed a Master Asset FinanceAgreement with National Australia Bank Limited in respect of $1,855,750(AUD2,500,000) asset finance facility (the “Facility”).  During the period from July 1, 2005 to June30, 2006, the Company financed the acquisition of additional laboratoryequipment under the Facility with a total value of $1,182,141(AUD1,592,538).  During 2005, the Companyfinanced the acquisition of laboratory and office equipment under the Facilitywith a total value of $1,179,409 (AUD1,511,094).  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 used in the biotechnology segment in Australia.

OnJune 15, 2004, Genetic Technologies issued 16,666,667 ordinary shares at $0.27(AUD0.39) to C.Y. O’Connor ERADE Village Foundation to acquire patents andother intellectual property at a value of $4,524,000.  This transaction represents a non-cashinvesting activity and is part of the biotechnology segment in Australia.

***17.    Significantresearch and development agreements***

TheCompany currently has the following key research and development agreements inplace.  Under these agreements, eachagency 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 costs have been deferred in relation toany of the Company’s contracts.

***Collaborative Research Agreement**–**University of MelbournePathogens Project***

The Company is party to a research agreement with the University ofMelbourne dated April 2003 whereby the Company and the University conductresearch into the field of molecular parasitology.  The agreement provides that all intellectualproperty developed under the agreement belongs to the Company.  As at June 30, 2006, Genetic Technologies isrequired to contribute further GST-exclusive funds in the order of $15,710 (AUD21,164)towards further research over the term of the agreement.    In March 2003, Meat and Livestock AustraliaLimited, a third party in an industry affected by molecular parasitology,agreed to contribute an additional $397,305 (AUD535,235) towards the Pathogensproject over three years.  On May 31,2006, the Company entered into an ARC Linkage Agreement with the Universitypursuant to which Genetic Technologies will contribute $185,575 (AUD250,000)per annum in cash for a period of three years towards research into target newdrugs against parasitic nematodes of animals. As at June 30, 2006, therefore, a total amount of $572,435 (AUD771,164)remained payable by the Company under the various agreements.  In addition, a further in-kind contributionof $37,115 (AUD50,000) per annum for a period of three years will also be madeto the project by the Company under the ARC agreement.  Net payments made by the Company inaccordance with the original agreement totaled $102,461 (AUD137,071), $141,069(AUD186,500) and $144,751 (AUD202,960) for the years ended June 30, 2006, 2005and 2004, respectively.

***Sponsored Research Agreement**– C.Y. O’Connor ERADE ResearchFoundation***

In June 2004, the Company entered into a Sponsored Research Agreementwith the C.Y. O’Connor ERADE Village Foundation whereby Genetic Technologies isrequired to contribute $668,070 (AUD900,000) per annum to fund research for aperiod of five years, amounting to a total commitment of $3,340,350(AUD4,500,000).  Genetic Technologieswill own any and all intellectual property arising from the research.  On July 7, 2004, the Company supplied aletter of credit for $334,035 (AUD450,000) for the term of the agreement.  As at June 30, 2006, a total amount of$1,670,175 (AUD2,250,000) remained payable by the Company under theagreement.  Net payments made by theCompany in accordance with the agreement totaled $651,876 (AUD872,075),$680,760 (AUD900,000) and $320,940 (AUD450,000) for the years ended June 30,2006, 2005 and 2004, respectively.

***Collaborative Research Agreement –******HorticultureAustralia Limited***

In June 2003, AgGenomics Pty. Ltd., acontrolled entity of the Company, entered into a three-year CollaborativeResearch Agreement with Horticulture Australia Limited (“HAL”) to try toidentify a genetic trait for day/night neutrality in strawberries which, iffound, could lead to an extension of the cultivation season and consequentlyhigher production.  Under the terms ofthe agreement, the parties agree to spend $1.5 million (AUD2.1 million), to befunded 45% by HAL and 55% by AgGenomics. Any and all intellectual property generated from the project will beowned in the same proportions.  In accordance with the agreement, AgGenomics Pty. Ltd.contributed amounts of $459,532 (AUD614,759), $464,995 (AUD614,748) and$562,821 (AUD789,149) for the yearsended June 30, 2006, 2005 and 2004, respectively.  As at June 30, 2006, the project had beencompleted and, as such, there was no amount payable by AgGenomics Pty. Ltd. under the agreement.

F26

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***Research Agreement**– King’s College, London***

In March 2004, the Company initiated a joint research project in theUnited Kingdom to explore the functionality of certain non-coding DNA elements,initially with special focus on the genetics of certain neuro-psychiatric conditions,such as schizophrenia.  On May 31, 2005, the Company agreed to extendits research agreement with King’s College, London for the period from June 1, 2005 to December 31,2005.  On February 22, 2006, the Companyagreed to further extend its research agreement with King’s College, London forthe period from February 1, 2006 to August 31, 2006.  Payments made by the Company in accordancewith the various agreements totaled $178,912 (GBP96,860), $96,754 (GBP53,000)and $74,103 (GBP41,000) for the years ended June 30, 2006, 2005 and 2004,respectively.  As at June 30, 2006, anamount of $33,056 (GBP18,200) was payable to King’s College, London by theCompany under the agreement.

***Research Agreement – University of WesternAustralia***

In March 2001, the Company entered into an agreement with the University of Western Australia, which was investigating a method for combating retrovirus-induced immunodeficiency.  The intellectual property, covered by a provisional patent, was transferred by the scientists and inventors of the intellectual property, to a company ImmunAid Pty. Ltd. (“ImmunAid”), initially owned 60% by the Company and 40% by the scientists who have developed the hypothesis and tested it.  In exchange for the 60% interest in ImmunAid, the Company agreed to fund the first $134,260 of research expenditure incurred by ImmunAid.  During the year ended June 30, 2005, the Company agreed to convert certain outstanding loans to ImmunAid Pty. Ltd. into equity which increased its interest in the company to 65%.  As at June 30, 2006, no amount was payable by the Company to the University.

***18.    Reclassifications***

Restricted security deposits in the amount of$630,050 as of June 30, 2005 have been reclassified from current assets tonon-current assets to conform to presentation of the balance sheet as of June30, 2006.

The following reclassifications have been madeto the consolidated statements of operations for the years ended June 30, 2005and 2004 to conform to the presentation of the consolidated statements of operationsfor the year ended June 30, 2006:
|                             | ** ** | **2005**         | ** ** | **2004**                 | ** ** |
|-----------------------------|------------|------------------|------------|--------------------------|------------|
| ** **                  | ** ** | **Reclassified** | ** ** | **Previously  reported** | ** ** | **Reclassified** | ** ** | **Previously  reported** | ** ** |
| Service testing  expenses   |       | 3,510,444        |       | 3,518,398                |       | 2,244,020 |   | 2,229,307 |   |
| Research and  development   |       | 1,830,932        |       | 1,826,984                |       | 1,669,484 |   | 1,659,914 |   |
| Patent and  license fees    |       | 4,632,617        |       | 4,591,710                |       | 804,340 |   | 763,739 |   |
| Sales and  marketing        |       | 570,498          |       | 537,039                  |       | 993,827 |   | 960,619 |   |
| General and  administrative |       | 2,597,642        |       | 2,668,002                |       | 2,285,787 |   | 2,383,879 |   |

 

***19.    Subsequentevents***

On August 23, 2006, Prof. Deon Venter resigned asa Director of the Company.

On November 17, 2006, Mr. Robert Edge retired as aDirector of the Company.

F27

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***20.    Segment disclosures***

TheCompany applies SFAS No. 131:*Disclosures about Segments of an Enterpriseand Related Information*(“SFAS131”), which establishes standards for reporting information regardingoperating segments in annual financial statements and requires selectedinformation for those segments to be presented in interim financial reportsissued to shareholders.  SFAS 131 alsoestablishes standards for related disclosures about products and services andgeographic areas.

TheCompany currently operates in Australia, Switzerland and Canada in tworeportable segments – the biotechnology industry and investmentactivities.  The Company’s biotechnologyactivities are comprised of a closely integrated and complementary range oflicensing, genetic testing and research activities.  The different types of revenues received fromthe Biotechnology segment is disclosed in the consolidated statement ofoperations.

**Businesssegment**
| **Segment**                           | ** ** | **Biotechnology** | ** ** | **Investment** | ** ** | **Consolidated** | ** ** |
|---------------------------------------|------------|-------------------|------------|----------------|------------|------------------|------------|
| **Year ended June 30** | ** ** | **2006**          | ** ** | **2005**       | ** ** | **2004**         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenue**                           |       |              |       |           |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| External sales                        |       | $                 | 6,903,513  |           | $          | 6,779,308        |       | $ | 2,477,873 |   | $ | — |   | $ | — |   | $ | — |   | $ | 6,903,513 |   | $ | 6,779,308 |   | $ | 2,477,873 |   |
| Other revenues                        |       | 441,489           |       | 440,747        |       | 167,129          |       | — |   | — |   | — |   | 441,489 |   | 440,747 |   | 167,129 |   |
| Total segment revenue                 |       | $                 | 7,345,002  |           | $          | 7,220,055        |       | $ | 2,645,002 |   | $ | — |   | $ | — |   | $ | — |   | $ | 7,345,002 |   | $ | 7,220,055 |   | $ | 2,645,002 |   |
| ** **                            |       |              |       |           |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Result**                            |       | $                 | (4,020,323 | )              | $          | (5,742,949       | )          | $ | (4,816,726 | ) | $ | — |   | $ | — |   | $ | — |   | $ | (4,020,323 | ) | $ | (5,742,949 | ) | $ | (4,816,726 | ) |
| ** **                            |       |              |       |           |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total assets**                      |       | $                 | 16,153,090 |           | $          | 21,813,791       |       |   |   | $ | 500,010 |   | $ | 500,010 |   |   |   | $ | 16,653,100 |   | $ | 22,313,801 |   |   |   |
| ** **                            |       |              |       |           |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total liabilities**                 |       | $                 | 3,098,930  |           | $          | 4,963,750        |       |   |   | $ | — |   | $ | — |   |   |   | $ | 3,098,930 |   | $ | 4,963,750 |   |   |   |
| ** **                            |       |              |       |           |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other information**                 |       |              |       |           |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest revenue                      |       | $                 | 601,803    |           | $          | 484,286          |       | $ | 352,605 |   | $ | — |   | $ | — |   | $ | — |   | $ | 601,803 |   | $ | 484,286 |   | $ | 352,605 |   |
| Profit on sale of assets              |       | $                 | 1,735      |           | $          | 97,809           |       | $ | 406,224 |   | $ | — |   | $ | — |   | $ | — |   | $ | 1,735 |   | $ | 97,809 |   | $ | 406,224 |   |
| Net foreign exchange  gains (losses)  |       | $                 | 92,403     |           | $          | (140,861         | )          | $ | (171,960 | ) | $ | — |   | $ | — |   | $ | — |   | $ | 92,403 |   | $ | (140,861 | ) | $ | (171,960 | ) |
| Interest expense                      |       | $                 | (63,316    | )              | $          | (31,750          | )          | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | (63,316 | ) | $ | (31,750 | ) | $ | — |   |
| Depreciation expense                  |       | $                 | (521,966   | )              | $          | (550,477         | )          | $ | (399,542 | ) | $ | — |   | $ | — |   | $ | — |   | $ | (521,966 | ) | $ | (550,477 | ) | $ | (399,542 | ) |
| Income tax expense                    |       | $                 | (67,649    | )              | $          | (195,339         | )          | $ | (27,579 | ) | $ | — |   | $ | — |   | $ | — |   | $ | (67,649 | ) | $ | (195,339 | ) | $ | (27,579 | ) |
| Long-lived assets                     |       | $                 | 119,388    |           | $          | 467,689          |       | $ | 640,737 |   | $ | — |   | $ | — |   | $ | — |   | $ | 119,388 |   | $ | 467,689 |   | $ | 640,737 |   |
| ** **                            | ** ** | ** **        |       |           |       |             | ** ** | ** ** |   |   | ** ** | ** ** | ** ** | ** ** |   |   |   |   |   |
| **Cash flow information**             | ** ** | ** **        |       |           |       |             | ** ** | ** ** |   |   | ** ** | ** ** | ** ** | ** ** |   |   |   |   |   |
| Operating activities                  |       | $                 | (4,545,189 | )              | $          | (5,016,397       | )          | $ | (3,161,657 | ) | **$** | **—** |   | $ | — | ** ** | **$** | **—** |   | $ | (4,545,189 | ) | $ | (5,016,397 | ) | $ | (3,161,657 | ) |
| Investing activities                  |       | $                 | (116,047   | )              | $          | (19,276          | )          | $ | (640,737 | ) | **$** | **—** |   | $ | — | ** ** | **$** | **—** |   | $ | (116,047 | ) | $ | (19,276 | ) | $ | (640,737 | ) |
| Financing activities                  |       | $                 | (337,042   | )              | $          | 10,067,926       |       | $ | 6,994,357 | ** ** | **$** | **—** |   | $ | — | ** ** | **$** | **—** |   | $ | (337,042 | ) | $ | 10,067,926 |   | $ | 6,994,357 |   |

 

F28

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**Geographicsegment**
| **Segment**                           | ** ** | **Australia** | ** ** | **Switzerland** | ** ** | **Canada** | ** ** | **Consolidated** | ** ** |
|---------------------------------------|------------|---------------|------------|-----------------|------------|------------|------------|------------------|------------|
| **Year ended June 30** | ** ** | **2006**      | ** ** | **2005**        | ** ** | **2004**   | ** ** | **2006**         | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenue**                           |       |          |       |            |       |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| External sales                        |       | $             | 6,903,513  |            | $          | 6,779,308  |       | $                | 2,477,873  |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 6,903,513 |   | $ | 6,779,308 |   | $ | 2,477,873 |   |
| Other revenues                        |       | 441,489       |       | 440,747         |       | 167,129    |       | —           |       | — |   | — |   | — |   | — |   | — |   | 441,489 |   | 440,747 |   | 167,129 |   |
| Total segment  revenue                |       | $             | 7,345,002  |            | $          | 7,220,055  |       | $                | 2,645,002  |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 7,345,002 |   | $ | 7,220,055 |   | $ | 2,645,002 |   |
| ** **                            |       |          |       |            |       |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Result**                            |       | $             | (3,966,711 | )               | $          | (5,707,836 | )          | $                | (4,911,915 | ) | $ | (15,043 | ) | $ | (16,902 | ) | $ | (12,904 | ) | $ | (38,569 | ) | $ | (18,211 | ) | $ | 108,093 |   | $ | (4,020,323 | ) | $ | (5,742,949 | ) | $ | (4,816,726 | ) |
| ** **                            |       |          |       |            |       |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total  assets**                     |       | $             | 16,199,469 |            | $          | 21,872,962 |       |             |       | $ | 10,409 |   | $ | 17,866 |   |   |   | $ | 443,222 |   | $ | 422,973 |   |   |   | $ | 16,653,100 |   | $ | 22,313,801 |   |   |   |
| ** **                            |       |          |       |            |       |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total  liabilities**                |       | $             | 3,072,746  |            | $          | 4,943,907  |       |             |       | $ | 23,587 |   | $ | 15,519 |   |   |   | $ | 2,597 |   | $ | 4,324 |   |   |   | $ | 3,098,930 |   | $ | 4,963,750 |   |   |   |
| ** **                            |       |          |       |            |       |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other  information**                |       |          |       |            |       |       |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest revenue                      |       | $             | 601,803    |            | $          | 484,286    |       | $                | 352,605    |   | $ | — |   | $ | — |   | $ | — |   | $ | 8,818 |   | $ | 7,782 |   | $ | 5,293 |   | $ | 601,803 |   | $ | 484,286 |   | $ | 352,605 |   |
| Profit on sale of  assets             |       | $             | 1,735      |            | $          | 97,809     |       | $                | 406,224    |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 1,735 |   | $ | 97,809 |   | $ | 406,224 |   |
| Net foreign  exchange gains (losses)  |       | $             | 92,403     |            | $          | (140,861   | )          | $                | (171,960   | ) | $ | 1,132 |   | $ | 293 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 92,403 |   | $ | (140,861 | ) | $ | (171,960 | ) |
| Interest expense                      |       | $             | (63,316    | )               | $          | (31,750    | )          | $                | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | (63,316 | ) | $ | (31,750 | ) | $ | — |   |
| Depreciation  expense                 |       | $             | (521,966   | )               | $          | (550,477   | )          | $                | (399,542   | ) | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | (521,966 | ) | $ | (550,477 | ) | $ | (399,542 | ) |
| Income tax  expense                   |       | $             | (67,649    | )               | $          | (195,339   | )          | $                | (27,579    | ) | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | (67,649 | ) | $ | (195,339 | ) | $ | (27,579 | ) |
| Long-lived assets                     |       | $             | 119,388    |            | $          | 467,689    |       | $                | 640,737    |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 119,388 |   | $ | 467,689 |   | $ | 640,737 |   |
| ** **                            | ** ** | ** **    |       |            |       |       | ** ** | ** **       |       |   | ** ** | ** ** | ** ** | ** ** |   |   | ** ** | ** ** | ** ** | ** ** |   |   |   |   |   |
| **Cash  flow information**            | ** ** | ** **    |       |            |       |       | ** ** | ** **       |       |   | ** ** | ** ** | ** ** | ** ** |   |   | ** ** | ** ** | ** ** | ** ** |   |   |   |   |   |
| Operating  activities                 |       | $             | (4,571,171 | )               | $          | (5,026,803 | )          | $                | (3,131,112 | ) | $ | (5,312 | ) | $ | 4,163 |   | $ | (12,716 | ) | $ | 31,294 |   | $ | 6,243 |   | $ | (17,829 | ) | $ | (4,545,189 | ) | $ | (5,016,397 | ) | $ | (3,161,657 | ) |
| Investing  activities                 |       | $             | (116,047   | )               | $          | (19,276    | )          | $                | (640,737   | ) | **$** | **—** |   | $ | — | ** ** | **$** | **—** | ** ** | **$** | **—** |   | $ | — | ** ** | **$** | **—** |   | $ | (116,047 | ) | $ | (19,276 | ) | $ | (640,737 | ) |
| Financing activities                  |       | $             | (337,042   | )               | $          | 10,067,926 |       | $                | 6,994,357  | ** ** | **$** | **—** |   | $ | — | ** ** | **$** | **—** | ** ** | **$** | **—** |   | $ | — | ** ** | **$** | **—** |   | $ | (337,042 | ) | $ | 10,067,926 |   | $ | 6,994,357 |   |

 

Net loss for theinvestment segment has been determined based on the accounting policy describedin Note 2 relating to marketable securities and cost-method investments.

During the years endedJune 30, 2006, 2005 and 2004, one government grant individually accounted for1%, 2% and 19% of the Company’s total revenue, respectively.

F29

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***Non-cash transactions***

All non-cash transactions relate to Australia.  Non-cash investing and financing transactionsthat related to a specific segment are further described in Note 16.  Non-cash operating transactions are disclosedin the consolidated statement of cash flows. All non-cash operating transactions excluding depreciation andtransactions relating to marketable securities and cost-method investmentsrelate to the Biotechnology segment. Transactions relating to marketable securities and cost-methodinvestments relate to the investment segment. The allocation of depreciation between segments is further describedabove.

F30

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