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

**Washington, D.C.  20549**

 

**FORM 20-F**

 

**o****          ****ANNUAL REPORT PURSUANT TO SECTION 12(b) OR12(g)OF THE SECURITIES EXCHANGE ACT OF 1934**

**OR**

**ý****          ****ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thefiscal year ended June 30, 2005**

 

**Commissionfile number 0-51504**

 

**GENETIC TECHNOLOGIES LIMITED**

(Exact Name of Registrant asSpecified in its Charter)

 

**Australia**

(Jurisdiction of Incorporationor Organization)

 

**N/A**

(Translation of Registrant’sname into English)

 

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

**telephone:011-61-3-9415-1135; facsimile: 011-61-3-9417-2987**

(Address of principal executiveoffices) (Zip code)

 

Securities registered or to be registeredpursuant to Section 12(b) of the Act

 

**None**

** **

Securities registered pursuantto Section 12(g) of the Act:

 

Title of each class

 

American Depositary Shares eachrepresenting

30 Ordinary Shares andevidenced by

American Depositary Receipts

 

Securities for which there is areporting obligation pursuant to Section 15(d) of the Act:

 

**None**

 

The total number of issuedshares of each class of stock of Genetic Technologies Limited as of June 30,2005 was:

 

362,369,899 Ordinary Shares

 

Indicate by check mark whether the Registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or 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   ý    No   o

 

Indicate by check mark which financial statement item the Registranthas elected to follow Item 17 o Item 18 ý  .

 

Pleasesend copies of notices and communications from the Securities and ExchangeCommission to:

 

**RossKaufman**

**GreenbergTraurig, LLP**

**200 ParkAvenue**

**New York, New York  10166**

 

 

----

 

**Table of Contents**

 
| INTRODUCTION                                       |                                                   |
|----------------------------------------------------|--------------------------------------------------------|
|                                               |                                                   |   |
| FORWARD-LOOKING STATEMENTS                         |                                                   |
|                                               |                                                   |   |
| ENFORCEMENT OF LIABILITIES AND SERVICE OF  PROCESS |                                                   |
|                                               |                                                   |
| Item 1.                                            | Identity of Directors, Senior Management  and Advisers |   |
|                                               |                                                   |   |
| Item 1.A                                           | Directors and  Senior Management                       |   |
|                                               |                                                   |   |
| Item 1.B                                           | Advisers                                               |   |
|                                               |                                                   |   |
| Item 1.C                                           | Auditors                                               |   |
|                                               |                                                   |   |
| Item 2.                                            | Offer Statistics And Expected Timetable                |   |
|                                               |                                                   |   |
| Item 3.                                            | Key Information                                        |   |
|                                               |                                                   |   |
| Item 3.A                                           | Selected  Financial Data                               |   |
|                                               |                                                   |   |
| Item 3.B                                           | Capitalization  and Indebtedness                       |   |
|                                               |                                                   |   |
| Item 3.C                                           | Reasons for  the Offer and Use of Proceeds             |   |
|                                               |                                                   |   |
| Item 3.D                                           | Risk Factors                                           |   |
|                                               |                                                   |   |
| ITEM 4.                                            | INFORMATION ON THE COMPANY                             |   |
|                                               |                                                   |   |
| Item 4.A                                           | History and  Development of the Company                |   |
|                                               |                                                   |   |
| Item 4.B                                           | Business  Overview                                     |   |
|                                               |                                                   |   |
| Item 4.C                                           | 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 5.C                                           | Research  and Development, Patents and Licenses, etc.  |   |
|                                               |                                                   |   |
| Item 5.D                                           | Trend  Information                                     |   |
|                                               |                                                   |   |
| Item 5E.                                           | Off-balance  sheet arrangements                        |   |
|                                               |                                                   |   |
| Item 5F.                                           | Information  about Contractual Obligations             |   |
|                                                    |                                                        |  |  |

 

----

 
| Item 6.   | Directors,  Senior Management and Employees                        |   |
|-----------|--------------------------------------------------------------------|--------|
|      |                                                               |   |
| Item 6.A  | Directors  and Senior Management                                   |   |
|      |                                                               |   |
| Item 6.B  | Compensation                                                       |   |
|      |                                                               |   |
| Item 6.C  | Board  Practices                                                   |   |
|      |                                                               |   |
| Item 6.D  | Employees                                                          |   |
|      |                                                               |   |
| Item 6.E  | Share  Ownership                                                   |   |
|      |                                                               |   |
| Item 7.   | Major  Shareholders and Related Party Transactions                 |   |
|      |                                                               |   |
| Item 7.A  | Major  Shareholders                                                |   |
|      |                                                               |   |
| Item 7.B  | Related  Party Transactions                                        |   |
|      |                                                               |   |
| Item 7.C  | Interests  of Experts and Counsel                                  |   |
|      |                                                               |   |
| Item 8.   | Financial  Information                                             |   |
|      |                                                               |   |
| Item 8.A  | Consolidated  Statements and Other Financial Information           |   |
|      |                                                               |   |
| Item 8.B  | Litigation  and Other Legal Proceedings                            |   |
|      |                                                               |   |
| Item 8.C  | Dividends                                                          |   |
|      |                                                               |   |
| Item 8.D  | Significant  Changes                                               |   |
|      |                                                               |   |
| Item 9.A  | Offer  and Listing Details                                         |   |
|      |                                                               |   |
| Item 9.B  | Plan  of Distribution                                              |   |
|      |                                                               |   |
| Item 9.C  | Markets                                                            |   |
|      |                                                               |   |
| Item 9.D  | Selling  Shareholders                                              |   |
|      |                                                               |   |
| Item 9.E  | Dilution                                                           |   |
|      |                                                               |   |
| Item 9.F  | Expenses  of the Issue                                             |   |
|      |                                                               |   |
| Item 10.  | Additional  Information                                            |   |
|      |                                                               |   |
| Item 10.A | Share Capital                                                      |   |
|      |                                                               |   |
| Item 10.B | Our Constitution                                                   |   |
|      |                                                               |   |
| Item 10.C | Material Contracts                                                 |   |
|      |                                                               |   |
| Item 10.D | Exchange Controls and Other Limitations Affecting Security Holders |   |
|      |                                                               |   |
| Item 10.E | Taxation                                                           |   |

 

ii

----

 
| Item 10.F | Dividends and Paying Agents                                                   |   |
|-----------|-------------------------------------------------------------------------------|--------|
|      |                                                                          |   |
| Item 10.G | Statement by Experts                                                          |   |
|      |                                                                          |   |
| Item 10.H | Documents on Display                                                          |   |
|      |                                                                          |   |
| Item 10.I | Subsidiary Information                                                        |   |
|      |                                                                          |   |
| Item 11.  | Quantitative  And Qualitative Disclosures About Market Risk                   |   |
|      |                                                                          |   |
| Item 12.  | Description  Of Securities Other Than Equity Securities                       |   |
|      |                                                                          |   |
| Item 12.A | Debt Securities                                                               |   |
|      |                                                                          |   |
| Item 12.B | Warrants and Rights                                                           |   |
|      |                                                                          |   |
| Item 12.C | Other Securities                                                              |   |
|      |                                                                          |   |
| Item 12.D | American Depositary Shares                                                    |   |
|      |                                                                          |   |
| Item 13.  | Defaults,  Dividend Arrearages and Delinquencies                              |   |
|      |                                                                          |   |
| Item 14.  | Material Modifications to The Rights Of Security  Holders and Use Of Proceeds |   |
|      |                                                                          |   |
| Item 15.  | Controls  and Procedures                                                      |   |
|      |                                                                          |   |
| Item 15A. | Controls  and Procedures                                                      |   |
|      |                                                                          |   |
| Item 15B. | Management’s  annual report on internal control over financial reporting |   |
|      |                                                                          |   |
| Item 15C. | Attestation  report of the registered public accounting firm                  |   |
|      |                                                                          |   |
| Item 15D. | Changes  in internal control over financial reporting                         |   |
|      |                                                                          |   |
| Item 15E. | Limitations  on the effectiveness of controls                                 |   |
|      |                                                                          |   |
| Item 16A. | Audit  Committee Financial Expert                                             |   |
|      |                                                                          |   |
| Item 16B. | Code  Of Ethics                                                               |   |
|      |                                                                          |   |
| Item 16C. | Principal  Accountant Fees And Services                                       |   |
|      |                                                                          |   |
| Item 16D. | Exemptions  From The Listing Standards For Audit Committees                   |   |
|      |                                                                          |   |
| Item 16E. | Purchases  Of Equity Securities By The Issuer And Affiliated Purchasers       |   |
|      |                                                                          |   |
| Item 17.  | Financial  Statements                                                         |   |
|      |                                                                          |   |
| Item 18.  | Financial  Statements                                                         |   |
|      |                                                                          |   |
| Item 19.  | Exhibits                                                                      |   |

 

iii

----

 

**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 inthis Annual Report are presented in U.S. dollars.  Unless otherwise indicated, amounts inAustralian dollars have been translated into U.S. dollars.  These translations are provided forconvenience only, and they are not representations that the Australian dollarcould be converted into U.S. dollars at the rate indicated.  Historic data has been converted at theapplicable rate at the date indicated. In this Annual Report, references to “A$” are to Australian dollars andreferences to “$” and “U.S. dollars” are to United States dollars.  The noon buying rate for cable transfers inAustralian dollars on June 30, 2004 was A$1.00 = $0.6952, and on June 30,2005 was A$1.00 = $0.7618.

 

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

 

**FORWARD-LOOKING STATEMENTS**

 

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

 

Although we believe that the expectationsreflected in such forward-looking statements are reasonable at this time, wecan give no assurance 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 oralforward-looking statements attributable to us are expressly qualified in theirentirety by reference to these cautionary statements.

 

**ENFORCEMENT OF LIABILITIES AND SERVICE OFPROCESS**

 

We are incorporated under the laws of WesternAustralia, Commonwealth of Australia. All of our directors and executive officers, and the experts named inthis Annual Report, reside outside the U.S. Substantially all of our assets, our directors’ and officers’ assets andsuch experts’ assets are located outside the U.S.  As a result, it may not be possible forinvestors to effect 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 civilliability provisions of the federal securities laws of the U.S.  In addition, we have been advised by ourAustralian solicitors, Clayton Utz, that there is doubt that the courts ofAustralia will enforce against us, our officers, directors and experts namedherein, judgments obtained in the U.S. based upon the civil liabilityprovisions of the federal securities laws of the U.S. or will enter judgmentsin original actions brought in Australian courts based upon the federalsecurities laws of the U.S.

 

----

 

**PART I**

 

**Item 1.**                   Identity of Directors, Senior Management andAdvisers

 

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

 

The Directors of the Company are as follows:

 
| **Name**                 | ** ** | **Position/Function**   | ** ** | **Business Address**                                                     |
|--------------------------|------------|-------------------------|------------|--------------------------------------------------------------------------|
|                     |       |                    |       |                                                                     |
| Henry Bosch AO           |       | Non-Executive 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                  |
|                     |       |                    |       |                                                                     |
| Robert J. Edge           |       | Non-Executive Director  |       | 60-66 Hanover Street,  Fitzroy Victoria 3065  Australia                  |
|                     |       |                    |       |                                                                     |
| Professor Deon J. Venter |       | Executive Director      |       | 60-66 Hanover Street,  Fitzroy Victoria 3065  Australia                  |

 

The members of SeniorManagement of the Company 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 Company Secretary   |       | 60-66 Hanover Street,  Fitzroy Victoria 3065  Australia |
|                     |       |                                        |       |                                                    |
| Dr. Gary Cobon      |       | Chief Scientific Officer                    |       | 60-66 Hanover Street,  Fitzroy Victoria 3065  Australia |
|                     |       |                                        |       |                                                    |
| Geoffrey E. Newing       |       | Group General Manager Business Development  |       | 60-66 Hanover Street,  Fitzroy Victoria 3065  Australia |
|                     |       |                                        |       |                                                    |
| Ian N. Christensen       |       | Group General Manager Intellectual Property |       | 60-66 Hanover Street,  Fitzroy Victoria 3065  Australia |

 

2

----

 

**Item 1.B**Advisers

 

Our principal bankers, accountants and legal advisers are as follows:

 
| **Name  of Adviser**                          | ** ** | **Function**                   | ** ** | **Business Address**                                               |
|-----------------------------------------------|------------|--------------------------------|------------|--------------------------------------------------------------------|
| ** **                                    | ** ** | ** **                     | ** ** | ** **                                                         |
| Ernst & Young  Chartered Accountants |       | Auditors                       |       | 680 George Street  Sydney NSW 2000  Australia                      |
|                                          |       |                           |       |                                                               |
| St. George Bank Limited                       |       | Bankers - Australia            |       | 333 Collins Street  Melbourne Victoria 3000  Australia             |
|                                          |       |                           |       |                                                               |
| KeyBank National Association                  |       | Bankers - USA                  |       | 1130 Haxton Drive  Fort Collins CO 80525  USA                      |
|                                          |       |                           |       |                                                               |
| Clayton Utz                                   |       | General Counsel                |       | 333 Collins Street  Melbourne Victoria 3000  Australia             |
|                                          |       |                           |       |                                                               |
| Faegre & Benson LLP                  |       | Licensing and 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                           |

 

**Item 1.C**Auditors

 

The auditors of the Company’s US GAAP accounts for theyears ended June 30, 2001, June 30, 2002, June 30, 2003, June 30,2004 and June 30, 2005 were Ernst & Young, whose address is 680George Street, Sydney, NSW 2000, Australia, members of the Australian Instituteof Chartered Accountants.  Ernst &Young are the Company’s current auditors, an appointment ratified at the AnnualGeneral Meeting held on November 28, 2003.

 

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

 

Not applicable.

 

**Item 3.**                     Key Information

 

**Item 3.A****SelectedFinancial Data**

 

The following selected financial data for the fiveyears ended June 30, 2005, respectively, are derived from the auditedconsolidated financial statements of Genetic Technologies Limited, prepared inaccordance with United States generally accepted accounting principles (“USGAAP”).  The data should be read inconjunction with the consolidated financial statements, related notes and otherfinancial information included herein.

 

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

 

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

 

3

----

 

**GENETICTECHNOLOGIES LIMITED**

 

**CONSOLIDATEDPROFIT AND LOSS STATEMENTSUS GAAP FOR 2005, 2004, 2003, 2002 AND 2001CONVERTED TO U.S. DOLLARS**

 
| ** **                                               | ** ** | **Year ended  30 June 2005** | ** ** | **Year ended  30 June 2004** | ** ** | **Year ended  30 June 2003** | ** ** | **Year ended  30 June 2002** | ** ** | **Year ended  30 June 2001** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                                               | ** ** | **U.S. Dollars  (a)**             | ** ** | **U.S. Dollars  (b)**             | ** ** | **U.S. Dollars  (c)**             | ** ** | **U.S. Dollars  (d)**             | ** ** | **U.S. Dollars  (e)**             | ** ** |
| REVENUES                                                 |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| Licensing Revenue                                        |       | 4,970,007                         |       | 507,910                           |       | 2,615,544                         |       | 778,131                           |       | 0                                 |       |
| Service Testing Revenue                                  |       | 1,809,301                         |       | 1,969,963                         |       | 1,727,617                         |       | 838,969                           |       | 500,110                           |       |
| Grant Income                                             |       | 437,278                           |       | 154,702                           |       | 50,244                            |       | 91,610                            |       | 197,289                           |       |
| Other Revenue                                            |       | 3,469                             |       | 12,427                            |       | 10,722                            |       | 17,343                            |       | 24,274                            |       |
| TOTAL  REVENUES                                          |       | 7,220,055                         |       | 2,645,002                         |       | 4,404,127                         |       | 1,726,053                         |       | 721,673                           |       |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| OPERATING  EXPENSES                                      |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| Research and Development                                 |       | 1,826,984                         |       | 1,659,914                         |       | 512,345                           |       | 497,207                           |       | 357,345                           |       |
| Patent and License Fees                                  |       | 4,591,710                         |       | 763,739                           |       | 428,335                           |       | 267,408                           |       | 70,484                            |       |
| Service Testing Expenses                                 |       | 3,518,398                         |       | 2,229,307                         |       | 1,820,490                         |       | 934,732                           |       | 502,376                           |       |
| Sales and Marketing                                      |       | 537,039                           |       | 960,619                           |       | 661,211                           |       | 397,772                           |       | 241,435                           |       |
| General and Administrative                               |       | 2,668,002                         |       | 2,383,879                         |       | 1,182,856                         |       | 1,140,919                         |       | 1,815,176                         |       |
| TOTAL  OPERATING EXPENSES                                |       | 13,142,133                        |       | 7,997,458                         |       | 4,605,237                         |       | 3,238,038                         |       | 2,986,816                         |       |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| PROFIT  (LOSS) FROM OPERATIONS                           |       | (5,922,078                        | )          | (5,352,456                        | )          | (201,110                          | )          | (1,511,985                        | )          | (2,265,143                        | )          |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| OTHER INCOME  (EXPENSE)                                  |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| Interest Income                                          |       | 484,286                           |       | 352,605                           |       | 68,387                            |       | 57,907                            |       | 59,920                            |       |
| Interest Expense                                         |       | (31,750                           | )          | 0                                 |       | (5,979                            | )          | (5,490                            | )          | (6,823                            | )          |
| Net Profit (Loss) on Sale of Mining  Operations          |       | 0                                 |       | 0                                 |       | 0                                 |       | 43,063                            |       | 71,008                            |       |
| Net Profit (Loss) on Assets                              |       | 97,809                            |       | 406,224                           |       | (100,191                          | )          | (1,153,309                        | )          | (1,242,645                        | )          |
| Net Foreign Exchange Losses                              |       | (140,861                          | )          | (171,960                          | )          | (558,292                          | )          | (579,605                          | )          | (248,051                          | )          |
| TOTAL OTHER  INCOME (EXPENSES)                           |       | 409,484                           |       | 586,869                           |       | (596,075                          | )          | (1,637,434                        | )          | (1,366,591                        | )          |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| NET LOSS  BEFORE INCOME TAXES                            |       | (5,512,594                        | )          | (4,765,587                        | )          | (797,185                          | )          | (3,149,419                        | )          | (3,631,734                        | )          |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| INCOME TAXES                                             |       | (195,339                          | )          | (27,579                           | )          | (167,412                          | )          | (83,000                           | )          | 0                                 |       |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| NET LOSS BEFORE MINORITY INTEREST                        |       | (5,707,933                        | )          | (4,793,166                        | )          | (964,597                          | )          | (3,232,419                        | )          | (3,631,734                        | )          |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| MINORITY  INTEREST                                       |       | (35,016                           | )          | (23,560                           | )          | 4,202                             |       | 10,240                            |       | 46,324                            |       |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| NET LOSS                                                 |       | (5,742,949                        | )          | (4,816,726                        | )          | (960,395                          | )          | (3,222,179                        | )          | (3,585,410                        | )          |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| NET LOSS PER ORDINARY SHARE (CENTS PER  SHARE)           |       | (2                                | )          | (2                                | )          | (0                                | )          | (1                                | )          | (2                                | )          |
|                                                     |       |                              |       |                              |       |                              |       |                              |       |                              |       |
| WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC  AND DILUTED) |       | 315,264,068                       |       | 277,806,689                       |       | 261,541,405                       |       | 259,757,871                       |       | 221,535,566                       |       |

 

4

----

 

**GENETICTECHNOLOGIES LIMITED**

 

**SELECTEDCONSOLIDATED BALANCE SHEET DATAUS GAAP FOR 2005, 2004, 2003, 2002 AND 2001CONVERTED TO U.S. DOLLARS**

 
| ** **                    | ** ** | **Year ended  30 June 2005** | ** ** | **Year ended  30 June 2004** | ** ** | **Year ended  30 June 2003** | ** ** | **Year ended  30 June 2002** | ** ** | **Year ended  30 June 2001** | ** ** |
|-------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                    | ** ** | **U.S. Dollars  (a)**             | ** ** | **U.S. Dollars  (b)**             | ** ** | **U.S. Dollars  (c)**             | ** ** | **U.S. Dollars  (d)**             | ** ** | **U.S. Dollars  (e)**             | ** ** |
| ASSETS                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| Current                       |       | 15,002,375                        |       | 9,063,848                         |       | 4,274,514                         |       | 4,631,408                         |       | 1,718,182                         |       |
| Non-Current                   |       | 7,311,427                         |       | 6,589,525                         |       | 1,807,634                         |       | 660,338                           |       | 4,872,819                         |       |
| TOTAL ASSETS                  |       | 22,313,802                        |       | 15,653,373                        |       | 6,082,148                         |       | 5,291,746                         |       | 6,591,000                         |       |
| ** **                    | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| LIABILITIES                   | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| Current                       |       | 3,738,790                         |       | 3,233,207                         |       | 1,349,310                         |       | 736,881                           |       | 413,123                           |       |
| Non-Current                   |       | 1,224,960                         |       | 486,640                           |       | 469,490                           |       | 392,980                           |       | 355,670                           |       |
| TOTAL  LIABILITIES            |       | 4,963,750                         |       | 3,719,847                         |       | 1,818,800                         |       | 1,129,861                         |       | 768,793                           |       |
| ** **                    | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| NET ASSETS                    |       | 17,224,715                        |       | 11,851,330                        |       | 4,204,310                         |       | 4,120,945                         |       | 5,822,208                         |       |
| ** **                    | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| DIVIDENDS  DECLARED PER SHARE |       | 0                                 |       | 0                                 |       | 0                                 |       | 0                                 |       | 0                                 |       |

 

----

a)      Converted at A$1.00 = US$0.7564, except forassets and liabilities which were converted at A$1.00 = US$0.7618

b)      Converted at A$1.00 = US$0.7132, except forassets and liabilities which were converted at A$1.00 = US$0.6952

c)      Converted at A$1.00 = US$0.5850, except forassets and liabilities which were converted at A$1.00 = US$0.6710

d)      Converted at A$1.00 = US$0.5236, except forassets and liabilities which were converted at A$1.00 = US$0.5628

e)      Converted at A$1.00 = US$0.5372, except forassets and liabilities which were converted at A$1.00 = US$0.5100

 

**Exchange rates**

 

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

 
| **Period ended**    | ** ** | **At period end** | ** ** | **Average rate (a)** | ** ** | **High** | ** ** | **Low** | ** ** |
|---------------------|------------|-------------------|------------|----------------------|------------|----------|------------|---------|------------|
| June 2001      |       | 0.5100            |       | 0.5372               |       | 0.6030   |       | 0.4773  |       |
| 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  |       |
| July 2005      |       | 0.7594            |       | 0.7524               |       | 0.7661   |       | 0.7403  |       |
| August 2005    |       | 0.7514            |       | 0.7614               |       | 0.7739   |       | 0.7469  |       |
| September 2005 |       | 0.7643            |       | 0.7651               |       | 0.7731   |       | 0.7537  |       |
| October 2005   |       | 0.7480            |       | 0.7535               |       | 0.7630   |       | 0.7468  |       |
| November 2005  |       | 0.7394            |       | 0.7353               |       | 0.7451   |       | 0.7267  |       |

 

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(a)          Theaverage of the exchange rates on the last day of each month during thefinancial period.

 

5

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**Item 3.B**Capitalization and Indebtedness

 

Notapplicable.

 

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

 

Notapplicable.

 

**Item 3.D**Risk Factors

 

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

 

**RisksRelated to Us**

 

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

 

The biotechnology sector seems particularly vulnerableto abrupt changes in investor sentiment. Stock prices of companies in the biotechnology industry,including ours, can swing dramatically, with little relationship to operatingperformance.  Our stock price may beaffected by a number of factors including, but not limited to:

 

•                                          productdevelopment events;

 

•                                          theoutcome of litigation;

 

•                                          decisionsrelating to intellectual property rights;

 

•                                          theentrance of competitive products/technologies into our market;

 

•                                          newmedical discoveries;

 

•                                          theestablishment of strategic partnerships and alliances;

 

•                                          changesin reimbursement policies or other practices related to the pharmaceuticalindustry; or

 

•                                          otherindustry and market changes or trends.

 

Since June 30, 2002, the price of our Ordinary Shares has rangedfrom a low of A$0.18 to a high of A$0.87 per share.  Further fluctuations are likely to occur dueto events not within our control and general market conditions affecting thebiotechnology sector or the stock market generally.  The most significant such event of which wehave knowledge took place in August 2003 after a television report inAustralia on our company was broadcast. That week the price of our shares increased from A$0.58 to A$0.87 on avolume of 26,000,000 shares traded, which was exceptionally high for us.  The share price subsequently retreated.

 

In addition, low trading volume may increase the volatility of theprice of our ADSs.  Trading volume in ourOrdinary Shares on other markets has not been historically high, and tradingvolume of our ADSs on the NASDAQ National Market may also be low.  Further, because each of our ADSs represents30 of our Ordinary Shares, trading volume in our ADSs may be lower than thatfor our 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 iftheir trading volume were higher.

 

6

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The following chart graphically illustrates the fluctuation in theprice of our shares over the last four years:

 

 

**The fact that we do notexpect to pay cash dividends may lead to decreased prices for our stock.**

 

We have never paid a cash dividend on our OrdinaryShares and 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 will bedependent on our financial condition, results of operations, capitalrequirements and any other factors our Board of directors decides isrelevant.  As a result, an investor willonly recognize an economic gain on an investment in our stock from anappreciation in the price of our stock.

 

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

 

We are a public company limited by shares, registeredand operating under the Australian Corporations Act 2001.  All of our directors and officers named inthis Annual Report reside outside the U.S. Substantially all, or a substantial portion of, the assets of thosepersons are located outside the U.S.  Asa result, it may not be possible to effect service on such persons in the U.S.or to enforce, in foreign courts, judgments against such persons obtained inU.S. courts and predicated on the civil liability provisions of the federalsecurities laws of the U.S.  Furthermore,substantially all of our directly owned assets are outside the U.S., and, assuch, any judgment obtained in the U.S. against us may not be collectiblewithin the U.S.  There is doubt as to theenforceability in the Commonwealth of Australia, in original actions or in actionsfor enforcement of judgments of U.S. courts, of civil liabilities predicatedsolely upon federal or state securities laws of the U.S., especially in thecase of enforcement of judgments of U.S. courts where the defendant has notbeen properly served in Australia.

 

**Because we are notrequired to provide you with the same information as an issuer of securitiesbased in the United States, you may not be afforded the same protections orinformation you would have if you invested in a United States publiccorporation.**

 

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

 

7

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However, in line with the Australian Stock Exchangeregulations, we will disclose our semi-annual results, which, in accordancewith Australian 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 Stock Exchange, will also be disclosed immediately in the publicmedia and to the Australian Stock Exchange. Other relevant information pertaining to our Company or us will also bedisclosed in line with the Australian Stock Exchange regulations andinformation 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 SEC Form 6-K. Nevertheless, you may not be afforded the same protections orinformation, which would be made available to you, were you investing in a UnitedStates public corporation because the Form 10-Q and Form 8-Krequirements are not applicable to us.

 

**If a public market does not develop for our ADSs,  your ability to resell your ADSs could benegatively affected.  This****would be so because there would belimited buyers for your interests.**

 

There has been no public market for the ADSs and therehas been virtually no trading in our ADSs through the pink sheets afterestablishment of our Level I ADR Program. However, subsequent to the Level II listing of our ADSs on the NASDAQNational Market on September 2, 2005, the trading volumes of our ADSs haveincreased.  An active trading market forthe ADSs, however, may not develop or be maintained in the future.  If an active trading market is not developedand maintained, the liquidity and trading prices of the ADSs could benegatively affected.

 

**Holders of ADSs may havelimited rights relative to holders of our Ordinary Shares in certaincircumstances.**

 

The rights of holders of ADSs with respect to 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 depositary in time to ensure that the depositary will vote theOrdinary Shares.  This means that holdersof ADSs 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 ADRs, 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$960,395 for the year ended June 30, 2003 and net losses of $4,816,726 forthe year ended June 30, 2004, and a net loss of $5,742,949 for year ended June 30,2005.  As of June 30, 2005, we haveaccumulated losses of $12,982,113.  Theextent of future losses and the time required to achieve profitability remainsuncertain. 

 

**Risks Related to ourIndustry**

 

**Our sales cycle is typically lengthy.**

 

The sales cycle for our testing products and licensegeneration is lengthy.  As a result, wemay expend substantial funds and management effort with no assurance ofsuccessfully selling our products or services or granting new licenses.  Our ability to obtain customers for ourgenetic testing products and services depends in significant part upon theperception that our products and services can help accelerate efforts ingenomics.  The sales cycle is typicallylengthy.  Our sales effort requires theeffective demonstration of the benefits of our products and services to andsignificant training of many different departments within a potentialcustomer.  In addition, we sometimes are requiredto negotiate 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 couldbe adversely affected if we expend money without any return.

 

8

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**If our competitors develop moreeffective products, our results of operations and financial condition could beaffected.**

 

Weare subject to limited competition from biotechnology and diagnostic companies,academic and research institutions and government or other publicly-fundedagencies that are pursuing products and services that are substantially similarto our proposed testing products and services, or which otherwise address theneeds of our customers and potential customers. Our competitors in the testing market include private and public sectorenterprises in Australia and elsewhere. Many of the organizations competing with us have significantly greaterexperience in financial, 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 collaborative relationships.  However, because of our patents, we havevirtually no competition in the licensing area.

 

Our competitive position in the testing area is basedupon our ability to:

 

•                                          create and maintain scientifically-advancedtechnology and proprietary products and processes;

 

•                                          attract and retain qualified personnel;

 

•                                          obtain patent or other protection for ourproducts and processes; 

 

•                                          obtain required government approvals on atimely basis; and

 

•                                          successfully market products.

 

If we are not successful in meeting these goals, ourbusiness could be hurt.  Similarly, ourcompetitors may succeed in developing technologies, products or procedures thatare more effective than any that we are developing or that would render ourtechnology and products obsolete, noncompetitive or uneconomical.

 

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 sure 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 licensed byus may be infringed or third parties may independently develop either the sameor similar technology.  Similarly, ourpatents may not provide us with meaningful protection from competitors,including those who may pursue patents which may prevent, limit or interferewith our products or will require licensing and the payment of significant feesor royalties by us to such third parties in order to enable us to conduct ourbusiness.  We may sue or be sued by thirdparties regarding patents and other intellectual property rights.  These suits are costly and would divert fundsand management and technical resources from our operations.

 

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

 

We have relationships with a number of academic consultantswho are not employed by us.  Accordingly,we have limited control over their activities and can expect only limitedamounts 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 depend, in large part, onour ability to obtain patent protection on many aspects of our business,including the products, methods and services we develop.  Patents issued to us may not provide us withsubstantial protection or be commercially beneficial to us.  The issuance of a patent is not conclusive asto its validity or its enforceability. In addition, our patent applications or those we have licensed, may notresult in issued patents.  If our patentapplications do not result in issued patents, our competitors may obtain rightsto commercialize our discoveries which would harm our competitiveposition.  We also may apply for patentprotection on novel genetic variations in known genes and their uses, as wellas novel uses for previously identified genetic variations discovered by thirdparties.  In the latter cases, we mayneed a license from the holder of the patent with respect to such geneticvariations in order to make, use or sell any related products.  We may not be able to acquire such licenseson 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 anypatents are issued to other parties on such partial or full-length genes orgenetic variations or uses for such genes or genetic variations, the riskincreases that the sale of products or services developed by us or ourcollaborators may give rise to claims of patent infringement against us.  Others may have filed and, in the future, arelikely to file patent applications covering many genetic variations and theiruses.  Any such patent application 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 any suchpatent may not be made available to us on commercially acceptable terms, if atall.

 

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 the attentionof managerial and technical personnel. If we do not prevail in any intellectual property proceeding, inaddition to any damages we might have to pay, we could be required to stop theinfringing activity, or obtain a license to or design around the intellectualproperty in question.  In interferenceproceedings, our patent rights could be invalidated and the scope of ourpatents could be limited.  If we areunable to obtain licenses to intellectual property rights that we need toconduct our business, or are unable to design around any third party patent, wemay be unable to sell some of our products, which will result in reducedrevenue.

 

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

 

In addition, in order to protect or enforce our patentrights or to protect our ability to operate our business, we may need toinitiate other patent litigation against third parties.  These lawsuits could be expensive, takesignificant time, and could divert management’s attention from other businessconcerns.  These lawsuits could result inthe invalidation or limitation in the scope of our patents or forfeiture of therights associated with our patents.  Wemay not prevail in any such proceedings and a court may find damages or awardother remedies in favor of our opposing party in any of these suits.  During the course of any future proceedings,there may be public announcements of the results of hearings, motions and otherinterim proceedings or developments in the litigation.  Securities analysts or investors may perceivethese announcements to be negative, which could cause the market price of ourstock to decline.

 

10

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

 

Our business exposes us to potential liability risksthat are inherent in the testing, manufacturing, marketing and sale of genetictests.  The use of our products andproduct candidates, whether for clinical trials or commercial sale, may exposeus to professional liability claims or product recall and possible adversepublicity.  We may be subject to claimsresulting from incorrect results of analysis of genetic variations or otherscreening tests performed using our products. Litigation of these claims can be costly.  We could expend significant funds during anylitigation proceeding brought against us. Further, if a court were to require us to pay damages to a plaintiff,the amount of such damages could significantly harm our financialcondition.  Although we have public andproducts liability insurance coverage under broadform liability andprofessional indemnity policies, for an aggregate amount of A$60,000,000, thelevel or breadth of our coverage may not be adequate to fully cover potentialliability claims.  To date we have notbeen subject to claims, or ultimately liability, in excess of the amount of ourcoverage.  In addition, we may not beable to obtain additional professional liability coverage in the future at anacceptable cost.  A successful claim orseries of claims brought against us in excess of our insurance coverage and theeffect of professional liability litigation upon the reputation and marketabilityof our technology and products, together with the diversion of the attention ofkey 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 accidentalcontamination or discharge or any resultant injury from hazardous materials,and conveyance, processing, and storage of and data on patient samples.  If we, our collaborators or service providersfail to comply with applicable laws or regulations, we could be required to paypenalties or be held liable for any damages that result and this liabilitycould exceed our financial resources. Further, future changes to environmental health and safety laws couldcause us to incur additional expense or restrict our operations.  We have never had a reportable injury throughthe date of this Annual Report.

 

In addition, our collaborators and service providersmay be working with these types of hazardous materials, including hazardouschemicals, in connection with our collaborations. In the event of a lawsuit orinvestigation, we could be held responsible for any injury caused to persons orproperty by exposure to, or release of, these patient samples that may containviruses and hazardous materials. The cost of this liability could exceed ourresources.  While we maintain broadformliability insurance coverage for these risks, in the amount of up toA$40,000,000, the level or breadth of our coverage may not be adequate to fullycover potential liability claims.  Todate, we have not been subject to claims, or ultimately liability, in excess ofthe amount of our coverage.  Ourbroadform insurance coverage also covers us against losses arising from aninterruption of our business activities as a result of the mishandling of suchmaterials.  We also maintain workers’compensation insurance, which is mandatory in Australia, covering all of ourworkers 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 their responsibilities.  Our collaborators may also be ourcompetitors.  We cannot control theamount and timing of resources that our collaborators devote to performingtheir contractual obligations and we have no certainty that these parties willperform their obligations as expected or that any revenue will be derived fromthese arrangements.

 

11

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

 

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

 

We rely upon scientific, technical and clinical data suppliedby academic and corporate collaborators, licensors, licensees, independentcontractors and others in the evaluation and development of potentialtherapeutic methods.  There may be errorsor omissions in this data that would materially adversely affect thedevelopment of these compounds. 

 

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 or develop alternative compounds independentlyor in collaboration with others as a means of developing treatments for thediseases targeted by their collaborative programs with us.  If any of these events occurs, the progressof our company could be adversely affected and our results of operations andfinancial condition could suffer.

 

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

 

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

 

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

 

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

 

In Australia, there is no law that prohibits theperforming a paternity test by using just a sample from a father and child. In March 2003,the Australian Law Reform Commission (ALRC) released its report into HumanGenetic Testing in Australia.  Inrelation to paternity testing, it made various recommendations, the mostsignificant of which was that the testing of a child without the knowledge orconsent of both parents should be made illegal. Even though this report was released over two years ago, it is expectedthat the Government will eventually accept and pass legislation to enforce theALRC recommendations.  When passed, thiswill have a negative impact on our revenue, as father/child testing is asubstantial and growing market.  However,another of the ALRC recommendations was that Human DNA parentage testing onlybe performed in an accredited laboratory. If this recommendation is accepted, then the three non-accreditedproviders will either have to comply or cease trading.

 

12

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

 

Much of the future success of the Company depends onthe continued service and availability of skilled personnel, including itsChief Executive Officer, members of its executive team, and those in technical,marketing and staff positions.  While weare actively recruiting new employees with such skills and experience to reduceour reliance on these individuals, skilled personnel with specific experiencein the biotechnology industry are in high demand and competition for their talentsis intense.

 

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

 

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

 

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

 

**Licensing**

 

Thepatenting of genes and issues surrounding access to genetic knowledge aresubjects of extensive and ongoing public debate in many countries.  In recent times for example, the AustralianLaw Reform Commission has conducted two inquiries into the social uses ofgenetic information.  The patents we holdover uses of non-coding DNA have a broad scope and these have also been thesubject of debate and some criticism in the media.  A risk we may face is that individuals ororganisations in any of the countries in which these patents have issued couldpotentially take legal action to seek their amendment, revocation orinvalidation. 

 

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

 

Underthe relevant Patent Act in most, if not all, 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 may unilaterallychoose to exploit the technology.  To theextent that the Company’s non-coding DNA technology is used in the conduct ofgenetic research, we also face risks, uncertainty and controversy over thelicensing of our technology to those conducting research.  Whether or not researchers should be exemptedfrom obligations to take licenses to the relevant patents was the subject ofanother government inquiry being conducted by the Australian Council forIntellectual Property who recommended the creation of a research exemption.

 

**Genetic testing**

 

There is a risk that a moratorium on genetic testingby the Australian Institute of Sport may impact on the commercialization of oursports performance genetic test for the elite competitor market inAustralia.  However, this moratoriumshould not impact our ability to distribute this test throughout the rest ofthe world.  There is also a view held bysome elements of the medical and academic communities that the marketing of someof our cancer diagnostic tests is done solely with a commercial objective inmind. In essence, some parties have indicated that, in their view, the risk ofinheriting certain types of cancer is too low to warrant an expensive genetictest. Guidelines laid down by the Australian National Health Medical ResearchCouncil also prevent us from promoting our testing in a manner which may “causeany unnecessary alarm”.

 

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In recent years, health care payors as wellas federal and state governments have focused on containing or reducing healthcare costs.  We cannot predict the effectthat any of these initiatives may have on our business.  In particular, gene-based therapeutics, ifsuccessfully developed and commercialized, are likely to be costly compared tocurrently available drug therapies. Health care cost containment initiatives focused either on gene-basedtherapeutics or on genetic testing could cause the growth in the clinicalmarket for genetic testing to be curtailed or slowed.  In addition, health care cost containmentinitiatives could also cause pharmaceutical companies to reduce researchand development spending.  In eithercase, our business and our operating results would be adversely affected.  In addition, genetic testing in clinicalsettings is 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 products and services.  In thisevent, potential customers would be much less likely to use our products andservices, and our business and operating results would be seriously harmed.

 

**ITEM 4.**  INFORMATION ON THE COMPANY

 

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

 

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

 

On October 15, 1999 the type of companywas changed from a No Liability Company to a company limited by shares.  On August 29, 2000 we changed our nameto Genetic 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 is ACN 009 212328.  We operate pursuant to ourconstitution, the Australian Corporations Act, the Australian Stock ExchangeListing Rules, the Marketplace Rules of NASDAQ and, where applicable,local legislation.

 

Our registered office, headquarters, laboratory andbusiness activities are all located at 60-66 Hanover Street, Fitzroy, Victoria3065 Australia.  Our telephone number is+61-3-9415-1135.  Our website address iswww.gtg.com.au.  Information onour website and websites linked to it does not constitute part of this AnnualReport.

 

GeneType AG was incorporated in Zug,Switzerland in 1989, and was acquired by us on August 29, 2000.  GeneType AG had been formed by Dr. MervynJacobson (a medical doctor) and Dr. Malcolm Simons (an immunogeneticist)after they met in Melbourne, Australia, in early 1989, and resolved to test thehypothesis developed by Dr. Simons that the non-coding or “junk” DNAregions in the human,  (and inparticular, the non-coding DNA of the human HLA gene complex on chromosome 6)was in reality not “junk”, but a valuable and highly ordered reservoir ofuseful genetic information, overlooked by the scientific community up untilthat time.

 

GeneType AG indeed researched and proved thatcertain motifs or sequence variations (known as “polymorphisms”) within thenon-coding DNA of these HLA genes could be identified which were clearly not “junk”– and GeneType AG also showed that these polymorphisms were actually linked toparticular DNA variations in the coding region (known as “alleles”).  Alternatively, some of these non-codingpolymorphisms could be linked to groupings of alleles in the coding region (or “haplotypes”)of these HLA genes.  This was asignificant breakthrough and resulted in a first patent filingconcerning use of non-coding polymorphisms linked to coding alleles orhaplotypes in HLA for analysis purposes. GeneType AG then filed additionalpatents in relation to use of non-coding polymorphisms for analysis purposesoutside of the HLA genes.  Later,GeneType AG also filed patents on the use of such non-codingpolymorphisms for mapping purposes. These patents were filed in many countries. Subsequently, such patentapplications have resulted in issued patents being awarded to GeneTypeAG in many jurisdictions, creating a potentially valuable businessopportunity for GeneType AG.  Thecommercial mission then evolved for GeneType AG to assert its ownershipover such patents, by way of out-licensing these inventions and thesestrategies to others, to allow them to also access this useful and informativegenetic information – which GeneType AG had been the first to prove indeedexists within the non-coding DNA of all genes in all multi-cellular species– and so, to then exploit such inventions globally for profit.

 

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On August 29, 2000, we acquired 100% of GeneTypeAG, including all its valuable patents, and we shifted our focus exclusively tothe area of biotechnology.  We alsochanged our name to Genetic Technologies Limited.  In September 2000, our listing was dulytransferred from the mining board of the ASX to the industrial board and ourshares were thereafter classified under the industry group “Health andBiotechnology”, completing our transformation from a mining and resourcescompany into a biotechnology company. During 2001, we also acquired 10% of the issued and outstanding sharesin Cytomation Inc., Fort Collins, Colorado. At that time, Cytomation was a leader in the manufacture and sales offlow cytometers and cell sorters.  Also,in December 2001, we acquired an initial shareholding of less than 1% inthe issued capital of XY, Inc., a company based in Fort Collins,Colorado.  In July 2001, we acquiredthe business of DNA-ID Labs in Perth, Western Australia, as part of ourstrategy of expanding our paternity testing business in Australia.  In March 2002, we formed AgGenomics Pty.Ltd., based in Melbourne, in order to expand our genetic service testing intothe field of plant genetics.  In May 2003,we acquired the fixed assets of the business Genetic Science Services inMelbourne, in order to expand into the field of the genetic testing.

 

Since the acquisition of GeneType AG, with theexception of certain minor passive interests, the directors have disposed ofall remaining mining interests so that our activities now focus solely onemerging opportunities in the field of biotechnology. 

 

Our current activities in biotechnology primarilyconcentrate on three clearly defined areas of activity:

 

(i)                     out-licensing of our non-coding patentsglobally;

 

(ii)                  expanding our existing genetic servicetesting business to become the leading genetic testing laboratory in theAsia-Pacific Region; and

 

(iii)               supporting certain research projects in whichthe Company is already involved.

 

In August 2001, our subsidiary GtechInternational Resources Limited sold its remaining interest in the AurexProject in the Yukon Territory, Canada, to Expatriate Resources Limited inexchange for 600,000 common shares in Expatriate Resources Limited.  Gtech International Resources Limited retainsa 1.5% net smelter return royalty.  In September 2001,we sold all of our shares in Golden Mount NL for A$1.00, with full release ofall our performance bonds.  In November 2001,we sold our entire shareholding in Cytomation Inc. for $4,816,044 (A$9.2million), which resulted in a profit to our company of approximately $273,475(A$500,000).  On June 4, 2002, wesold all the shares in Mt. Alexander Goldfields NL, the company which owned theother Victorian mining assets, for $157,045 (A$300,000) cash, and we were alsogranted a full release of all our performance bonds.

 

In early calendar year 2002, we commenced the processof out-licensing our non-coding patents, announcing several earlysuccesses.  The first license to ournon-coding patents was granted to Genetic Solutions Pty. Ltd. of Australia, andsoon after, to Nanogen Inc., Sequenom Inc., Perlegen Sciences Inc. and MyriadGenetics Inc. all of the U.S.  In thefirst half of 2003, we granted licenses to Pyrosequencing AB of Sweden, to ARUPand the University of Utah.  During theyear ended 2004, we granted licenses to the University of Sydney, in Australia,Quest Diagnostics Inc. of USA, King’s College London, ViaLactia Biosciences(NZ) Limited of New Zealand, University of Technology, Sydney, Australia, TMBioscience Corporation of Canada, Laboratory Corporation of America Holdings,Colorado State University of USA, C.Y. O’Connor ERADE Village Foundation ofPerth, Western Australia, and Ovita Limited of New Zealand. Since June 30,2004, we have granted licenses to Genzyme Corporation of USA, MetaMorphix Inc.of USA, Bionomics Limited of Adelaide, South Australia, the Australian GenomeResearch Facility of Brisbane, Queensland, four parties in New Zealand andApplera Corporation of USA.  Theselicenses are more fully described below under Item 4.B “Business Overview”.

 

It is a priority for the company to continue toidentify additional parties who would benefit from taking a license to the GTGnon-coding patents.  We are now pursuingnegotiations with companies and organizations in the U.S., Europe, Australia,New Zealand, Canada, Japan and South America that would all benefit from takinga license to our non-coding patents or from collaborations with our servicetesting business and we are now devoting increasingly significant resources tothis growing activity.

 

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**Item 4.B**Business Overview

 

We are a biotechnology company, now pursuingcommercial opportunities in three main areas of activity: 

 

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

 

(ii)                                                  expandingour genetic service-testing business in the Asia-Pacific Region; and

 

(iii)                                               supportingcertain research projects in which we are already involved.

 

**Industry Background**

 

The Human Genome Project (HGP) announced (in2001) the completion of the first draft of the entire sequence of thehuman genome.  The biotechnology industryis now working to build upon the vast amount of knowledge generated bythat program - in order to develop a better understanding of the genetic basisof human health and disease. 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 theMouse Genome was published in December, 2002, and this permitted for the firsttime, a detailed comparison of human genes and mouse genes.  One of the key findings that has arisen fromthis work is the significant role that non-coding regulatory DNA plays in controllinggene function in both human genes and mouse genes.  For some scientists, but not for our company,these findings - of the great significance of non-coding regulatory DNA to genefunction - were new, significant and totally unexpected.

 

A major focus in science is now theidentification and analysis of genetic variations and disease-associated geneswithin the genome.  These geneticvariations, or polymorphisms, in the DNA sequences vary betweenindividuals.  The most commongenetic variations are Single Nucleotide Polymorphisms, or SNPs, which aremerely a difference in a single nucleotide. The first draft of the human genome identified over 1.4 million SNPsthat can be useful as positional signposts for disease-associated DNA sequencesin a gene or as markers to map genes along a chromosome.  A significant number of these SNPs(perhaps more than 97%) are now known to be non-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 knowngenome at 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.

 

**Genetic Variability**

 

Almost 99.9% of an individual’s genome isidentical to that of every other individual’s genome.  However, even slight variations in sequencecan drastically change how a gene functions. Variations can lead to harmless changes, such as blue eyes instead ofbrown, or to major diseases such as cancer, cystic fibrosis, or cardiovasculardisease.  Genetic variations can also beresponsible for many of the differences in the ways individuals respond to drugtherapies.  As a result of thisknowledge, routine analysis of SNPs and other genetic variations are expectedto play an increasingly important role in the discovery and development of newdrugs, as well as in a variety of diagnostic therapeutic and othermedical and life science applications. Industry sources estimate there are millions of genetic variationsin the human genome, creating demand for products and technologies that canquickly and accurately detect and analyze these variations.  It is thought that medicine of the futurewill be dispensed to a patient based on his or her own specific DNA variations.  This type of personalized medicine willrequire sophisticated genetic tests to determine the genetic make-up of anindividual, and it is now recognized that such genetic make-up depends not onlyon the form of the coding DNA, but also the form of the associated non-codingDNA.

 

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**GeneticTests**

 

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

 

The most commonly tested marker of aparticular allele is a SNP.  As much as98% of the human genome is considered to be non-coding DNA, the majorityof the identified 1.4 million SNPs are also in non-coding regions of DNA.  We believe that a license to our proprietarymethods of analyzing non-coding regions of DNA will be absolutelynecessary for many of the genetic tests of the future.  Similarly, tests for genetic abnormalities ormutations may involve not just individual SNPs, but also groups of SNPsor even larger sequences of DNA, and such abnormal sequences – large or small –may be located either in the coding region alone, or in the non-coding regionalone, or in both the coding and non-coding regions of the gene (or genes)under examination.  Clearly, the variationswithin genes that may be responsible for a disease are now known to be muchmore complicated than was previously understood, and the role of non-coding DNAis now being found to be highly relevant in more and more, diseases.  This similarly applies to genetic disordersin animals and in plants.  Accordingly,more and more genetic testing will in future look not only at codingvariations, but also at the non-coding variations within a particular gene.

 

**Our Patent Portfolio**

 

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

 

(a)          Intron 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)             Modulation of the immune system.

 

(a)           **The Intron Sequence Analysis patents** - allow for thedetection of specific motifs within the genetic material in the non-codingregions of DNA which have been shown, may be linked to certain alleles orhaplotypes within the coding region of the gene.  In other words, whereas most geneticistspreviously looked at the genetic information located within the coding regionalone, our inventions have provided a means of also looking at additionaluseful information which is located within the non-coding part of the gene, andwhich is now known to also be important in influencing gene function – and inparticular, protein production.  Themethod is useful for example, in the determination of tissue typing fortransplantation in order to test for possible likely acceptance or rejection ofbone marrow or tissue grafts.  The methodis also useful in the detection of genetic changes or mutations in thenon-coding region of certain genes associated with a higher incidence ofcertain genetic diseases, such as cystic fibrosis, susceptibility to breastcancer, multiple sclerosis, Alzheimer’s Disease, etc.  It is also now known that more than 100 humandiseases are associated with genetic changes in the non-coding part of aparticular gene and which are linked to the function of the coding part thatgene.  Similar applications also exist inanimals and plants.  Several importantmarkers in livestock, for example, have been shown to be located in thenon-coding part of the DNA and also linked to particular coding function – forexample, marbling or tenderness. It has also been shown that variations in thenon-coding DNA of plants can influence function in plants, including the colorof flowers and the timing of plant germination and growth.

 

(b)           **The GenomicMapping patents** - describe methods for analyzing genetic materialcollected from various selected populations to identify and locate genes andmarkers of interest, by identifying highly polymorphic sites throughout thegenome and particular haplotypes associated with such sites, all based on areading of sequence information in both the coding and the non-coding portionsof the genome.

 

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(c)           **The Fetal Cell Recovery patents** - describe a novel and safe method for theisolation and collection of fetal cells from the peripheral blood of a pregnantwoman, utilizing various HLA or other markers plus flow cytometry - all withoutany invasive procedure that might endanger the mother or the child.

 

(d)           **The Electrophoresis Standardspatents -**describe a methodfor identifying band positions in an electrophoretic separation by alsoincluding a control, which serves as an internal standard.

 

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

 

(f)            **The Parasitology patents** - describe the identification and use ofgenetic variations within the typically waterborne parasite “Cryptosporidiumparvum”.  This enables more accuratetyping of Cryptosporidium organisms which may be important in the management ofdisease outbreaks.

 

(g)           **The Ancestral Haplotypes forTissue Typing patents** –describe a method for determining ancestral haplotypes using haplospecificgeometric elements within the major histocompatibility complex multi genecluster and methods of genetic analysis involving the amplification ofcomplimentary duplicons.  These patentswere acquired from the C.Y. O’Connor ERADE Village Foundation.

 

(h)           **The Markers for Disease patents** - describea group of patents relating to uses of a group of genetic variationscalled “variable number tandem repeats” (VNTRs). Particular uses have beenfound for VNTR’s in predicting predisposition to addiction.

 

(i)            **The Modulation of the ImmuneSystem patents** - describevarious methods aimed at improving the efficacy of cancer therapy and treatmentof HIV-AIDS.

 

In total, we own 8 issued patents and 10 pendingpatents in the United States.  Reflectingour international business strategy, we have also sought and been grantedforeign patents by many major industrialized nations, corresponding to each ofthe major patents already issued in the United States.

 

The many issued, allowed and pending patents claimedby GeneType AG, and which are now owned by our Company, distinguish us fromcompetitors by giving us the legal right to claim ownership 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 17years from the date of issuance for patents filed with the United States PatentOffice prior to June 8, 1995, and 20 years from the application filingdate or earlier claimed priority date in the case of patents issued fromapplications filed on or after June 8, 1995.  For applications filed after May 29,2000, the term is 20 years from the date of filing.  A minimum term of 17 years is assured,provided the applicant causes no delays during prosecution.  Patents in most other countries have a termof 20 years from the date of filing the patent application.  Our issued United States patents will expirebetween 2009 and 2019.  We intend tocontinue to file patent applications as we develop new products, technologiesand patentable enhancements.  Prosecutionpractices have been implemented to avoid any applicant delays that couldcompromise the 17-year minimum term. There can be no guarantee that such procedures will prevent the loss ofa potential patent term.  This isparticularly true in the short-term as the patent rules implementing themost recent patent term changes are largely new and untested.

 

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

 

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In addition to patent protection, we rely ontrade secret protection of our intellectual property.  We attempt to protect our trade secrets byentering into confidentiality agreements with third parties, employees andconsultants.  Our employees andconsultants are required to sign agreements to assign to us their interests indiscoveries, inventions, patents, trademarks and copyrights arising from theirwork for us.  They also are required tomaintain the confidentiality of our intellectual property, and refrain fromunfair competition with us during their employment and for a certain amount oftime after their employment with us, which includes solicitation of ouremployees and customers.  We cannot becertain these agreements will not be breached or invalidated.  In addition, third parties may independentlydiscover or invent competing technologies or reverse engineer our trade secretsor other technologies.

 

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

 

In addition, we may become involved inlawsuits in which third parties file claims asserting that one or more of ourpatents are invalid.  We cannot predictwhether third parties will assert such claims against us or against thelicensees of such patents, or whether those claims will hurt our business.  We may be forced to defend against suchclaims, whether they are with or without merit or whether they are resolved infavor of or against our licensees, or us and may face costly litigation anddiversion of management’s attention and resources.  During the period from February 2001through March 31, 2002 we had in place a patent insurance policy, placedwith GE Reinsurance Corporation through Dexta Corporation Limited, theirmanaging general agents in Australia. Although the policy was not renewed on its expiry, since we hadadvised Dexta of 13 companies prior to March 31, 2002 as potentialinfringers, the majority of our expenses of prosecution of our claims incurredto date have been covered by the policy.

 

Of those 13 so identified, we have secured licenseswith six, relinquished our claims against four and commenced proceedingsagainst Applera, Covance and Nuvello. The suits against Covance and Nuvello have since been settled.  On December 12, 2005, we announced thatwe had reached a final settlement of our patent dispute with AppleraCorporation, further to a settlement conference held in San Francisco,California.  The parties had executed anumber of binding agreements, including a final Settlement Agreement pluslicense agreements and a supply agreement, and subsequently they have 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 A$15 million, payable partly in cash andpartly in kind - including agreements supplying the Company with certainApplera equipment, reagents and intellectual property rights.

 

**Our Patents**

 

Our current patent portfolio is describedbelow:

 
| **Patent description**                                                                                | ** ** | **Country** | ** ** | **Application/Patent  Number** | ** ** | **Status** |
|-------------------------------------------------------------------------------------------------------|------------|-------------|------------|--------------------------------|------------|------------|
| ** **                                                                                            | ** ** | ** **  | ** ** | ** **                     | ** ** | ** ** |
| **Intron sequence analysis method  for detection of adjacent and remote locus alleles as haplotypes** | ** ** | ** **  | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 25  August 1989                                                          |       | Australia   |       | 654111                         |       | Granted    |
|                                                                                                  |       | Australia   |       | 672519                         |       | Granted    |
|                                                                                                  |       | Austria     |       | 144797                         |       | Granted    |
|                                                                                                  |       | Belgium     |       | 414469                         |       | Granted    |
|                                                                                                  |       | Canada      |       | 2023888                        |       | Granted    |
|                                                                                                  |       | Denmark     |       | 414469                         |       | Granted    |
|                                                                                                  |       | France      |       | 414469                         |       | Granted    |
|                                                                                                  |       | Germany     |       | 299319                         |       | Granted    |
|                                                                                                  |       | Germany     |       | 69029018.7                     |       | Granted    |

 

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| **Patent description**                                                                                        | ** ** | **Country**   | ** ** | **Application/Patent  Number** | ** ** | **Status** |
|---------------------------------------------------------------------------------------------------------------|------------|---------------|------------|--------------------------------|------------|------------|
| ** **                                                                                                    | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| **Intron sequence analysis method  for detection of adjacent and remote locus alleles as haplotypes (cont.)** | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 25  August 1989                                                                  |       | Great Britain |       | 414469                         |       | Granted    |
|                                                                                                          |       | Greece        |       | 3022410                        |       | Granted    |
|                                                                                                          |       | Hong Kong     |       | 1008053                        |       | Granted    |
|                                                                                                          |       | Israel        |       | 95467                          |       | Granted    |
|                                                                                                          |       | Italy         |       | 414469                         |       | Granted    |
|                                                                                                          |       | Japan         |       | 3206812                        |       | Granted    |
|                                                                                                          |       | Japan         |       | 2001-092923                    |       | Pending    |
|                                                                                                          |       | Liechtenstein |       | 414469                         |       | Granted    |
|                                                                                                          |       | Luxembourg    |       | 414469                         |       | Granted    |
|                                                                                                          |       | Netherlands   |       | 414469                         |       | Granted    |
|                                                                                                          |       | New Zealand   |       | 235051                         |       | Granted    |
|                                                                                                          |       | Singapore     |       | 47747                          |       | Granted    |
|                                                                                                          |       | South Africa  |       | 90/6765                        |       | Granted    |
|                                                                                                          |       | Spain         |       | 2095859                        |       | Granted    |
|                                                                                                          |       | Sweden        |       | 90309107.2                     |       | Granted    |
|                                                                                                          |       | Switzerland   |       | 414469                         |       | Granted    |
|                                                                                                          |       | USA           |       | 5789568                        |       | Granted    |
|                                                                                                          |       | USA           |       | 5612179                        |       | Granted    |
|                                                                                                          |       | USA           |       | 5192659                        |       | Granted    |
|                                                                                                          |       | USA           |       | 10/005626                      |       | Pending    |
|                                                                                                          |       |          |       |                           |       |       |
| **Genomic mapping method by  direct haplotyping using intron sequence analysis**                              | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 11  July 1990                                                                    |       | Australia     |       | 647806                         |       | Granted    |
|                                                                                                          |       | Austria       |       | 185377                         |       | Granted    |
|                                                                                                          |       | Belgium       |       | 570371                         |       | Granted    |
|                                                                                                          |       | Canada        |       | 2087042                        |       | Granted    |
|                                                                                                          |       | Denmark       |       | 570371                         |       | Granted    |
|                                                                                                          |       | France        |       | 570371                         |       | Granted    |
|                                                                                                          |       | Germany       |       | 69131691                       |       | Granted    |
|                                                                                                          |       | Great Britain |       | 570371                         |       | Granted    |
|                                                                                                          |       | Ireland       |       | 570371                         |       | Granted    |
|                                                                                                          |       | Israel        |       | 98793                          |       | Granted    |
|                                                                                                          |       | Italy         |       | 570371                         |       | Granted    |
|                                                                                                          |       | Japan         |       | 3409796                        |       | Granted    |
|                                                                                                          |       | Liechtenstein |       | 570371                         |       | Granted    |
|                                                                                                          |       | Luxembourg    |       | 570371                         |       | Granted    |
|                                                                                                          |       | Netherlands   |       | 570371                         |       | Granted    |
|                                                                                                          |       | New Zealand   |       | 238926                         |       | Granted    |
|                                                                                                          |       | South Africa  |       | 91/5422                        |       | Granted    |
|                                                                                                          |       | Sweden        |       | 570371                         |       | Granted    |
|                                                                                                          |       | Switzerland   |       | 570371                         |       | Granted    |
|                                                                                                          |       | USA           |       | 5851762                        |       | Granted    |

 

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| **Patent description**                                                                                                                                      | ** ** | **Country**   | ** ** | **Application/Patent  Number** | ** ** | **Status** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------|------------|--------------------------------|------------|------------|
| ** **                                                                                                                                                  | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| **Compositions and methods of use  of variable number of tandem repeats (VNTRs)**                                                                           | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 3  October 2003                                                                                                                |       | USA           |       | 10/956,581                     |       | Pending    |
|                                                                                                                                                        |       |          |       |                           |       |       |
| **Markers of predisposition to  addictive states**                                                                                                          | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 8  November 2004                                                                                                               |       | Australia     |       | 2004906419                     |       | Pending    |
|                                                                                                                                                        |       |          |       |                           |       |       |
| **Markers of susceptibility to  addictive states**                                                                                                          | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 24  August 2005                                                                                                                |       | Australia     |       | 2005904604                     |       | Pending    |
|                                                                                                                                                        |       |          |       |                           |       |       |
| **Genetic analysis (ancestral  haplotypes)**                                                                                                                | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 1  November 1991                                                                                                               |       | France        |       | 660877                         |       | Granted    |
|                                                                                                                                                        |       | Germany       |       | 69232726.6                     |       | Granted    |
|                                                                                                                                                        |       | Great Britain |       | 660877                         |       | Granted    |
|                                                                                                                                                        |       |          |       |                           |       |       |
| **Method for determining  ancestral haplotypes using haplotype specific geometric elements within the  major histocompatibility complex multigene cluster** | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 1  November 1991                                                                                                               |       | USA           |       | 6383747                        |       | Granted    |
|                                                                                                                                                        |       |          |       |                           |       |       |
| **Methods of genetic analysis  involving the amplification of complementary duplicons**                                                                     | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 16  February 2005                                                                                                              |       | Australia     |       | 2005900728                     |       | Pending    |
|                                                                                                                                                        |       |          |       |                           |       |       |
| **Identification of ancestral  haplotypes and uses thereof**                                                                                                | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 24  August 2005                                                                                                                |       | Australia     |       | 2005904603                     |       | Pending    |
|                                                                                                                                                        |       |          |       |                           |       |       |
| **ACTN3 genotype screen for  athletic performance**                                                                                                         | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 16  September 2002                                                                                                             |       | Australia     |       | 2003258390                     |       | Pending    |
|                                                                                                                                                        |       | Canada        |       | 2499084                        |       | Pending    |
|                                                                                                                                                        |       | China         |       | 3825166.3                      |       | Pending    |
|                                                                                                                                                        |       | Europe        |       | 3794708.2                      |       | Pending    |
|                                                                                                                                                        |       | India         |       | TBA                            |       | Pending    |
|                                                                                                                                                        |       | Japan         |       | 2004-534867                    |       | Pending    |
|                                                                                                                                                        |       | New Zealand   |       | 538890                         |       | Pending    |
|                                                                                                                                                        |       | Russia        |       | 2005111236                     |       | Pending    |
|                                                                                                                                                        |       | South Korea   |       | 10-2005-7004536                |       | Pending    |
|                                                                                                                                                        |       | USA           |       | 2003258390                     |       | Pending    |

 

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| **Patent description**                                                      | ** ** | **Country**   | ** ** | **Application/Patent  Number** | ** ** | **Status** |
|-----------------------------------------------------------------------------|------------|---------------|------------|--------------------------------|------------|------------|
| ** **                                                                  | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| **A retroviral immunotherapy**                                              | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 18  August 2000                                |       | Australia     |       | 2003200583                     |       | Granted    |
|                                                                        |       | Brazil        |       | 20010013354                    |       | Pending    |
|                                                                        |       | Canada        |       | 2431954                        |       | Pending    |
|                                                                        |       | China         |       | 1817380.2                      |       | Pending    |
|                                                                        |       | Europe        |       | 1962453.5                      |       | Pending    |
|                                                                        |       | Japan         |       | 2002-518971                    |       | Pending    |
|                                                                        |       | New Zealand   |       | 524280                         |       | Granted    |
|                                                                        |       | Singapore     |       | 200301401-6                    |       | Pending    |
|                                                                        |       | South Africa  |       | 200301694                      |       | Granted    |
|                                                                        |       | USA           |       | 10/369,256                     |       | Pending    |
|                                                                        |       |          |       |                           |       |       |
| **Cancer therapy**                                                          | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 14  February 2002                              |       | Australia     |       | 2003203051                     |       | Pending    |
|                                                                        |       | Brazil        |       | 0307661-0                      |       | Pending    |
|                                                                        |       | Canada        |       | 2476366                        |       | Pending    |
|                                                                        |       | China         |       | 3808204.7                      |       | Pending    |
|                                                                        |       | Europe        |       | 3701355.4                      |       | Pending    |
|                                                                        |       | Japan         |       | 2003-567437                    |       | Pending    |
|                                                                        |       | New Zealand   |       | 534570                         |       | Pending    |
|                                                                        |       | Singapore     |       | 200404602-5                    |       | Pending    |
|                                                                        |       | South Africa  |       | 2004/7142                      |       | Granted    |
|                                                                        |       | USA           |       | 10/503,794                     |       | Pending    |
|                                                                        |       |          |       |                           |       |       |
| **Strategy for retroviral immunotherapy**                                   | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 20  February 2002                              |       | Australia     |       | 2003246604                     |       | Pending    |
|                                                                        |       | Brazil        |       | 0307868-0                      |       | Pending    |
|                                                                        |       | Canada        |       | 2476956                        |       | Pending    |
|                                                                        |       | China         |       | 3808873.8                      |       | Pending    |
|                                                                        |       | Europe        |       | 3742468.6                      |       | Pending    |
|                                                                        |       | Japan         |       | 2003-569225                    |       | Pending    |
|                                                                        |       | New Zealand   |       | 534590                         |       | Pending    |
|                                                                        |       | Singapore     |       | 200404603-3                    |       | Pending    |
|                                                                        |       | South Africa  |       | 2004/7143                      |       | Granted    |
|                                                                        |       |          |       |                           |       |       |
| **Method of therapy**                                                       | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 24  October 2003                               |       | Australia     |       | 2003905858                     |       | Pending    |
|                                                                        |       |          |       |                           |       |       |
| **Therapeutic strategy for  treating autoimmune and degenerative diseases** | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 8  September 2004                              |       | Australia     |       | 2004905118                     |       | Pending    |
|                                                                        |       |          |       |                           |       |       |
| **Internal standard for electrophoretic  separations**                      | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 11  July 1990                                  |       | France        |       | 466479                         |       | Granted    |
|                                                                        |       | Germany       |       | 69127999                       |       | Granted    |
|                                                                        |       | Great Britain |       | 466479                         |       | Granted    |
|                                                                        |       | Sweden        |       | 466479                         |       | Granted    |
|                                                                        |       | USA           |       | 5096557                        |       | Granted    |

 

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| **Patent description**                                                                                  | ** ** | **Country**   | ** ** | **Application/Patent  Number** | ** ** | **Status** |
|---------------------------------------------------------------------------------------------------------|------------|---------------|------------|--------------------------------|------------|------------|
| ** **                                                                                              | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| **High resolution analysis of  genetic variation within cryptosporidium parvum**                        | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 21  August 2002                                                            |       | Australia     |       | 2003250619                     |       | Pending    |
|                                                                                                    |       | Brazil        |       | 0313708-2                      |       | Pending    |
|                                                                                                    |       | Canada        |       | 2496472                        |       | Pending    |
|                                                                                                    |       | China         |       | 3822035                        |       | Pending    |
|                                                                                                    |       | Europe        |       | 3792039.4                      |       | Pending    |
|                                                                                                    |       | Japan         |       | 2004-529588                    |       | Pending    |
|                                                                                                    |       | Mexico        |       | 2005/00002027                  |       | Pending    |
|                                                                                                    |       | New Zealand   |       | 538418                         |       | Pending    |
|                                                                                                    |       | USA           |       | 2002950977                     |       | Pending    |
|                                                                                                    |       |          |       |                           |       |       |
| **Fetal cell recovery method**                                                                          | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 27  March 1990                                                             |       | Australia     |       | 649027                         |       | Granted    |
|                                                                                                    |       | Austria       |       | 521909                         |       | Granted    |
|                                                                                                    |       | Belgium       |       | 521909                         |       | Granted    |
|                                                                                                    |       | Canada        |       | 2059554                        |       | Granted    |
|                                                                                                    |       | Denmark       |       | 521909                         |       | Granted    |
|                                                                                                    |       | France        |       | 521909                         |       | Granted    |
|                                                                                                    |       | Germany       |       | 69132269.4                     |       | Granted    |
|                                                                                                    |       | Great Britain |       | 521909                         |       | Granted    |
|                                                                                                    |       | Greece        |       | 3034487                        |       | Granted    |
|                                                                                                    |       | Ireland       |       | 83199                          |       | Granted    |
|                                                                                                    |       | Israel        |       | 97677                          |       | Granted    |
|                                                                                                    |       | Italy         |       | 521909                         |       | Granted    |
|                                                                                                    |       | Japan         |       | 2965699                        |       | Granted    |
|                                                                                                    |       | Liechtenstein |       | 521909                         |       | Granted    |
|                                                                                                    |       | Luxembourg    |       | 521909                         |       | Granted    |
|                                                                                                    |       | Netherlands   |       | 521909                         |       | Granted    |
|                                                                                                    |       | New Zealand   |       | 237589                         |       | Granted    |
|                                                                                                    |       | Singapore     |       | 79188                          |       | Granted    |
|                                                                                                    |       | South Africa  |       | 91/2317                        |       | Granted    |
|                                                                                                    |       | Spain         |       | 2149760                        |       | Granted    |
|                                                                                                    |       | Sweden        |       | 521909                         |       | Granted    |
|                                                                                                    |       | Switzerland   |       | 521909                         |       | Granted    |
|                                                                                                    |       | USA           |       | 5153117                        |       | Granted    |
|                                                                                                    |       | USA           |       | 5447842                        |       | Granted    |
|                                                                                                    |       |          |       |                           |       |       |
| **Maternal antibodies as foetal  cell markers to identify and enrich foetal cells from maternal blood** | ** ** | ** **    | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 30  May 2002                                                               |       | Australia     |       | 2003229397                     |       | Pending    |
|                                                                                                    |       | Canada        |       | 2492631                        |       | Pending    |
|                                                                                                    |       | Europe        |       | 3722092.8                      |       | Pending    |
|                                                                                                    |       | Hong Kong     |       | 5109826.6                      |       | Pending    |
|                                                                                                    |       | Japan         |       | 2004-509429                    |       | Pending    |
|                                                                                                    |       | NZ            |       | 537328                         |       | Pending    |
|                                                                                                    |       | Singapore     |       | 200406994-4                    |       | Pending    |
|                                                                                                    |       | USA           |       | 10/516,430                     |       | Pending    |

 

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| **Patent  description**                                                             | ** ** | **Country** | ** ** | **Application/Patent  Number** | ** ** | **Status** |
|-------------------------------------------------------------------------------------|------------|-------------|------------|--------------------------------|------------|------------|
| ** **                                                                          | ** ** | ** **  | ** ** | ** **                     | ** ** | ** ** |
| **Identification of fetal DNA and  fetal cell markers in maternal plasma or serum** | ** ** | ** **  | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 5  March 2003                                          |       | Australia   |       | 2004217872                     |       | Pending    |
|                                                                                |       | Europe      |       | 4717522.9                      |       | Pending    |
|                                                                                |       | New Zealand |       | 542143                         |       | Pending    |
|                                                                                |       | USA         |       | 10/547,721                     |       | Pending    |
|                                                                                |       |        |       |                           |       |       |
| **Methods of enriching fetal  cells**                                               | ** ** | ** **  | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 9  June 2005                                           |       | USA         |       | 60/725,365                     |       | Pending    |
|                                                                                |       |        |       |                           |       |       |
| **Non-invasive fetal cell  recovery**                                               | ** ** | ** **  | ** ** | ** **                     | ** ** | ** ** |
| Earliest priority date: 11  May 2005                                           |       | USA         |       | 60/679,745                     |       | Pending    |

 

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

 

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

 

This strategy was initiated in late 2000, soon afterGeneType AG and its patents were acquired by the Company.  The first step was to secure patentinsurance, which we achieved in early 2001. This meant that if we were forced to take legal action against infringers,under that policy the cost would be largely covered by our underwriter.  This policy 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 GTG non-codingpatents.  In late 2002, we hired IanChristensen to manage the Australian end of the licensing effort and to buildour 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 found some companies that seemed to be clearlyinfringing our patents while also indicating they would not take a license, wethen put them on formal notice under our patent insurance policy.  Overall, the strategy has unfolded asplanned.

 

**OurLicenses and Commercial Collaborations**

 

The following section describes our existingcommercial and research licenses, our collaborations and ourcollaborators.  We announced our firstlicense to the non-coding patents to the Australian livestock testing firmGenetic Solutions Pty. Ltd., in February 2002.  Since then, we have formed severalcollaborations and granted a further 28 licenses.

 

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**CommercialLicenses and Collaborations:**

 

Agriculture Victoria Services Pty. Limited:  On February 28, 2002 our subsidiaryGeneType Pty. Limited entered into a joint venture agreement with AgricultureVictoria Services Pty. Limited 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 A$500,000 at any giventime.  Agriculture Victoria Services Pty.Ltd. is not required to provide further funding to the joint venture company.The agreement is terminable by a party in the event of a breach by the otherparty that is not timely cured or upon the occurrence of an “adverse event” tothe company 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 toNanogen, Inc, of San Diego, USA, who specializes in the development of biochipapplications in genetics diagnostics. Nanogen paid us a non-refundable $250,000and unlisted warrants for a license limited to genetic research and humandiagnostics.  Specifically, Nanogenreceives no rights to the mapping patent nor any applications in animals orplants.  Since the date of the initiallicense, the warrants became “in the money” and we exercised them, acquiredNanogen shares which we disposed of in market transactions for a further$275,000 of other income. The license can be terminated by either party uponany material breach of any term or condition of the agreement not timelycured.  We also can terminate theagreement in the event the licensee becomes involved in insolvency proceedingsor if it discontinues its business for any reason.

 

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

 

Perlegen License:  In August 2002, we granted a license toUS genome researcher, Perlegen Sciences, Inc., which paid a non-refundablecombination of cash and securities worth approximately $598,120 for anexclusive license limited to a specialized field known as “high resolutionwhole genome analysis”.  Either party canterminate the license agreement upon any material breach of any term orcondition by the other party that is not timely cured after notice.  We have the right to terminate the agreement,as well, in the event of insolvency of the licensee or if it discontinues itbusiness for any reason.

 

Myriad Licenses:  In October, 2002, we announced a licensingagreement with Myriad Genetics, Inc, under which we granted Myriad broad rightsto utilize our non-coding patents, in return for which Myriad agreed to pay usa non-refundable $1,000,000 cash, plus future fees on an annual basis in lieuof royalties, plus the rights to bring Myriad’s predictive medicine products toAustralia and New Zealand. These products include genetic susceptibility testsfor breast cancer, ovarian cancer, bowel cancer, melanoma and cardiac risk.These tests, which are now being offered by GTG in Australia, have resulted inthe expansion of our existing genetic testing facilities in Melbourne.   The license can be terminated by eitherparty upon material breach by the other party that is not cured within 30 daysof notice.  We also may terminate if thelicensee fails to make any payment required by the agreement.  Under the second of two agreements we aregranted a license to use Myriad’s diagnostic services in Australia and NewZealand in exchange for an annual fee. We are obligated to use reasonable efforts to commercialize the licenseddiagnostic services in Australia and New Zealand.  Under the terms of this agreement we havebeen granted an option in exchange for upfront payments and a continuingroyalty, to expand the license in respect of full sequence testing, which hasnot been exercised.  The term of thisagreement extends until 2012.  Eitherparty can terminate the agreement upon a material breach not timely cured afternotice.  In addition, Myriad canterminate if we fail to make any payment required under the agreement.

 

Pyrosequencing Licenses:  In March, 2003, we announced across-licensing agreement with Pyrosequencing AB, of Sweden (now known asBiotage AB). Pyrosequencing receives a broad non-exclusive license to ournon-coding DNA analysis and mapping patents but only when used in combinationwith Pyrosequencing’s “sequencing by synthesis” reagents. In return, wereceived a non-refundable cash up front payment, plus royalties for the life ofthe GTG patents, plus three state-of-the-art analytical instruments(Pyrosequencing systems), plus other IP rights and assays from Pyrosequencing.Either party can terminate the agreement upon material breach that is nottimely cured by the other party after notice. In addition, either party can terminate the agreement if the other partybecomes involved in insolvency proceedings, or if the other party discontinuesits business for any reason.

 

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ARUP License:  In April, 2003, we announced a license toAssociated Regional & University Pathologists (ARUP) of Salt LakeCity, Utah.  ARUP is a sophisticatedlaboratory system owned by the University of Utah, and the first serviceprovider actually performing human genetic testing to take a license from GTG.The license was granted in return for a one-time non-refundable license issuefee.  The license is terminable by aparty upon material breach by the other party that is not timely cured afternotice.  In addition, we have the rightto terminate if the licensee becomes involved in an insolvency or discontinuesits business for any reason.  In May,2003, we had also granted the University of Utah a separate research license toshow our support for their leading genetic research program into the non-codingregions of many genomes.  This license isterminable upon material breach by the licensee not timely cured after notice.

 

Quest License:  In August 2003, we granted a license toour non-coding analysis patents to Quest Diagnostics Inc., based in New Jersey,USA. The terms include a non-refundable signing fee plus ongoing annualpayments in lieu of royalties from Quest for services provided by it in geneticlaboratory 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 also may 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 agreementwith ViaLactia Biosciences (NZ) Limited of Auckland, New Zealand regarding theterms of a research and commercial license to the GTG non-coding patents.ViaLactia is a biotechnology company operating as a wholly owned subsidiary ofFonterra, New Zealand’s largest dairy cooperative.  The license was formally concluded in December 2003.The purpose of the license is to permit ViaLactia to conduct internal researchactivities and development of applications of our technology in the dairyindustry, including new applications concerning dairy cattle, pasture grasses,mice as models for dairy cattle and yeast and bacteria as applied to the dairyindustry.  The license is terminable byeither party upon material default of the other party that is not timely cured,without other penalty. 

 

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 inPerth, Western Australia. Definitive documentation was concluded in June 2004.Under the terms of the agreement, we acquired all of the Foundation’s patentsand other intellectual property in the fields of genetics and genomics,including the Foundation’s issued U.S. patent 6383747-B1 and foreignequivalents.  We expect this extensivepackage of intellectual property will create additional opportunities for us insupport of licensing and service testing. The Foundation acquired a license to our non-coding patents for a fee,so that the net purchase price for us was settled by the issuance of a total of16,666,667 of our Ordinary Shares to the Foundation based on a market value ofA$0.39 per share.  The transaction closedin June 2004.  Under the arrangementwe support the ongoing genetics and genomics programs of the Foundation.  Initially, five projects have been selectedfor priority attention and we will provide A$4.5 million to the Foundation,spread over five years, to help fund such research and development of newintellectual property.  The first andsecond instalments of A$450,000 each have already been paid, and we have alsosupplied a letter of credit for A$450,000 for the term of the agreement.  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 the license following any breach of the licenseby the licensee, either party can terminate following a material breach that isnot timely cured or following an insolvency event of the other party.

 

GENDIA Network:  In November 2003, we announced that wehad joined the GENDIA diagnostic genetic testing network as the sole GENDIAaffiliated laboratory in Australia and New Zealand. GENDIA is a network of some20 leading laboratories worldwide who work together and share with each otheraccess to very sophisticated genetic testing procedures.  We are the sole GENDIA-affiliated laboratoryin Australia and New Zealand.

 

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

 

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LabCorp License:  In February 2004, we granted a licenseto our non-coding patents to Laboratory Corporation of America Holdings (knownas “LabCorp”), a leading provider of human diagnostic services in the U.S. andCanada.  It also performs testing in Europefor other companies, including pharmaceutical companies, for regulatorycompliance purposes.  The license coversboth non-coding analysis patents and non-coding mapping patents, in exchangefor a non-refundable signing fee plus annual license annuity payments for thelife of the patents, through 2015. LabCorp also withdrew a declaratory action in respect of our patentsthat had been commenced in New Jersey. The license is terminable by eitherparty upon 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 promoteslicensee’s reference testing to third party clinical laboratories for thepurpose of circumventing the need for such laboratories to license ourpatents.  The licensee is entitled toterminate the agreement at any time upon 30 days’ prior written notice (withoutprejudice to its accrued obligations thereunder) and we can terminate in theevent of an insolvency event involving the licensee or discontinuation of itsbusiness.

 

Ovita License:  In June 2004, we entered into a licenseagreement with Ovita Limited of New Zealand, granting them a license to ournon-coding patents to the extent required in order to commercialize geneticmarker tests and pedigree tests and to conduct research and developmentactivities for new applications of our technology in connection with testing ofsheep and cattle.  The agreementcontemplates compensation to us of an initial non-refundable research licensefee, an initial 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 wegranted a license to our non-coding patents to Genzyme Corporation, based inCambridge, Massachusetts, in order for the licensee to perform preclinical andhuman research and human genetic testing. The grant of the license is in exchange for a non-refundable licenseissue fee consisting of a cash component and an in-kind component. The in-kindcomponent consists of a license agreement in respect of patents owned by JohnsHopkins University and licensed by the licensee. In addition, the licensee isobligated to pay to us license annuity fees in lieu of a royalty for each yearof the term.  Either party can terminatethe agreement upon material breach not timely cured, in the event of insolvencyof the licensee, or by the licensee at any time upon 30 days’ written notice tous.

 

MetaMorphix Agreements:  On September 17, 2004 we executed twoagreements with MetaMorphix, Inc., based in Maryland and specializing inthe genetics and genomics of certain animal species, particularly cattle anddogs.  Under the first such agreement wegranted a license to use our non-coding patents in order to commercializeapplications of 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. also is aparty, we were granted a license to the licensor’s patents and associatedknow-how in order to perform internal DNA-based diagnostic assays for use inour cattle and canine identity and parentage verification services.  We are obligated to pay the licensor anon-refundable license fee.  The licensor’sobligations include ongoing support for the license and know-how.  The agreement is terminable by either partyupon material default by the other party that is not timely cured, or by thelicensor in the event we discontinue our cattle and canine identity andparentage verification genotyping services business for any reason.

 

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

 

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Bionomics Limited License:Effective November 5, 2004 we entered into two agreements with BionomicsLimited, a public company based in Adelaide, South Australia. Under the firstsuch agreement we granted a non-exclusive, royalty free license to Bionomics touse our non-coding patents in order to (i) perform research anddevelopment activities relating to and arising from the identification ofgenetic factors that may influence epilepsy and (ii) commercialize theresults of those research and development activities including, withoutlimitation, epilepsy diagnostic assays. Bionomics paid us a non-refundablelicense fee on signing.  Either party canterminate the agreement upon a material breach not timely cured. Under thesecond agreement with Bionomics we were granted a license to use certain intellectualproperty rights, including patent rights and associated know-how, relating toepilepsy gene discoveries and epilepsy diagnostic assays subject to minimumannual royalties.  We paid Bionomics anon-refundable license fee. The agreement is terminable by either party uponmaterial default by the other party that is not timely cured.

 

New Zealand Licenses:  Effective June 30, 2005, we entered intoa license agreement with four commercial parties in New Zealand: AgResearchLimited, The Horticulture and Food Research Institute of New Zealand Limited,New Zealand Forest Research Limited and Livestock Improvement CorporationLimited.  Under the terms of theagreement, the parties were granted licenses to our non-coding patents inconsideration for which they paid us a non-refundable license issue fee ofNZD450,000.

 

Applera Corporation Licenses: Effective December 8, 2005, we entered into various agreements withApplera Corporation of Norwalk, Connecticut as part of a settlement of a patentdispute.  The binding agreements includea final Settlement Agreement plus license agreements and a supplyagreement.  The total value of theconsideration receivable by us is approximately A$15 million, payable partly incash and partly in kind - including agreements supplying the Company withcertain Applera equipment, reagents and intellectual property rights.

 

**ResearchLicenses and Collaborations**

 

University of Melbourne:  On January 22, 2003 we entered into acollaborative research agreement with the University of Melbourne,Australia,  concerning the so-called “ARCLinkage Project”:  toward novelapproaches for the control of parasitic nematodes via genomics/phenomics.  This 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. Limited is obligated to use its best efforts to provide additional fundsfor the project to make up the projected shortfall as contemplated by theoriginal proposal, over a term of three years.

 

Horticulture Australia Limited: On June 18,2003, AgGenomics Pty. Limited, a subsidiary of the Company, entered into athree-year Collaborative Research Agreement with Horticulture Australia Limited(HAL) to try and identify a genetic trait for day/night neutrality instrawberries which, if found, could lead to an extension of the cultivationseason and consequently higher production. The research program, costing approximately A$2.1 million ($1.5 million),is funded by HAL as to 45% and AgGenomics as to 55%.  Any and all intellectual property generatedfrom the project will be owned in the same proportions.

 

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

 

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King’s College License:  In December 2003, we granted a licenseto our non-coding patents to King’s College, London, in the UnitedKingdom.  Under the terms of the license,King’s College will be able to apply the GTG non-coding patents to its internalresearch programs.  King’s College isconsidered a leader in the field of researching the genetic basis of variouspsychiatric and psychological disorders, including schizophrenia, anxiety /depression and certain attention deficit disorders.  Future commercial applications arising fromresearch at King’s College would require an additional commercial license fromus.  In March 2004 we initiated ajoint research project in the United Kingdom to explore the functionality ofcertain non-coding DNA elements, initially with special focus on the geneticsof breast cancer susceptibility and the genetics of certain neuro-psychiatricconditions, such as schizophrenia.  Theproject was funded by us for a further period of six months, in an amount ofGBP53,000  that was paid in twoinstalments.  In May 2005, weextended the project for the period from June 1, 2005 to December 31,2005 and agreed to fund the costs incurred by King’s College during that periodup to a maximum amount of GBP51,360.  Thelicense is terminable by either party upon any material breach not timelycured, without penalty.

 

University of Technology, Sydney:  Effective December 23, 2003 we enteredinto a non-commercial research license with the University of Technology,Sydney, to permit the University to conduct internal research activities toresearch, identify, map and develop tests for genetic markers and genes ofinterest.  Either party has the right toterminate the agreement upon the occurrence of a material breach that is nottimely cured, without other penalty.

 

Colorado State University:  Effective May 14, 2004 we entered into anon-commercial research license with the Colorado State University.  This is a royalty-free license to permit theUniversity to conduct research in exchange for a nominal licensing fee.

 

In addition to the above agreements, we continue tonegotiate licensing terms to grant licenses to our non-coding patents to manycompanies, large and small, and also to government and private institutes, inmany countries.

 

To facilitate these negotiations, we are also buildinga database of all prospective licensees, who we believe would benefit from alicense to our non-coding patents.  As atNovember 2005, we had identified more than 2,000 parties that warrantedcloser scrutiny.  Of these, we have sofar found evidence of probable infringement in relation to more than 400 ofthese.  Negotiations have now commencedwith more than 40 of these parties.

 

We continue to believe that a large number ofbiotechnology companies, service providers, IT companies and researchers willneed to take a license to our proprietary methods in order to commercializetheir own technologies.  As our resourcespermit, we plan to allocate progressively more effort towards these licensingactivities.  However, apart from the manyparties now negotiating with us in good faith, we have also found a few whoseemed determined to use our patents without our approval.  After suitable notices and warnings, wedecided the time had come to initiate appropriate action against suchinfringers. 

 

On March 26, 2003, we initiated legal action inthe USA against three publicly-traded US companies for patentinfringement.  All three of these cases,against Nuvello, Covance and Applera, have now been settled.  The legal costs arising from the legal actiontaken against these three infringing companies have to date largely been coveredby our patent insurance policy.  See Item8.A, “Litigation and Other Proceedings.”

 

**Building the Genetic Testing Business**

 

**Background and History of the Paternity TestingBusiness**

 

In the early 1990’s, GeneType AG established a smallservice-testing laboratory in Melbourne, Australia, initially to show-case itsnon-coding inventions, and also to generate some revenue to help support andfund its ambitious research program in those early days.  Following the acquisition of several othersmall DNA testing laboratories in Australia, GeneType AG consolidated thebusiness into becoming the largest provider of disputed paternity DNA testingservices in Australia.

 

In December 1997, GeneType AG formed apartnership with Curtin University, based in Perth, Australia, to offer DNApaternity tests in Western Australia. This partnership continues today, with the University helping us collectspecimens and sending them to Melbourne, where the actual testing is performedin the genetic testing laboratory at our Fitzroy headquarters.

 

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Then in August 2000, we acquired 100% of GeneTypeAG, including control over all its patents and its disputed paternity DNAservice testing business.  Later, in July 2001,we acquired the paternity testing business of DNA-ID Labs, another smalltesting laboratory based in Perth. Overall, we acquired several small businesses - some in Sydney, plus twobased in Perth and one based in Melbourne, eventually making our servicetesting laboratory based in Melbourne the leading provider of disputedpaternity testing services in Australia.

 

We now have extensive experience in providingDNA-based individuality testing for the resolution of disputed paternity, thedetermination of familial relationships for immigration purposes and forforensic stain analysis.

 

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

 

Other types of tests we can offer include:

 

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

 

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

 

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

 

•         Maternity testing - determines the mother ofa given child.

 

•         DNA typing - reveals the DNA makeup of anindividual.

 

•         Grandparent analysis - determines thegrandparents of a given child. This is mainly used when the father of a childis deceased and a will is being contested. 

 

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

 

•         Semen analysis - determines if semen ispresent on, for example, an article of clothing. If it is, we can DNA typethis sample and compare it to a reference sample.

 

We issue reports for the Family Court in Australia andprovide similar services internationally for the Department of Immigration andMulticultural and Indigenous Affairs (DIMIA). We are one of only two DNA testing laboratories in Australia recognizedby DIMIA to provide DNA tests for immigration purposes.

 

We are one of only three laboratories worldwide usedby Kenyon 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 over two years ago, no airline serviced by Kenyon hashad one of its planes 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 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.

 

**Expansion of DNA Testing Services BeyondPaternity Testing**

 

**(1)****          ****Plant Testing**– in March 2002, we formed a jointventure with the Victorian State Government’s Department of Primary Industry,for the purpose of providing a high throughput genotyping service for planttesting – in order to help plant breeders identify the genes responsible forthe detection of commercially relevant traits, such as resistance to disease,accelerated growth and the improvement of crop yields.  A new company, AgGenomics Pty. Ltd., wasformed, with GTG as the majority stockholder and the State agency as theminority partner.  AgGenomics is locatedat the Plant Biotechnology Centre at La Trobe University, in Melbourne.  In June, 2003, AgGenomics announced it hadentered into a 2 year A$2.1 million program with Horticulture Australia toidentify genetic markers in strawberries. AgGenomics will also receive 55% of any intellectual property developedduring the life of this project after contributing A$1,165,757 to acquire theIP.

 

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**(2)****          ****Animal Testing**– in May 2003, we acquired the assets ofGenetic Science Services to expand the range of tests we can offer to includerelevant genetic testing in animals – for example, progeny testing in horses,dogs, deer, sexing in birds, and animal disease identification andsusceptibility testing for a range of animals, including exotic and zooanimals.  This acquisition will alsoallow GTG to support research projects involving, for example, the Australianfur seal, and possibly the platypus and various frogs and reptiles.

 

**(3)****          ****Cancer Susceptibility Testing**– the strategic alliance with Myriaddelivered to GTG exclusive rights for Australia and New Zealand to perform DNAsusceptibility testing for a range of cancers, initially for breast cancer andovarian cancer, and later, for bowel cancer, melanoma and cardiac risk.  Professor Deon Venter joined the Board ofDirectors of GTG in April 2003, with special responsibility to oversee theestablishment and operation of the new cancer susceptibility testing facilityat GTG. In June, 2003, this facility was granted provisionalaccreditation.  In addition, Dr. FrankFirgaira joined GTG as Head of Molecular Diagnostics - Cancer SusceptibilityTesting.  This area of testing continuesto build momentum, with new equipment arriving, 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.  Firsttesting has now begun, with referrals having already been received from bothmedical specialists and hospitals.

 

**(4)****          ****Forensic Testing** – it may be surprising to many people thatthere has historically been no independent (as contrasted with State GovernmentPolice or Health laboratories) forensic testing laboratory in Australia.  GTG has now obtained formal forensics accreditationfrom NATA, the National Association of Testing Authorities in Australia, and sobecame the first independent forensics laboratory in the country.

 

**(5)****          ****Athletic Performance Testing** – the Company acquired the commercial rightsfrom the University of Sydney for a genetic test capable of determining whetheror not athletes possess a predisposition for speed or endurance events.  We now offer this test on a commercial basis.

 

**Our Supportfor Five Significant Research Projects**

 

We strongly supportresearch and development.  Indeed,Genetic Technologies had its foundation as a research company when it wasestablished some 16 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 support fivemajor 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 to scientific concepts,the implementation of the science, the protection of any inventions made andthe success or otherwise in persuading others to respect the intellectualproperty acquired or created by the Company.

 

Specifically, patentsfiled may not issue or may later be challenged by others.  Even if patents issue, the methods describedmay, with time, be superseded by other alternative methods which may prove tobe commercially more attractive.  Even ifpatents issue and the methods developed are successfully reduced to practiceand can be shown to be commercially relevant, there is still no assurance thatother parties will respect the patents or will take licenses to use theintellectual property.  In suchcircumstances, it is possible that legal action will be necessary to enforcethe Company’s rights.  Such action, inturn, raises a new series of risks including potentially significant legalcosts and uncertain outcomes.

 

To the extent that delaysare encountered in concluding the research projects, additional costs arelikely to be incurred.  Further, theprojected revenues from the projects will also be deferred, potentiallyimpacting on the Company’s liquidity.  Insuch cases, the Company may seek to partner with outside parties, who willcontribute to the costs of research in return for an interest in the project,or the Company may seek to raise additional working capital from the Market.

 

In a worst case scenario,if the Company’s research projects do not achieve their scientific objectives,the projects may well be closed down with no valuable intellectual propertyhaving been created.

 

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**(a)****          ****RareCellect®**

 

Our subsidiary GeneType AG holds issued patents on amethod for the recovery of fetal cells circulating in the peripheral blood of apregnant woman.  These patents, with anearliest priority date of March 27, 1990, have been granted or allowed inmost countries where filed, including the US, United Kingdom, France, Germany,Australia, and Japan.  In March 2001,RareCellect Limited was incorporated by us in Australia for the purpose ofperforming additional research and development of the method and overseeing itseventual commercialization.

 

Approximately 0.65% of live births are affected bymajor chromosomal abnormalities, including trisomy 21 (Down’s Syndrome,0.12%).  Prenatal screening for suchdisorders is now widely available in developed countries, but is neitherstandardized nor universal.  Even thebest prenatal screening regimens fail to detect 5% of Down’s cases, and suffersfrom false positive rates of about 5%. When screening based on past obstetric history or advanced maternal ageindicates an increased risk of fetal genetic defects, the pregnant woman isgenerally subjected to a further, invasive procedure – amniocentesis, chorionicvillus sampling (CVS), or fetal blood sampling – in order to obtain fetal cellsfor definitive prenatal diagnosis.  Suchprocedures are not without risk, resulting in miscarriage rates from 0.5% to2.0% above the expected background rate, and can lead to congenitalabnormalities when performed too early in gestation.

 

It has long been generally recognized that a simple,universally applicable, non-invasive means of obtaining fetal cells forprenatal diagnosis would represent a major advance over existing practice andwould be widely adopted throughout the developed world.  RareCellect seeks to develop such a method.

 

It is well-known that fetal cells, includingtrophoblasts, lymphocytes, and erythroblasts, circulate in the peripheral bloodof pregnant women, in some cases as early as five weeks’ gestation.  Although these cells are rare, only 1 per 106to 107 maternal nucleated cells, it is possible to isolate them fromvenous blood samples.  To date, no grouphas been able to achieve this with the reliability necessary for a routineclinical test.  Reasons for this failurehave included the lack of markers capable of adequately discriminating fetalfrom adult cells and limitations on the speed at which the required number of cellscan be processed.

 

The GTG patents for fetal cell recovery 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.  The genes that encode these molecules showgreat variability (i.e., are highly polymorphic) in all human populations andare co-dominantly expressed.  Providedthat enough different types of HLA molecules can be interrogated, theprobability that maternal and fetal cells share exactly the same complement ofHLA molecules can be made very small. Recent advances in flow cytometry (cell sorter) instrumentation have nowmade feasible examination of enough peripheral blood cells in a sample toidentify the very rare fetal cells.

 

In addition to the patent filed by us in relation toHLA markers, we have also filed a subsequent patent based on other non-HLAmarkers.

 

In 2001, GTG began recruiting a team of scientistsdedicated to this project.  A high-speedcell sorter, “MoFlo”, manufactured by Cytomation Inc., (Colorado, USA) wasinitially installed in refurbished laboratories in Melbourne, Australia.Extensive testing of commercially-available anti-HLA antibody reagents was thenconducted.

 

In early 2003, Dr. Ralph Bohmer arrived inAustralia from the US to lead this project. Dr. Bohmer has also brought additional new concepts that couldsupport this project, and provisional patents on these new inventions haverecently been filed.  In 2004, Dr. Richard Allman was recruited fromthe UK to assist with project leadership, in particular, with flow cytometry.

 

Significant advances have been made assummarised below: 

 

The proposed project outcome is a new,non-invasive pre-natal genetic test. Revenues from the project will be generated from a mixture of licencefees, royalties and direct, fee-for-service genetic testing. 

 

Using GTG’s patented HLA method, fetal cellscan now be reproducibly and routinely isolated from maternal blood.  A new and novel, direct cell labelling andsorting procedure has been developed and a patent application is inpreparation.  It is anticipated that thecombination of the HLA method and the new, novel method will allow optimisationof the isolation procedure to increase the number and speed of fetal cellretrieval and validate a gender-independent cell labelling protocol.  

 

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Incremental advances in these areas areexpected over the next 18 months at a burn rate of approximately $750,000 perannum.

 

Partnering to access clinical specimens andenable side-by-side clinical comparison of the new technique with existingmethods will be required.  It isanticipated that the clinical analysis and test validation would take around 24months at a cost of approximately $150,000 per annum for a local partner.  Suitable partners include a Melbourne-basedhospital network and, potentially, large US genetics companies.  This work is expected to commence within 12months. 

** **

The key risk for this project is the timerequired in optimisation to enhance sample throughput to a commercially viablerate.  Obviously, delays to achievingsuch optimisation would result in a longer lead time to commercial revenues andextended cash burn on research.

 

Provided there are no major technical problems,we estimate that the first material revenues will be received in 2007/2008.

 

Markets and competition**: **there are some four millionpregnancies per year in the U.S. alone. It is already the case that some form of antenatal screening is providedfor most pregnancies in developed countries. The trend towards increasing numbers of women becoming pregnant later inlife is resulting in an increasing risk of chromosomal aberrations in thesepregnancies.  Given the expense,inconvenience, and inaccuracy of current screening strategies, and the risksassociated with subsequent invasive diagnostic procedures, it seems probablethat a reliable, accurate, non-invasive, and relatively inexpensive diagnostictest would be rapidly adopted.

 

This conclusion has, of course, been reached by anumber of other parties.  There arecurrently several competing groups actively pursuing different methods for theisolation of fetal cells from maternal blood, including academic centers inmany countries - U.S., 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.

 

The method being developed by us has attractedwidespread interest in relation to collaborative research and development,clinical trials and future commercialization. At least two major diagnostic companies have expressed interest in theproject, as have certain investment groups. During the coming year, the Company is likely to pursue discussions withthese parties regarding the sharing of development costs and future licensingrights.

 

Government regulation:  clinical testing in most developed countriesis subject to extensive regulatory scrutiny, the nature of which varies fromone country (and sometimes state) to another. In Australia, accreditation of laboratories offering pathology servicesis granted by the Health Insurance Commission, based on a report of assessmentby the National Association of Testing Authorities (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 assessmentby NATA.  In the U.S., laboratories arecurrently certified by the College of American Pathologists and the Health CareFinancing Administration, under the authority of the Clinical Laboratory ImprovementAmendments of 1988.  However, there arecurrently moves to introduce an additional level of regulation for entitiesoffering genetic testing, probably under the auspices of the FDA.  Both the Clinical Laboratory ImprovementAdvisory Committee and the Secretaries Advisory Committee on Genetic Testinghave recently held hearings and/or issued reports.  In Australia, the Australian Law ReformCommission and the Australian Health Ethics Committee of the National Healthand Medical Research Council have recently issued a major issues paper, “Protectionof Human Genetic Information”.  It isanticipated that the field of genetic testing will be progressively subject toincreasing levels of governmental regulation in most countries.

 

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**(b)****          ****ImmunAid**

 

ImmunAid Pty. Ltd. (currently 65% owned by GTG) wasformed in March 2001 in Victoria, Australia, with GTG owning 60% and thescientists working on the project owning 40%. We acquired a further 5% interest in the company, following theconversion of loans made to it by GTG into shares.  The original objective of ImmunAid was totest a novel concept for treating HIV/AIDS, with the initial work beingperformed at University of Western Australia. The concept was initially tested in a mouse model with mice that hadbeen infected with the murine AIDS (MAIDS) virus.  This is an effective model to investigatemechanisms of retrovirus-induced immunodeficiency because the MAIDS viruscauses pathology with a number of features similar to human AIDS.  The early results in mice were subsequentlydescribed by the scientist in charge as being “remarkable”.

 

We then funded a further one-year program oflaboratory research at the University of Western Australia in the amount ofapproximately $250,000 with the work commencing in May 2001.  Thework built on the earlier research (performed in the same laboratory) andsought a more detailed understanding of the treatment mechanism and also toshow its applicability to cancer.  Theresults achieved in the mouse model were both remarkable and compelling.  The mouse modelresearch activity for ImmunAid is continuing at the University of WesternAustralia, Department of Microbiology with the latest project commenced in January 2005at a cost of approximately $40,000.

 

Concurrently, humanmonitoring trials for both HIV patients and cancer patients have been initiatedat four clinics or hospitals in Australia and preparations are underway for amonitoring and intervention trial at a major centre in the USA. The ImmunAidproject is at the forefront of cancer and HIV immunology and has madesignificant discoveries potentially putting it ahead of all the major playersin these areas. ImmunAid has discovered that the immune system cycles as part of its response tochronic viral infection or cancerous cell growth.  This novel discovery offers the prospect ofimproving current treatments by tailoring personalized timed therapeuticinterventions for these major diseases. 

 

The methods developed by ImmunAid have beenprotected by the initial filing of Australian provisional patent applications.A number of these are progressively being converted to definitive patentfilings and are progressing through the PCT examination process.  To date preliminary searches by theAustralian Patent Office have failed to reveal any prior art.

 

The project hasundergone a review process by external experts in the fields in late 2005.  Future cost and duration of the project willdepend upon the size of the study and availability of collaborators for recruitmentof 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: $250,000 over 12 months.  We notethat other parties have expressed interest to participate in the ImmunAidproject.

 

**(c)****  ****Pathogen Genomics and GeneticsProgram (PGGP)**

 

In March 2001 we entered into a CollaborativeResearch Agreement (CRA) with the University of Melbourne (Department ofVeterinary Science) to conduct applied research on methods for the diagnosisand control of infectious diseases in animals and humans.  Two scientists were employed via the universityand work commenced in mid-2001 under the direction of Associate Professor RobinGasser.  Prof. Gasser is the author ofmore than 120 papers in international peer-reviewed journals, mainly inclassical and molecular parasitology.

 

A substantial portion of the costs associated withthis project are paid for by interested third parties, including relevantindustry bodies.

 

A summary of the project’s development costs, outcomesand further plans is summarized below:

 

**PGGP 1**(undertakenbetween April 2001 and March 2003) –*Cryptosporidium*

 

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

 

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Gasser *et al* developeda new, DNA-based test to identify and sub-type *Cryptosporidium*species and sub-species. Independent validation of sensitivity and specificity was conducted byRobin Gasser and Rachel Chalmers (PHLS *Cryptosporidium*Reference Unit, Swansea UK) post our funding. Collectively, the Company and Gasser have transferred the Crypto testfrom gels to capillary instruments. Accordingly, we are now able to offer the test directly.  Marketing of this test is in progress.  First revenues from the deployment of thetest are expected to be received during the year ending June 30, 2006.

 

**PGGP 2 **(now being undertakenbetween January 2003 and March 2006) –*Trichostrongylusvitrinus*

 

Total estimated costs to be paid by theCompany: $450,000

 

The planned outcome is characterisation andisolation of gene/protein targets within the parasite that, when disrupted, arelethal.  Historically, vaccines directedtowards disrupting parasite proteins have not been effective.  The most likely product to arise from thisresearch therefore is a compound, anthelmintic. The market for such compounds is vast, for example, Merck’s Ivermectinand analogues.  The continued reductionin efficacy of existing anthelmintics, due to parasite resistance, provides agrowing market opportunity for the introduction of alternative, improvedcompounds.  Subject to successfulcompletion of the project, first revenues are likely to arise, from eitherlicensing of the resulting technology or the sale of the project, during the2006 calendar year.

 

**Proposed PGGP** 3

 

To capitalise upon our investment to date, theCompany will continue to support the project to achieve identification, characterisationand isolation of additional compound targets.

 

It is estimated that the project will require aminimum of between $150,000 and $200,000 per annum for 3 years to support newtarget identification by the University of Melbourne and around $80,000 pertarget to conduct assay development and high through-put screening (HTS) of acompound library.

 

**(d)****  ****C.Y. O’ Connor ERADE VillageFoundation**

 

In June 2004, we entered into a series ofagreements with the C.Y. O’Connor ERADE Village Foundation, incorporating theImmunogenetics Research Foundation and the Institute of Molecular Genetics andImmunology (the “Foundation”) under which (i) we acquired the entirepatent estate of the Foundation in the field of genetics and genomics in returnfor shares in the Company, (ii) we granted a license to the Foundation toutilize our non-coding patents, and (iii) we agreed to provide researchfunding to the Foundation for a period of five years to develop novel,high-value genetic tests for commercialization by us.  

 

The research program was formed upon the acquisitionby the Company of all the genetics and genomics intellectual property generatedby the 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 thefield of human genetics and animal genetics, including cattle, horses, dogs andfish. 

 

GTG will also own any and all intellectual propertygenerated by the Foundation as part of the agreement between the parties.

 

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Asummary of the research focus is as follows:

 

July 2004 – June 2009 atapproximately $700,000 per annum.

 

A series of projects that aim to develop newgenetic tests for animals and humans using patented, haplotype blocktechnology.  These projects include (i) complementregulation in humans, which might explain the genetic basis of recurrentspontaneous abortion, (ii) canine hip dysplasia in dogs, which in turn hasled to an improved way of performing DNA typing in dogs, (iii) a new DNAmethod for identifying the precise species of origin of ancient or recent DNA, (iv) severalprojects which have started to research the genetic basis of certain animalissues, including polling in cattle and sheep, black wool in merino sheep, meattenderness and innate immunity, (v) performance in race horses andfecundity in several species, (vi) computational genomics, to develop anew user interface to process vast amounts of data in super-rapid time and theapplication of the GMT invention in new areas, such as atherosclerosis andAlzheimer’s disease, and improvedtissue typing and transplantation techniques in human bone marrowtransplantation, and (vii) new methods for aquaculturebrood-stock selection to overcome certain emerging problems in commercialaquaculture.

 

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

 

Representatives from the Company and theFoundation have recently met with external parties to identify potentialcommercial partners to advance these projects and discussions arecontinuing.  Subject to thesenegotiations, first commercial outputs may be received during the first half ofthe 2006 calendar year.

 

Additional products are likely to be developedand offered to the market progressively during 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. 

 

**(e)****          ****King’s College, London **

 

Thepurpose of this work is to establish the importance of the type of DNA sequenceknown as VNTRs (Variable Number Tandem Repeat polymorphisms) in human andanimal diseases and to secure appropriate IP relating to these repeats.  VNTRs show different sequence properties fromperson to person, and are thought to be involved in predisposing someindividuals to a range of diseases, such as cancer and dementia.  Therefore, the ability to identify the VNTRsassociated with diseases, and thus use them as a diagnostic test, and, possiblya target for disease treatment or prevention, is a logically desirable goal forus.  This project (currently beingcarried out at King’s College, London, under the auspices of Dr. GeromeBreen), has developed new ways of identifying novel VNTRs in humans, as well asmethods for highlighting which of these may be involved in disease states.  Work is ongoing, and is now focused on theidentification of polymorphisms of potential diagnostic use, some of which maybe or indicate “drugable” targets. This data will be used to progress ourintellectual property position on VNTRs for clinical diagnostics and treatment.

 

The research is in discoveryphase, that is, ****continuing the development of research-based investigations intobroadening the utility of the project across the scope of human and animaldiseases.****** **Estimated ****timing of the project isbetween 1 and 2 years at a cost of between $60,000 and $120,000 per year.  The project is due to conclude in********December 2006.****

 

****We consider that there areminimal risks of not completing development to a point where an informeddecision can be made whether to implement all or parts of the projects as arange of genetic tests.****

 

Material net cash inflowsfrom significant projects are expected to commence ****post 2006.****

**** ****

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**** ****

****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 2016, 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.

 

**Genetic testing - paternity**

** **

Thesize of the Australian DNA paternity testing market can only be estimated.  The tests are outside the 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 9other organisations that offer these tests in Australia.  All are NATA accredited, except the lastthree, Gene-E, DNA Solutions and DNA Bioscience.  

 

Sonicand Symbion Health are the two largest pathology companies in Australia.  Throughout Australia, Symbion Health refersexclusively to DNALabs.  In Victoria, NSWand WA, Sonic refer exclusively to their own laboratories.  The Australian market for paternity testingis now saturated and, since the entry of two of the three major pathologycompanies in the later part of 2003, our ability to generate growing revenuesfrom this market has reduced.  As of April 2005,our market share appears to have stabilized.

 

Abrief outline on each is listed below.

 

**DNAlabs**

 

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

 

**Sonic Health Care**

 

Adivision of Sonic, the second largest pathology provider in Australia.  The laboratory is Sydney-based and wasestablished by the ex-head of DNAlabs. Once accreditation was granted in July 2003, the referrals whichthe Company had previously received from Sonic ceased.

 

**Gribbles**

 

Thethird largest pathology provider in Australia, which entered the paternitytesting market in late 2003, and is aggressively pricing their service in orderto increase market share.

 

**Victorian Institute of Forensic Medicine**

 

Thisis the Coroner’s laboratory in Victoria. We know from their annual report that for the last 5 years theirworkload has been relatively static at 150 cases per annum. 

 

**John Tonge Centre**

 

Thisis the Coroner’s laboratory in Queensland. They are NATA accredited but don’t offer the test commercially.

 

**Medvet Science Pty. Ltd.**

 

Thislaboratory is based in South Australia and its major shareholder is the StateGovernment. Prior to the entry of Gribbles, it had a monopoly in S.A. and alsocontrols the market in the Northern Territory and Tasmania.

 

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**Gene-E**

 

ThisVictorian based company was established in early 2001.  The company does not have a laboratory inAustralia and all of its samples are sent to the US for processing.  People obtain information from Gene-E bycalling a 1300 number and listening to a recorded message.  The company specializes in mail ordertesting.  The parties can order a samplecollection kit, but only after they listen to and pay for the recorded message.

 

**DNA Solutions**

 

Thiscompany was established about 5 years ago and sells its services over theinternet.  DNA Solutions is the only nonaccredited provider which has its own laboratory.  Their business is generated via the web andthey have sites in various countries. Based on recent press reports, they perform 800 cases per annum but asubstantial number of these are received from offshore.

 

**DNA-Bioscience**

 

Aninternet based company which commenced trading in May 2005. 

 

**Genetic testing - diagnostics**

 

Asthe sole licensee in Australia for the test for the predisposition for familialbreast cancer, we don’t have any commercial competitors in this area.  However, the test is provided by thepathology departments of certain public hospitals.  They are not true competitors in that thenumbers of such tests that can be performed is restricted due to limitedGovernment funding.  Further, thehospitals use strict patient selection criteria such that only the top 10% ofhighest risk patients are tested.

 

**Genetic testing - forensics**

 

ForensicDNA testing is defined to include DNA tests, the results of which can be reliedupon as evidence in a court of law.  Tomeet the strict standards of court evidence, forensic testing can only beconducted through NATA accredited laboratories that have been approved forforensics work.  We are the firstnon-government owned, NATA accredited forensics laboratory in Australia.  At the moment, virtually all forensic testingis conducted through state government owned laboratories.  These laboratories have substantial backlogsand, for this reason, do not generally undertake private DNA forensictests.  As such, we are one of a fewaccredited laboratory currently providing forensic testing to the public.  To resolve the backlog problem, various stategovernments have already suggested that they plan to outsource the testing offorensic samples to the private sector. As GTG is the first non-government laboratory in Australia to receiveformal accreditation, we expect to be considered favorably when tenders arecalled for this and other government-referred work.

 

**Genetic testing - animals**

 

Weoffer a DNA testing service across a number of animal species, particularlywith respect to establishing an animal’s pedigree and parentage. This test iscommon across animal species and is not proprietary.  Accordingly, any laboratory that can providea DNA parentage/pedigree test is able to enter this market.  Other than ourselves, there are currentlyfive other laboratories offering material levels of DNA service testing foranimals.

 

QueenslandUniversity currently offers testing across animal species but particularlyhorses, where it is currently the preferred laboratory for stud book recording.  Queensland University also provides a DNAservice testing for dogs and cattle.

 

GeneticSolutions currently offering a range of genetic tests for the cattleindustry.  Genetic Solutions is a smallerlaboratory which has indicated that it may extend its testing services tosheep.

 

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

 

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**Commonwealth Scientific and Industrial Research Organization (CSIRO)**

 

Agovernment instrumentality that is primarily a research institute.

 

**Maxxam Analytics Inc.**

 

Acompany based in Canada that is the sole provider to the Australian HarnessRacing Council.

 

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. 

 

**Genetic testing - plants**

 

Thereare no material levels of commercial DNA service tests conducted in Australiafor plants, other than commissioned research conducted by public authorities(such as universities and CSIRO) or by commercial 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 State Government.The joint venture is controlled by GTG (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 for some of these sectors.

 

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 tomatch AgGenomics.  In addition to this,their expertise in plants is similar to ours.

 

Whilstwe have few domestic competitors, our major commercial threat comes fromoffshore laboratories based in the US, 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.

 

**Genetic testing - sports performance**

 

GTGowns the worldwide patents and marketing rights to the ACTN3 sports genetest.  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, GTG has no competitors for thisgenetic test.  As the ACTN3 sports genetest provides an indication of an individual’s predisposition to sports/powersport performance as opposed to endurance sport performance, there are a rangeof other tests, genetic and non genetic that may also indicate a predispositionto particular sporting performance.  Noneof these however specifically relate to a genetic test on the ACTN3 gene which,scientifically, has shown a very high 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 trimesterof pregnancy.  There is, therefore, botha health and economic requirement to provide an efficient and non-invasive methodfor pre-natal diagnosis of genetic abnormalities.

 

Wehold worldwide patents concerning a method for the recovery of fetal cells frommaternal blood.  These cells can then beused to analyze the genetic health of the fetus, without the need to performthe current invasive tests.  We are currentlyconducting pre-clinical research to optimize the fetal cell isolationtechniques prior to commercialization. Patent applications have been filed to cover recent inventions in thisfield.

 

Localcompetition in Australia comes from MonashMedical Centre and GribblesPathology. Both of these groups are working on the isolation ofplacental derived cells (trophoblasts) from cervical mucous samples. Gribblesreleased a press statement about their technology on March 12, 2005suggesting imminent commercialization. Similar claims have also appeared in the press over the past year fromboth Monash University and Gribbles. From a scientific standpoint, trophoblasts are much easier to isolatethan fetal cells, however, they are inherently genetically unstable and theirreliability for providing prenatal genetic diagnosis remains unproven.

 

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

 

•              Genzyme Inc., USA

 

•              Roche Diagnostics, USA

 

•              Aviva Biosciences, USA

 

•              Hamilton Thorne Research, USA

 

•              Rubicon Genomics, Inc, USA

 

•              MOR Research Applications Ltd.

 

•              Children’s Medical Centre – Tuft’sUniversity, Boston, USA

 

•              The Chinese University of Hong Kong

 

•              Laboratory for Prenatal Medicine, UniversityWomen’s Hospital, Basle, Switzerland

 

•              The Jikai University School of Medicine,Tokyo, Japan

 

•              Imperial College London UK

 

(thislist is not exhaustive and many other academic and commercial researchdepartments 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 is subject to the requirements of theEnvironment Protection Act SA 1993.  Alicense has been obtained under this Act to produce listed waste.

 

We have a minority interest of 18.11% in a miningjoint venture in Western Australia known as the Duketon Belt Joint Venturewhich has been written off in the Company’s accounts.  The Venture is on a care and maintenancebasis and to date has only been subject to exploration drilling.  As at June 30, 2005, we had providedperformance bonds of US$66,668 (A$87,514) to the Mines Department in respect ofrestoration 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 structureof Genetic Technologies and its subsidiaries as at the date of this AnnualReport:

 

 

Genetic Technologies Limited is the holding company ofthe group and is listed on the Australian Stock Exchange, under the code GTG,and on the NASDAQ National Market, 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 from Bankberg Pty. Ltd., a company affiliated with Dr. MervynJacobson. The lease is for 10 years, with an option for renewal for another 10years, at an annual cost of A$399,264.

 

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

 

You should read the following discussion andanalysis in conjunction with Item 3 “Selected Financial Data” and our financialstatements, the notes to the financial statements and other financialinformation appearing elsewhere in this Annual Report.  In addition to historical information, thefollowing discussion and other parts of this Annual Report containforward-looking statements that reflect our plans, estimates, intentions,expectations and beliefs.  Our actualresults could differ materially from those discussed in the forward-lookingstatements.  See the “Risk Factors” section ofItem 3 and other forward-looking statements in this Annual Report for adiscussion of some, but not all factors that could cause or contribute to suchdifferences.

 

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**Item 5.A**Operating Results

 

**Overview**

 

**OurFormation**

 

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

 

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

 

On August 29, 2000, Duketon Goldfields Limitedreceived shareholder approval to change its activities from a mining company toa biotechnology and genetics company on the acquisition of all the issuedcapital of GeneType AG of Switzerland. Following the acquisition of GeneType AG, the new combination has beenengaged in the researching, developing and commercialization of geneticconcepts primarily related to our intron sequence patents and genomic mappingpatents.  We are also the largestaccredited paternity testing laboratory in Australia which GeneType has beenoperating since 1990.  Our Company hasrecently 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.

 

**DevelopmentStage Enterprise**

 

Until 2002, we were a development stage enterprise.  We have been developing our technology thathas resulted in the granting of seven families of patents in the USA which wehave now actively started to commercialize and enforce.  Since inception up to June 30, 2005, wehave incurred $12,982,113 in operating losses and a further $2,631,724 in othercomprehensive gains.  Our losses haveresulted principally from costs incurred in research and development,investment activity and from general and administrative costs associated withour operations.  Other comprehensivelosses relate primarily to foreign exchange translation adjustments recorded onconversion of our accounts from Australian to US dollars.  See the Consolidated Statements of Operationsin our financial statements.

 

The research and development costs incurred prior to August 2000of approximately $6 million were funded by shareholders of GeneType AG.  On completion of the merger of DuketonGoldfields Limited and GeneType AG in August 2000, to form GeneticTechnologies Limited, existing funds of approximately $5 million within GTGwere applied towards research and development and general and administrativeexpenses associated with our operations. The Company also sold its investment in Cytomation Inc. of Fort Collins,Colorado in November 2001 for approximately $5 million.  The funds realized from this sale ofinvestments were applied towards research and development and general andadministrative expenses associated with our operations.  The Company has completed several smallplacements of shares, including one in August 2003, and there have beenother amounts raised from the exercise of unlisted options byshareholders.  We have primarily dependedon these sources of funds to meet our financing needs.  However, we now license our non-coding/intronsequence 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 our patentsand royalties and the number of genetic tests we conduct.  We may not be able to license our technologysuccessfully or ever achieve or sustain profitability.

 

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**Where We Derive our Revenues**

 

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

 

Since June 30, 2002, the Company has beensuccessful in securing licenses for its technology from Genetic Solutions Pty.Ltd., Nanogen Inc., Sequenom Inc., Perlegen Sciences Inc., Myriad Genetics Inc,ARUP, Quest Diagnostics Inc. of USA, King’s College London, ViaLactiaBiosciences (NZ) Limited of New Zealand, University of Technology, Sydney,Australia, TM Biocience Corporation of Canada, Laboratory of Colorado StateUniversity of USA, C.Y. O’Connor ERADE Village Foundation of Perth, WesternAustralia, Ovita Limited of New Zealand, Genzyme Corporation of USA,MetaMorphix Inc. of USA, Bionomics Limited of Adelaide, South Australia andUniversity of Utah, four commercial parties in New Zealand, Applera Corporationof USA, among others.  We expect thatlicensing revenue in the form of up front payments and royalties andsubscription agreements may provide the majority of our income in thefuture.  We anticipate licensing othercompanies in the drug discovery, research, genomics, genetics, IT, serviceprovider, 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.

 

**FiscalYear**

 

As an Australian company, our normal fiscal year endsat the end of June each year.  Weproduce audited consolidated accounts at the end of June each year andprovide reviewed six month accounts under Australian Accounting Standards atthe end of December each year.

 

**Recent Accounting Pronouncements**

 

In January 2003, the FASB issued Interpretation No. 46:*Consolidation of Variable Interest Entities*(“FIN46”), which addresses the consolidation of business enterprises (variableinterest entities) to which the usual condition of consolidation, a controllingfinancial interest, does not apply.  FIN46 requires an entity to assess its business relationships to determine if theyare variable interest entities.  Asdefined in FIN 46, variable interests are contractual, ownership or otherinterests in an entity that change with changes in the entity’s net assetvalue.  Variable interests in an entitymay arise from financial instruments, service contracts, guarantees, leases orother arrangements with the variable interest entity.  An entity that will absorb a majority of thevariable interest entity’s expected losses or expected residual returns, asdefined in FIN 46, is considered the primary beneficiary of the variableinterest entity.  The primary beneficiarymust include the variable interest entity’s assets, liabilities and results ofoperations in its consolidated financial statements.  FIN 46 is immediately effective for allvariable interest entities created after January 31, 2003.  For variable interest entities created priorto this date, the provisions of FIN 46 were originally required to be appliedno later than the Company’s first quarter of Fiscal 2004.  In December 2003, the FASB issued FASBStaff Position (FSP) FIN 46-6, Effective Date of FASB Interpretation No. 46,Consolidation of Variable Interest Entities. The FSP provides a limited deferral (until the end of the Company’ssecond quarter of 2004) of the effective date of FIN 46 for certain interestsof a public entity in a variable interest entity or a potential variableinterest entity.  The Company adopted FIN46 for the year ended June 30, 2003.

 

InDecember 2004, the FASB issued SFAS No. 123 (Revised 2004):*Share-Based Payments* (SFAS 123-R),which replaces the existing SFAS 123 and supersedes APB 25.  SFAS 123-R requires companies to measureand record compensation expense for stock options and other share-basedpayments based on the instruments’ fair value. SFAS 123-R is effective for interim and annual reporting periodsbeginning after June 15, 2005.  TheCompany will adopt SFAS 123-R on July 1, 2005 by using the modifiedprospective approach, which requires recognizing an expense for options grantedprior to the adoption date equal to the fair value of the unvested amounts overtheir remaining vesting period.  Theportion of these options’ fair value attributable to vested awards prior to theadoption of SFAS 123-R is never recognized.  For unvested stock-based awards grantedbefore January 1, 2003 (“APB 25 awards”), the Company will expense thefair value of the awards as at the grant date over the remaining vestingperiod.  The Company expects that there willbe a negative impact from recognizing the stock compensation expense for theunvested APB 25 awards under the new standard. The Company continues to evaluate other aspects of adoptingSFAS 123-R.

 

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InDecember 2004, the FASB issued SFAS 153, *Exchanges ofNonmonetary Assets* which is applicable for periods beginning after June 15,2005.  SFAS 153 requires entities tomeasure exchanges of monetary assets based on the fair values of the assetsexchanged.  Currently, where applicable,for the purposes of presenting financial information in the Company’s US GAAPaccounts, the Company has adopted US Accounting Principles Board Opinion No. 29*Accounting for Nonmonetary Transactions*,which required that the accounting for an exchange of a productive asset for asimilar productive asset should be based on the recorded amount of the assetrelinquished.  The Company will apply thenew rules on accounting for exchanges of nonmonetary assets from July 1,2005 for presenting information in its US GAAP accounts.  The Company is currently evaluating theimpact of applying SFAS 153.

 

**Critical Accounting Policies**

 

**How We Recognize Revenue and Expenses**

 

**Revenue Recognition**

 

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

 

**Rendering of Services**

 

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

 

**Sale of Marketable Securities**

 

Thesecurities consist of equity securities, which are stated at fair value, andunrealized gains or losses on the securities are recorded in the consolidatedstatement 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 as revenuewhen key milestones set within each agreement are achieved and accepted by allparties to the grant, no performance obligation remains and collectibility isreasonably assured.  Grant funds receivedin advance of the Company completing its performance are deferred.  When the Company is required to make cashpayments or purchases from the issuer of the grant as a requirement for thegrant to be issued, the income is recorded net of the consideration payable bythe Company.

 

**License fee income**

 

Whenthe Company has no future obligations in relation to its license agreementsthat do not have fixed terms and renewal options, license fee income isrecorded on the execution of a binding agreement, because the Company has nofuture obligations, income is fixed and determinable, and collection isreasonably assured.  Income under licensearrangements with fixed terms and renewal options is deferred and recognized ona straight-line basis over the license period. The Company has no other arrangements with its licensees to provideservices besides the license agreement. Revenues are recognized at the fair value of the consideration receivednet of the amounts of goods and services tax (GST).  Any securities received as a component of theupfront 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.

 

**Royalties**

 

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

 

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**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, 2005 and 2004, none ofthese external costs have been capitalized. Acquired patents for which a future benefit is reasonably assured arecapitalized and amortized over their useful life, being 10 years.

 

**Impairment of Long-Lived Assets**

 

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 thecarrying amount of the asset exceeds its fair value.  The resulting impairment loss is classifiedas a component of loss from operations. No impairment losses have been recognized for any of the periodspresented.

 

**Non-Cash Stock Compensation**

 

The Company has elected to account for its stock-basedemployee compensation plan under the intrinsic value method in accordance withthe Accounting Principals Board Opinion No. 25: *Accounting for Stock Issued to Employees* (“APB 25”) andrelated interpretations.  The Company hasadopted the disclosure-only provisions of FASB Statement No. 123: *Accounting for Stock-Based Compensation* (“SFAS123”) as amended by FASB Statement No. 148: *Accounting for Stock Based Compensation – Transition and Disclosure*(“SFAS 148”).

 

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 common shares on the measurement date.  Options granted to consultants and othernon-employees are accounted for in accordance with Emerging Issues Task ForceConsensus No. 96-18:  *Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or InConjunction with Selling, Goods or Services*, and valued using theBlack-Scholes option valuation model.  Incircumstances in which the Company’s shares 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.

 

On August 29, 2000 shareholders at the GeneralMeeting approved the grant of 3,000,000 options to directors.  Each option granted to directors isexercisable into one Ordinary Share at any time on or before April 14,2005 at a fixed price of A$0.45 per share. During the year ended 30 June 2003, none of the options issued todirectors were either exercised or lapsed. The equivalent market price per Ordinary Share at June 30, 2003 wasA$0.49.  On August 12, 2003, IanDennis exercised one million options at A$0.45 by paying A$450,000 andsimultaneously sold the resulting one million shares.

 

On November 30, 2001, under our Constitution, shareholders approved thecreation of a Staff Share Plan.  Underthe Plan, the directors may at their discretion, grant options over ourOrdinary Shares to directors, executives and certain members of staff of theconsolidated entity.  The options, issuedfor nil consideration, are granted in accordance with guidelines established bythe directors.  The options are issuedfor a term of up to 6 years.  Inaccordance with the Staff Share Plan, options vest on the basis of 25% perannum and can be exercised at any time after vesting to the date of theirexpiry.  The options are not transferableand are not be quoted on the ASX.  Thereare currently 6 directors, 6 executives, 9 consultants and 29 staff who havebeen granted options under this scheme. Options issued under the Staff Share Plan carry no rights to dividendsand no voting rights.

 

45

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Options issued under the Staff Share Plan (the “Plan”)during the following financial years are as follows:

 

Year ended June 30, 2003:

 
| **Grant date**      | ** ** | **Expiry date**     | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|---------------------|------------|---------------------|------------|--------------------|------------|--------------------|------------|
| ** **          | ** ** | ** **          | ** ** | ** **         | ** ** | ** **         | ** ** |
| July 9,  2002  |       | July 9,  2008  |       | 200,000            |       | A$0.56             |       |
| July 17,  2002 |       | July 17,  2008 |       | 200,000            |       | A$0.49             |       |
| May 20,  2003  |       | May 20,  2009  |       | 1,675,000          |       | A$0.44             |       |
| May 20,  2003  |       | May 20,  2009  |       | 175,000            |       | A$0.44             |       |
|                |       | Total               |       | 2,250,000          |       |               |       |

 

None of these options were issued to directors, allwere granted to employees and consultants. A total of 750,000 of the options issued under the Plan lapsed duringthe year ended June 30, 2003.

 

Year ended June 30, 2004:

 
| **Grant date**          | ** ** | **Expiry date**         | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|-------------------------|------------|-------------------------|------------|--------------------|------------|--------------------|------------|
| ** **              | ** ** | ** **              | ** ** | ** **         | ** ** | ** **         | ** ** |
| December 15,  2003 |       | May 20,  2009      |       | 2,000,000          |       | A$0.48             | ** ** |
| December 15,  2003 |       | December 15,  2009 |       | 750,000            |       | A$0.59             | ** ** |
|                    |       | Total                   |       | 2,750,000          |       |               | ** ** |

 

The 2,000,000 options issued on December 15,2003, having an exercise price of A$0.48 and expiring on May 20, 2009 weregranted to new Directors Russell Granzow (1,000,000) and Prof. Deon Venter(1,000,000).  The options granted toRussell Granzow lapsed upon his resignation from the Company.  The remaining 750,000 options were granted toDr. Adrian Hodgson.  These tooexpired upon his resignation on May 12, 2005.  A total of 1,225,000 of the options issuedunder the Plan lapsed during the year ended June 30, 2004.

 

Year ended June 30, 2005:

 
| **Grant date**          | ** ** | **Expiry date**         | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|-------------------------|------------|-------------------------|------------|--------------------|------------|--------------------|------------|
| ** **              | ** ** | ** **              | ** ** | ** **         | ** ** | ** **         | ** ** |
| September 6,  2004 |       | September 6,  2010 |       | 750,000            |       | A$0.48             | ** ** |
| November 30,  2004 |       | April 19,  2010    |       | 500,000            |       | A$0.48             | ** ** |
| July 29,  2004     |       | February 27,  2010 |       | 580,000            |       | A$0.56             | ** ** |
| July 29,  2004     |       | February 27,  2010 |       | 500,000            |       | A$0.49             | ** ** |
|                    |       | Total                   |       | 2,330,000          |       |               | ** ** |

 

On September 6, 2004 we issued 750,000 optionsunder the Staff Share Plan to Tom Howitt, our Chief Financial Officer andCompany Secretary.  These options wereissued at A$0.48 and expire on September 6, 2010.  On November 30, 2004, we issued 500,000new options under the Plan to a director, Robert Edge.  These options were issued at A$0.48 andexpire on April 19, 2010.  A totalof 1,187,500 of the options issued under the Plan lapsed during the year ended June 30,2005.

 

Post June 30, 2005:

 
| **Grant date**          | ** ** | **Expiry date**         | ** ** | **Number granted** | ** ** | **Exercise price** | ** ** |
|-------------------------|------------|-------------------------|------------|--------------------|------------|--------------------|------------|
| ** **              | ** ** | ** **              | ** ** | ** **         | ** ** | ** **         | ** ** |
| August 12,  2005   |       | August 12,  2011   |       | 1,450,000          |       | A$0.43             | ** ** |
| August 12,  2005   |       | August 12,  2011   |       | 1,000,000          |       | A$0.53             | ** ** |
| November 23,  2005 |       | November 23,  2011 |       | 1,000,000          |       | A$0.56             | ** ** |
|                    |       | Total                   |       | 3,450,000          |       |               | ** ** |

 

As at the date of this Annual Report, there was atotal of 15,457,500 options outstanding which had been issued under the Plan.

 

46

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On August 2, 2001, the Company announced that ithad entered into an agreement with GTH Capital of New York to pursue itslisting on the National Association of Securities Dealers Automated Quotations(“NASDAQ”).  This agreement was assignedby GTH Capital to GMCG, LLC, the successor of GTH Capital, on April 1,2002.  In accordance with the agreement,Genetic Technologies issued 150,000 shares to GTH Capital on October 10,2001 and agreed to issue 900,000 options at an exercise price of $0.36 (A$0.70)to GTH Capital within three years, subject to it meeting certain performancecriteria.  On January 14, 2002, GTHwere entitled to receive 540,000 of the options.  In accordance with SFAS 123, the Company hasrecorded an expense of $67,846 during the year ended June 30, 2002.  During the year ended June 30, 2004,GMCG, LLC became entitled to a further 60,000 options which in accordance withSFAS 123 we have recorded as an expense of $10,827 during that year.  We have now issued to GMCG, LLC the 600,000options that have met specific performance criteria.  Subsequent to June 30, 2005, the partiesagreed not to proceed with the issue of the 300,000 remaining options,notwithstanding the successful listing of the Company’s Level II ADR’s onNASDAQ on September 2, 2005, as certain performance criteria were not metby GMCG, LLC.

 

On May 22, 2001, Gtech International ResourcesLimited, a controlled entity issued 130,000 directors options to Dr. MervynJacobson at an exercise price of $0.25 (CAD0.38) which vested immediately.  These options expire on May 22,2006.  Stock compensation expense of$8,380 was recorded during the year ended June 30, 2001.

 

On February 3, 2005, Fred Bart and Ian Dennisexercised a total of 158,500 options in Gtech International Resources Limitedat an exercise price of $0.16 (CAD0.20) each.

 

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

 

We use the intrinsic value method specified by APB 25to recognize the cost of options granted to employees and directors.  Stock based compensation cost recognized inincome for employees was $nil for the year ended June 30, 2005 (2004:$976).  Stock based compensation costrecognized as income for consultants in accordance with EITF No. 96-18 was$nil in the period ended June 30, 2005 (2004: $351,101).

 

Statement of Financial Accounting Standards (“SFAS”)123 states that stock based compensation must be recorded at fair value ofoptions granted. We have adopted the disclosure only alternative of SFAS123.  This compensation, determined usingthe Black Scholes option pricing model, is expensed over the vesting periods ofeach option grant for purposes of pro forma disclosures.  The pro forma compensation expense wascalculated to be $nil for the year ended June 30, 2005 (2004: $532,408). 

 

The following is additional information relating toall options outstanding as of June 30, 2005:

 
| ** **          | ** ** | ** **    | ** ** | **Options outstanding** | ** ** | **Options exercisable** | ** ** |
|---------------------|------------|---------------|------------|-------------------------|------------|-------------------------|------------|
| **Range of**        | ** ** | ** **    | ** ** | **Weighted**            | ** ** | **Remaining weighted**  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Exercise**        | ** ** | **Number of** | ** ** | **average exercise**    | ** ** | **average contractual** | ** ** | **Number of** | ** ** | **Weighted average** | ** ** |
| **prices**          | ** ** | **options**   | ** ** | **price**               | ** ** | **life (years)**        | ** ** | **Options** | ** ** | **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       |   | 2,226,875 |   | $ | 0.36 |   |
| $ 0.41 - $0.50 |       | 6,580,000     |       | $                       | 0.45       |                    | 2.62       |   | 4,645,000 |   | $ | 0.45 |   |
| $ 0.51 - $0.60 |       | 600,000       |       | $                       | 0.53       |                    | 4.50       |   | 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       |   | 14,226,042 |   | $ | 0.42 |   |

 

During 2005, 500,000 options (2004: 2,000,000) wereissued at an exercise price equal to the market price of the stock on the grantdate.  The weighted average exerciseprice and weighted average fair value of these options were $0.38 (2004:$0.36)  and $0.24 (2004: $0.28),respectively.

 

In addition, 1,830,000 options (2004: 7,476,667)were granted during 2005 at exercise prices exceeding the market prices of thestock on the respective grant dates.  Theweighted average exercise price and weighted average fair value of theseoptions were $0.39 (2004: $0.62) and $0.23 (2004: $0.19), respectively.

 

47

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Pro forma information regarding net income isrequired by SFAS 123, as amended by SFAS 148, and has been determined as if theCompany had accounted for its employee stock options under that fair valuemethod of SFAS 123 as of its effective date. The fair value for the options issued to employees was estimated at thedate of grant using a Black-Scholes option-pricing model with the followingweighted-average assumptions for June 30:

 

| ** **               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| Risk Free  Interest Rate |       | 5.21     | %          | 5.80     | %          | 5.09     | %          |
| Expected  Dividend Yield |       | —   |       | —   |       | —   |       |
| Expected  volatility     |       | 0.55     |       | 0.89     |       | 0.63     |       |
| Expected  Lives (years)  |       | 5        |       | 6        |       | 3.80     |       |

 

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

 
| ** **                                                                                           | ** ** | **Year ended  June 30, 2005** | ** ** | **Year ended  June 30, 2004** | ** ** | **Year ended  June 30, 2003** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
|                                                                                                 |       |                               |       |                               |       |                               |       |
| Net loss as reported                                                                                 |       | $                                  | (5,742,949 | )                                  | $          | (4,816,726                         | )          | $ | (960,395 | ) |
|                                                                                                 |       |                               |       |                               |       |                               |       |
| Stock based compensation, net of taxes, as  calculated under APB 25 included in net loss as reported |       | 591                                |       | 976                                |       | 692                                |       |
|                                                                                                 |       |                               |       |                               |       |                               |       |
| Stock based compensation, net of taxes, as  calculated under SFAS 123                                |       | (606,418                           | )          | (532,408                           | )          | (366,658                           | )          |
|                                                                                                 |       |                               |       |                               |       |                               |       |
| Pro forma net loss                                                                                   |       | $                                  | (6,348,776 | )                                  | $          | (5,348,158                         | )          | $ | (1,326,361 | ) |
|                                                                                                 |       |                               |       |                               |       |                               |       |
| Basic and diluted net loss per ordinary  share as reported                                           |       | $                                  | (0.02      | )                                  | $          | (0.02                              | )          | $ | (0.00 | ) |
|                                                                                                 |       |                               |       |                               |       |                               |       |
| Pro forma basic and diluted net loss per  ordinary share                                             |       | $                                  | (0.02      | )                                  | $          | (0.02                              | )          | $ | (0.01 | ) |

 

Refer to Note 14 of theFinancial Statements for further details regarding the Company’s stock optionplans.

 

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

 

**Reven**ue

 

**License revenues**

 

We earned licensing revenue of $4,970,007 for the yearended June 30, 2005 compared to $507,910 for the corresponding period in2004, a significant increase of $4,462,097 or 878%.  This increase was principally due to theA$5,000,000 up-front license fee we received from Genzyme Corporation ofMassachusetts in consideration for us granting Genzyme a license to use ournon-coding technology.  In addition, wereceived up-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 isincluded in the total licensing revenue figure, totaled $480,468, as comparedto $66,912 for 2004.  As progressivelymore licenses are granted, it is expected that this annuity stream willcontinue to increase.

 

As in the previous year, the ongoing patent disputeagainst Applera Corporation has had a negative impact on the rate at which theCompany is able to secure additional licenses. Given that this matter was satisfactorily resolved in December 2005,following Applera’s decision to take a license from the Company, we anticipatethat the Company’s licensing activities should expand during the 2006 calendaryear.

 

48

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**Service testingrevenues**

 

Our service testing revenues of $1,809,301 representedfees received from our genetic testing services in Melbourne, Australia,compared to $1,969,963 for the previous year. The decrease of $160,662 or 8% was due to a modest decrease in thevolume of genetic testing performed by the Company.  As additional marketing efforts start to havean impact, it is hoped that revenues from several new genetic tests, includingthe ACTN3 sports performance test and the SCN1A epilepsy test, will increaseservice testing revenues during the coming financial year.  Further, recent accreditation has resulted inthe Company becoming the first non-Government laboratory in Australia to be ableto undertake forensic testing.  The Companyhas already secured work in this expanding area of genetic testing and hastendered for work that certain Australian State Governments are now seeking tooutsource.  Finally, the Company hasexpended considerable energies in expanding its livestock testing businessduring the 2005 year which has already generated growing revenues.

 

**Grant income**

 

We earned grant income of $437,278 for the year ended June 30,2005 compared to $154,702 for the corresponding period in 2004, an increase of$282,576 or approximately 183%.  Thegrants were received from Horticulture Australia Limited in relation to aresearch 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 $3,470 for the year ended June 30,2005 compared to $12,427 for the corresponding period in 2004, a decrease of$8,957.

 

**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 respective expense categories.

 

**Research and development expenses**

 

Research and development increased by $167,070 orapproximately 10% to $1,826,984 in 2005 from $1,659,914 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 commercialization ofits RareCellect and ImmunAid projects, in particular.

 

**Patent and license fees**

 

The heading Patent and license fees includesassociated license and legal fees. Patent and license fees increased by $3,827,971 or 501% to $4,591,710for 2005 as compared to $763,739 in 2004. The significant increase in fees incurred during the 2005 financial yearrelated almost solely to the legal fees paid by the Company in respect of itspatent dispute with Applera Corporation. As the case gained momentum during the year, so did the levels ofactivity of the Company’s lawyers. Further, as our patent insurance coverage expired, we had to meet agreater proportion of the legal fees incurred. As mentioned elsewhere in this Annual Report, the satisfactoryresolution of this matter in December 2005, following Applera’s decisionto take a license from the Company, should reduce the need for the Company toinstigate such legal action in the future, thereby reducing the level of patentand license fees incurred.

 

49

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**Service testing expenses**

 

Service testing expenses has increased by $1,289,091or 58% to $3,518,398 for 2005 as compared to $2,229,307 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 thereagent usage being allocated to a research project that was conducted for thegroup that found the original genetic variant. Approximately 1,000 samples were tested as part of this project.  The new animal tests had to be developed fromscratch with several hundred samples being analyzed to validate the test.  This development work will now enable theCompany to offer these tests for many years to come.

 

**Sales and marketing**

 

Sales and marketing expense has decreased by $423,580or 44% to $537,039 for 2005 as compared to $960,619 in 2004.  This reduction reflects reduced numbers ofpromotional materials produced during the 2005 year and other relatedreductions.

 

**General and administrative expenses**

 

General and administration expense has increased by amere $284,123 or 12% to $2,668,002 for 2005 as compared to $2,383,879 in2004.  General and administrationexpenses continue to be incurred in line with normal operating parameters, withthe modest increase reflecting a general increase in corporate activity.

 

**Other income(expense)**

 

**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 interestincome is due principally to the increased cash and cash equivalents held bythe Company during the 2005 financial year. The Company’s cash and cash equivalents increased from approximately$7.9 million at the beginning of the 2004 financial year to approximately $13.5million at the 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 losseswere primarily due to the increase in the value of the Australian dollar ascompared to the US dollar which had a negative impact on our cash deposits inUS dollars.  During 2005, the movement inthe value of AUD to USD was less than 2004.

 

50

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**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.

 

**Comparison of the Year Ended June 30, 2004to the Year Ended June 30, 2003**

 

**Reven**ue

 

**License revenues**

 

We earned licensing revenue of $507,910 for the yearended June 30, 2004 compared to $2,615,544 for the corresponding period in2003, a decrease of $2,107,634 or 80%. In 2004 we signed licenses with Quest Diagnostics, University of Sydney,King’s College London, ViaLactia Biosciences of New Zealand, University ofTechnology Sydney, TM Biosciences of Canada, LabCorp of USA, Colorado StateUniversity and Ovita Limited.  Themajority of license agreements are denominated in US dollars and were notaffected by the increase in the value of the Australian dollar.  Licensing revenue for 2004 decreased from theprevious year due to the pending legal case against Applera Corporation whichhad not yet been concluded.  In 2003, wesigned commercial licenses with three companies, namely Perlegen Sciences,Myriad Genetics and Pyrosequencing which made up the majority of the licensing revenue.

 

**Service testing revenues**

 

Our service testing revenues of $1,969,963 were fromfees received from our genetic testing and plant testing services in Melbourne,Australia, compared to $1,727,617 for the previous 12 months.  The increase of $242,346 or 14% was due to anincrease in the volume of genetic testing, additional genetic tests and planttesting via AgGenomics Pty. Ltd.

 

**Grant income**

 

We earned grant income of $154,702 for the year ended June 30,2004 compared to $50,244 for the corresponding period in 2003, an increase of$104,458 or approximately 208%.  In 2004we received a grant from Horticulture Australia Limited and an Export MarketingDevelopment Grant from the Australian Government.

 

**Other income**

 

We received other income of $12,427 for the year endedJune 30, 2004 compared to $10,722 for the corresponding period in 2003, anincrease of $1,705 or 16%.

 

**Operating expenses**

 

Total operating expenses increased by $3,392,221 orapproximately 74% to $7,997,458 in 2004 compared to $4,605,237 in 2003.  A significant portion of our operatingexpenses are denominated in Australian dollars and as a result of theAustralian dollar strengthening by 4% during the year, the US dollar equivalentof these Australian expenses would have increased by 4%.

 

**Research and development expenses**

 

Research and development increased by $1,147,569 orapproximately 224% to $1,659,914 in 2004 from $512,345 in 2003.  The research and development expenditurecontinued in relation to the Parasitology project, RareCellect project and theAIDS project in Melbourne, Australia. The Company commenced new research projects with King’s College Londonand the C.Y. O’Connor ERADE Village Foundation in Western Australia.

 

**Patentand license fees**

 

The heading Patent and license fees includesassociated license and legal fees. License fees increased by $335,404 or 78% to $763,739 for 2004 ascompared to $428,335 in 2003.  Licensefees have increased due primarily to the increased legal effort in negotiatingand securing licenses around the world. These costs may increase in the future as we pursue more claims.

 

51

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**Service testingexpenses**

 

Service testing expenses increased by $408,817 or 22%to $2,229,307 for 2004 as compared to $1,820,490 in 2003.  The increase in expenses partly relates tothe increase in service testing revenues as well as additional monies expendedin finalizing additional genetic tests.

 

**Sales and marketing**

 

Sales and marketing expense has increased by $299,408or 45% to $960,619 for 2004 as compared to $661,211 in 2003.  The increased costs reflect the 10 additionalinternal staff employed to focus on sales and marketing of the non codinglicenses including identifying potential infringers of the patents.

 

**General and administrative expenses**

 

General and administration expense has increased by$1,201,023 or 102% to $2,383,879 for 2004 as compared to $1,182,856 in2003.  General and administrationexpenses increased due to the increased use of consultants as the Company wasreceiving advice on such matters as the Level II ADR listing on NASDAQ.

 

**Other income (expense)**

 

**Interest income**

 

Interest income has increased by $284,218 or 416% to$352,605 for 2003 as compared to $68,387 in 2003.  This interest income represents interestincome on surplus funds.  The amount ofsurplus funds increased considerably as a result of the placement in August 2003.

 

**Interest expense**

 

Interestexpense decreased by $5,979 to $nil for 2004 as compared to $5,979 in 2003.

 

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

 

Net profit on securities increased by $306,033 to$406,224 for 2004 as compared to a loss of $100,191 in 2003.  The profit on sale of securities in 2004 wasas a result of the sale of listed securities arising from license deals negotiatedby the Company.  The losses in 2003 of$100,191 were as a result of sales of trading securities not associated withlicense deals and represent the final disposal of the remaining tradingsecurities.

 

**Net foreign exchange losses**

 

Foreign exchange losses decreased by $386,332 or 69%to $171,960 in 2004 as compared to $558,292 in 2003.  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 2004 the Company reduced its holdingof US Dollars.  In addition, the movementin the value of AUD to USD was less than 2003.

 

**Taxes**

 

Taxesdecreased by $139,833 or 84% to $27,579 in 2004 as compared to $167,412 in2003.  The decrease relates mainly due tothe reduced US licensing revenue which is subject to US withholding tax.

 

52

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

 

**Summary**

 

Our overallcash position depends on numerous factors, including the success of licensingour non-coding patents, the numbers of genetic tests processed by ourlaboratory, completion of our product research and development activities,ability to commercialize our products, market acceptance of our products andhow we choose to commercially exploit our technology**.** We expect to devoteadditional capital resources to the expansion of our licensing program on aworldwide basis, continue our research and development programs with a view tocommercializing our technology in our target markets, hire and train additionalstaff, expand our research and development activities and acquire or makeinvestments in businesses that are complementary to our business.  Each of these activities will involve theoutflow of cash reserves.

 

During theyears ended June 30, 2003, 2004 and 2005, we have incurred net losses of$960,395, $4,816,726 and $5,742,949, respectively.  We anticipate incurring additional costs overat least the next several years as we expand our research and developmentactivities and conduct further trials of our technology.  The extent to which we will incur losses infuture years depends largely on the success of the licensing program of ournon-coding technologies and the expansion of our genetic testing business.

 

Sinceinception, our operations have been financed primarily from capitalcontributions by our stockholders, licensing revenues, service testingrevenues, interest earned on those proceeds and interest income from cash andcash equivalents.

 

We believethat our cash and cash equivalents of approximately $13.4 million as of June 30,2005, will provide us with sufficient capital to fund a base level ofoperations for the next 3 years from the date of this Annual Report.  During this period we expect to be able tocontinue to adequately fund our research and development activities, licensingprogram, product development and commercialization efforts and otheroperations.  Further, as these activitiescontinue to expand, we anticipate that the revenues generated should assist theCompany achieve a cash break even result from operations on a more regularbasis, thereby extending the base level of operations.

 

Our netcash used in operating activities was $277,572, $3,161,657 and $5,016,397 forthe years ended June 30, 2003, 2004 and 2005, respectively.  Cash used in operating activities for eachperiod consisted primarily of losses incurred in operations reduced bydepreciation and amortization expenses, exchange movements and unrealizedprofits and losses relating to investments. In approximate order of magnitude, cash outflows typically consist ofstaff-related costs, service testing expenses, general and administrativeexpenses, research and development costs and legal/patent fees.

 

Our netcash used in investing activities was $173,568, $640,737 and $19,276 for theyears ended June 30, 2003, 2004 and 2005, respectively.  Typically, cash used in investing activitiesrelated to the acquisition of laboratory equipment.  During the 2005 financial year, theestablishment of the equipment finance facility described below has reducedcash outflows for both current and future years.

 

Our netcash provided by financing activities was $10,939, $6,994,357 and $10,067,926for the years ended June 30, 2003, 2004 and 2005, 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 asthe result of the exercise of options (as during the year ended June 30,2005).

 

Apart from the purchase oflaboratory equipment of $640,737 in 2004 and $467,689 in 2005, we had nomaterial capital expenditures for the years ended June 30, 2003, 2004 and2005.  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 aMaster Asset Finance Agreement with National Australia Bank Limited in respectof a $1,951,250 (A$2.5 million) asset hire purchase facility (the “Facility”).  As at the date of this Annual Report, theCompany had financed the acquisition of laboratory equipment under the Facilitywith a total value of $1,179,409 (A$1,511,094). It is expected that future purchases of laboratory equipment will befinanced under this Facility, to the extent that sufficient credit isavailable.  The use of this Facilityenables the Company to better match the cost of the equipment with the futurerevenues to be generated from it in a cost-effective manner and minimizes theoutflow of valuable cash.

 

53

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Thelong-term loan of $533,260 (A$700,000) as of June 30, 2005 represents anunsecured, non-interest bearing loan from the Australian CommonwealthGovernment received under the Research & Development StartProgram.  The loan represents a portionof a grant received by the Company, which has been deferred in accordance withthe grant agreement.  The loan will berepayable on or before January 15, 2009, if the Company commercializes aproduct 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 nolonger repayable.  The costs associatedwith the research have been expensed.

 

**Future Cash Needs**

 

We expectthat operating expenses and, to a lesser extent, capital expenditures will be amaterial use of our cash resources.  Asof June 30, 2005 we had cash and cash equivalents totaling approximately$13.4 million.  We believe that thisworking capital is sufficient for our anticipated needs for the next threeyears from the date of this Annual Report. We do not have any lines of credit apart from the equipment financeFacility and a nominal credit card facility of approximately $83,800(A$110,000).  We anticipate generatingadditional cash in future years from our licensing activities and the expansionof our service testing business.

 

**Operating Leases**

 

We areobligated under various operating leases for periods expiring through2011.  Payments under non-cancelableoperating lease arrangements for office premises and laboratory facilitiesexpire on various dates through 2011, resulting in the following leasecommitments over that period:

 

Thefollowing is a schedule of future minimum lease payments for operatingleases that had initial or remaining non-cancelable lease terms in excess ofone year as of June 30, 2005:

 

| **Period ending June 30,** | ** ** | ** ** | ** ** |
|---------------------------------|------------|------------|------------|
| 2006                            |       | $          | 304,159    |   |
| 2007                            |       | 304,159    |       |
| 2008                            |       | 304,159    |       |
| 2009                            |       | 304,159    |       |
| 2010 and  thereafter            |       | 608,318    |       |
| Total  minimum lease payments   |       | $          | 1,824,954  |   |

 

Thefollowing is a schedule of future minimum hire purchase payments forequipment finance that had initial or remaining non-cancelable lease terms inexcess of one year as of June 30, 2005:

 
| Minimum hire purchase  payments                                          |   |     |      |
|--------------------------------------------------------------------------|--------|----------|-----------|
| Year ending  2006                                                        |   | $        | 393,784   |   |
| Year ending  2007                                                        |   | 393,784  |      |
| Year ending  2008                                                        |   | 346,552  |      |
| Total  minimum hire purchase payments                                    |   | $        | 1,134,120 |   |
| Less: future  finance charges                                            |   | (110,709 | )         |
| Aggregate  hire purchase expenditure contracted for as at reporting date |   | $        | 1,023,411 |   |
| Aggregate  expenditure commitments comprise:                             |   |     |      |
| Current liability                                                        |   | $        | 331,711   |   |
| Non-current liability                                                    |   | 691,700  |      |
| Total  expenditure commitments                                           |   | $        | 1,023,411 |   |

 

Rentexpense totaled $239,145, $315,662 and $318,044 for the years ended June 30,2003, 2004 and 2005, respectively.

 

54

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

 

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

 

The following table details historic expenditure byproject.  All projects are described atItem 4.B above.

 
| ** **                                 | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | **US$(a)** | ** ** | **US$(b)** | ** ** | **US$(c)** | ** ** |
| RareCellect                                |       | $          | 536,102    |       | $          | 685,419    |       | $ | 165,321 |   |
| ImmunAid                                   |       | $          | 203,792    |       | $          | 75,456     |       | $ | 268,219 |   |
| PGGP  (pathogen program)                   |       | $          | 141,069    |       | $          | 254,836    |       | $ | 78,805 |   |
| King’s  College, London research      |       | $          | 96,754     |       | $          | 74,330     |       | $ | — |   |
| C.Y.  O’Connor research               |       | $          | 689,940    |       | $          | 321,225    |       | $ | — |   |
| Other general R & D               |       | $          | 159,327    |       | $          | 248,648    |       | $ | — |   |
| Total R & D Expense               |       | $          | 1,826,984  |       | $          | 1,659,914  |       | $ | 512,345 |   |
| Other  Expenditure                         |       | $          | 11,315,149 |       | $          | 6,337,544  |       | $ | 4,092,892 |   |
| Total  Expenditure                         |       | $          | 13,142,133 |       | $          | 7,997,458  |       | $ | 4,605,237 |   |
|                                       |       |       |       |       |       |       |       |
| R &  D as a% of Total Expenditure |       | 14         | %          | 21         | %          | 11         | %          |

 

----

(a)     Converted at A$1.00=$0.7564

(b)     Converted at A$1.00=$0.7132

(c)     Converted at A$1.00=$0.5847

 

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

 

**Item 5.D**Trend Information

 

**TheDirection of Genetic Research**

 

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

 

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

 

All these projects depend significantly on the basicinventions owned by our Company.  Inessence, the world has become our research laboratory.  It remains our corporate stance to encourageall such research, which we expect will, in time, lead to a great number of newcommercial licensing opportunities for GTG. Such opportunities are also not limited to human applications, given therecent expansion of interest in the genetics of animals, plants and lower formsof life, including parasites and many organisms that contribute to eitherdisease or to recuperative environmental systems of our planet.  Such research is likely to expandsignificantly in the coming years.

 

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

 

55

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**The Direction of Genetic Testing**

 

Further to the completed first phase of the HumanGenome Project in mid-2001, and then the Mouse Genome Project in December 2002,there is now a greatly improved general understanding of gene structure, genefunction and gene expression.  This islikely to lead to new genetic tests and new genetic treatments - perhaps eventailored to an individual’s unique genetic code. DNA testing for forensicpurposes has already been shown to be extremely reliable in matters of criminaljustice, disputed paternity and family relationships.  Genetic testing will also be increasinglyrelied upon to assist with disease diagnosis, and also in the improvedassessment disease risk factors.  Inaddition, genetic testing will be applied more and more to help identifyspecific animal and plant traits that are either desirable or undesirable, inorder to help breeders better select their future seed stock.  We believe the demand for an expansion ofgenetic 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

 

Thetable below shows the contractual obligations and commercial commitments as at June 30,2005:

 
| ** **                                                                 | ** ** | **0-1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **>5 years** | ** ** |
|----------------------------------------------------------------------------|------------|--------------|------------|---------------|------------|---------------|------------|-----------------|------------|
| Purchase  obligations                                                      |       | $            | 731,967    |          | $          | 1,371,240     |       | $               | 342,810    |   | — |   |
| Operating  lease and hire purchase commitments                             |       | $            | 697,943    |          | $          | 1,348,654     |       | $               | 608,318    |   | $ | 304,159 |   |
| Other long-term liabilities reflected on  the Company’s balance sheet |       | —       |       | —        |       | $             | 533,260    |            | —     |   |
|                                                                            |            |              |            |               |            |               |            |                 |            |  |  |  |  |

 

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

 

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

 

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

 

The Directorsof the Company are:

 

**Mr. Henry Bosch AO**, BA (Hons), MA *(Non-ExecutiveChairman)*

 

Mr. Bosch,74, was appointed to the Board on June 24, 2005.  On November 23, 2005, he was elected asthe Company’s first Non-Executive Chairman. Mr. Bosch also serves on the Company’s Corporate Governance andAudit Committees.  He is a formerChairman of the National Companies and Securities Commission, the predecessorof the Australian Securities and Investments Commission, Australia’s principalcorporate regulator.  He has also servedas Chairman of the Working Group on Corporate Practices and Conduct andChairman of the committee which produced the Australian Standard on corporategovernance.  He has been chairman, or adirector, of over thirty companies and other organizations operating in boththe government and private sectors.  Hehas served on a number of audit committees and is an Honorary Fellow of theInstitute of Internal Auditors.  Hisextensive business career has spanned the aluminium, steel, man-made fibers andplastics industries in Canada, UK and Australia and included the positions ofMarketing Director of John Lysaght (Australia) Ltd. and Managing Director ofNylex Corporation.  He wasmade an Officer of the Order of Australia in January 1991.

 

56

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

 

Dr. Jacobson, 63, is a legally qualified Medical Practitioner and aco-founder of GeneType AG.  He has 30years’ experience in working with new medical technology and in bringing newmedical/biomedical goods and services to the market.  Dr. Jacobson serves as adviser tobiotechnology enterprises in USA, UK, Mexico and China.  In February 2000, he was appointed bythe Governor of Colorado to The Governor’s Advisory Council inBiotechnology.  Dr. Jacobson is alsoChairman of the Board of Directors and Chief Executive Officer of XY, Inc.,a biotechnology company based in Colorado, USA, and is a founding Director ofthe Colorado Biotechnology Association. In June 2004, Dr. Jacobson was invited to join the ScientificAdvisory Board of the China National Animal Breeding Stock Export/ImportCorporation Limited (CABS).  In 2004, hereceived Honorary Life Membership of the Royal Zoological Society of SouthAustralia and, in 2005, was elected to the Scientific Advisory Committee ofIBREAM (the Institute for Breeding Rare and Endangered African Mammals).  He is also a member of the AustralianInstitute of Company Directors. Appointed to the Board on May 15, 2000, Dr. Jacobson wasappointed as Executive Chairman on August 31, 2000.  On November 23, 2005, he relinquishedthe role of Chairman in favour of Mr. Bosch and assumed the title of ChiefExecutive Officer.  Dr. Jacobsonalso serves on the Company’s Corporate Governance Committee and as Chairman of the Company’s Canadian listed subsidiaryGtech International Resources Limited.

 

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

 

Mr. Bart, 51, has beeninvolved in the textile industry for the last 25 years as well as being asignificant 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 tothe Board on October 26, 1996 and serves as Deputy Chairman.  Mr. Bart also serves as a Director of the Company’s Canadian listed subsidiaryGtech International Resources Limited.

 

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

* *

Mr. Dawkins, 58, was appointedto the Board on November 24, 2004. He is Chairman of the Company’s Corporate Governance Committee andserves on its Audit Committee.  Mr. Dawkins holds degrees in Agriculture from Roseworthy College and Economics from theUniversity of Western Australia and, for 18 years, served in the AustralianHouse of Representatives for the Australian Labor Party.  From 1983 to 1993, he served in the Hawke andKeating Governments as Finance Minister, Trade Minister, Employment Educationand Training Minister and finally Treasurer. His board appointments have included: Chairman, Medical Corporation ofAustralia; Sealcorp Holdings; Chairman, Elders Rural Bank; Government RelationsAustralia and Chairman, Retail Energy Market Company.  He has consulted to a variety ofinternational organisations including The World Bank Group, the OECD, UNDP, andUNESCO.  He is a Patron of the MenziesSchool of Health Research and for three years was Treasurer of theInternational Agency for the Prevention of Blindness and for nine years amember of the Board of the Fred Hollows Foundation.  He was made an Officer of the Order ofAustralia in June 2000 and awarded the Centenary Medal in January 2000.

 

**Mr. Robert J. Edge**, FCA*(Non-Executive)*

 

Mr. Edge, 55, was appointed tothe Board on April 19, 2004 and serves as Chairman of the Company’s AuditCommittee.  He is a Chartered Accountant,Official Liquidator and Tax Agent.  Hehas extensive experience at Board level with a number of public companies inAustralia and overseas.  He is currentlyCEO of International All Sports Limited. Prior to his appointment, he was Managing Director of Global TechnologyLimited.  He has been a partner in B.D.O.and Ernst & Young and, as a consultant to Ferrier Hodgson, managed theasset realization and loans recovery program for the liquidation of PyramidBuilding Society and the Farrow Group of Companies.

 

**Prof. Deon J. Venter**, MB, PhD, MBA*(Executive)*

 

Prof. Venter, 49, was appointed tothe Board on March 17, 2003.  Upuntil March 2005, he was Head of the Cancer Functional Genomics Laboratoryat the Murdoch Children’s Research Institute in Melbourne, and Head of theCancer Epidemiology Program, Department of Pathology at the University ofMelbourne.  He currently serves asClinical Director of Pathology for the seven hospitals comprising the MaterHospitals group in Brisbane, Queensland, and heads up the Molecular Geneticslaboratory at the Mater Medical Research Institute.  During the year, he was appointed as aProfessor at the University of Queensland. He is a specialist pathologist, a Fellow of the Royal College ofPathologists of Australasia and the author of more than 80 papers on the geneticsof cancer.

 

57

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**Senior Management**

 

We have a professional team of qualified andexperienced research and development scientists and technicians.  The Company currently has 43 employees, ofwhich seven have PhD qualifications.

 

The Management Team, and a brief summary of theirrelevant experience, is as follows:

 

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

 

Mr. Howitt, 41, a CharteredAccountant and member of the Taxation Institute of Australia and Institute ofChartered Secretaries, was appointed in June 2004 as the group’s firstfull-time Chief Financial Officer and as Company Secretary in June 2005.  During his 20 year career, he has served asCFO and Company Secretary for a number of public companies, listed on both theASX and foreign stock exchanges.  Hisexperience covers all facets of financial management and control across avariety of industries, including resources and technology (domestic andinternational), having been instrumental in the successful development,patenting and commercialization of innovative technologies.  He has played key roles in the raising ofbank debt and equity capital and the management of complex due diligenceprograms and has worked as a senior Taxation Consultant for Ernst &Young and in the investment banking industry.

 

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

 

Dr. Cobon, 56, was appointed as Chief ScientificOfficer in November 2005 and is a biochemist with more than 25 yearsexperience managing commercially oriented research and development projects inthe biotechnology area.  He was withBiotech Australia for 15 years as Senior Project Manager responsible for thedevelopment of innovative 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 A$19.25million.  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.

 

**Mr. Geoffrey E. Newing**, BCom, *(Group General Manager - BusinessDevelopment)*

 

Mr. Newing, 40, was appointedin November 2004 and has worked at a senior level in both listed andprivate companies chiefly responsible for business development and marketing tofinancial markets.  He was previously theCEO of Olea Australis Limited where he oversaw the development of Australia’smost awarded brand of olive oil.  He hasalso held a number of senior positions including an Executive Director ofRamsgate Resources Ltd., CEO of the Hancock Group of Companies controlled bythe daughter of the late Lang Hancock, Group Financial Controller for Toplisand Harding, London and spent three years in Melbourne with Elders ResourcesLimited.  Geoff is responsible forbusiness development and investor relations.

 

**Mr. Ian N. Christensen**, BSc Hons, MBA *(GroupGeneral Manager – Intellectual Property)*

 

Mr.Christensen, 47, was appointed in October 2002 and has extensive experience inbusiness unit management, product development, global marketing, intellectualproperty development and licensing developed over 20 years in the local andinternational chemical industry.  He hasheld senior management positions in several companies including Rhone Poulencand Ciba Specialty Chemicals, both in Melbourne, and at head office in BaselSwitzerland.  He was Business Manager forCiba’s Pentex business unit and has been responsible for development and globalmarketing of numerous technical products. Ian has responsibility for developing Genetic Technologies’ intellectualproperty portfolio, for supporting the licensing program, and providing IPsupport to our research and genetic testing programs.

 

58

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**ScientificAdvisors**

 

GTG retains a number of consultants on its Technical ReviewCommittees and in advisory positions. These consultants are generally leading academics from Australianuniversities.  They are Professor MartynFrench from Royal Perth Hospital, Dr. Stephen Kent at University ofMelbourne, Associate Professor Nicholas Deacon, former Head of AIDS MolecularBiology Unit at the Macfarlane Burnett Centre for Medical Research, Dr. ManfredBeilharz from University of Western Australia and Associate Professor RobinGasser from Melbourne University.

 

In August 2003, we formed a Scientific AdvisoryCommittee of leading academics to review and monitor our research andscientific pursuits.  The current membersof the Committee are listed below and the Convenor is Prof. Deon Venter, an ExecutiveDirector of the Company, whose credentials are more fully described above.

 

**Prof. Colin Masters**: Prof.Masters is the former Chair of Pathology at the University of Melbourne, andnow holds one of the few Laureate Professorships at the University ofMelbourne.

 

**Prof. Michael Quinn**: Prof.Quinn is Director of Oncology at the Royal Women’s Hospital in Melbourne. Healso chairs the Board of Management of the National Cancer Control Initiative,and is an Executive Committee Member of the Cancer Council of Victoria, as wellas a Board Member of the Australian Cancer Society.

 

**Prof.Simon Easteal**: Prof.Easteal heads the Human Genetics Group at the Australian National University,Canberra, where he is also the co-director of the Centre for BioinformationScience. He is a former editor of the prestigious journal Molecular Biology andEvolution, serves on the Advisory Board to the Sydney University BiologicalInformatics and Technology Centre, and is the author of two books and over 100scientific papers.

 

**Assoc. Prof. Robert Richards**: Assoc.Prof. Richards is Deputy Director of the ARC Special Research Centre forMolecular Genetics Development and Convenor of the ARC / NHMRC Research Networkin Genes and Environment in Development, both at the University of Adelaide.

 
| **Item 6.B** | ** ** | **Compensation** |
|--------------|------------|------------------|

 

Details of the nature and amount of each major elementof the compensation of each director of the Company and each of the namedofficers of the Company and its subsidiaries, for services in all capacities tous during 2005 and 2004 are listed below. All figures are stated in Australian dollars.

 
| ** **                         | ** ** | ** ** | ** ** | **Primary benefits** | ** ** | **Post employment** | ** ** | **Equity**      | ** ** | ** **  | ** ** |
|------------------------------------|------------|------------|------------|----------------------|------------|---------------------|------------|-----------------|------------|-------------|------------|
| **Name of Director**               | ** ** | **Year**   | ** ** | **Salary/fees**      | ** ** | **Superannuation**  | ** ** | **Termination** | ** ** | **Options** | ** ** | **Totals** | ** ** |
| ** **                         | ** ** | ** ** | ** ** | **$**                | ** ** | **$**               | ** ** | **$**           | ** ** | **$**       | ** ** | **$** | ** ** |
|                               | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **      | ** ** | ** **  | ** ** | ** ** | ** ** |
| Dr. Mervyn Jacobson           | ** ** | **2005**   | ** ** | **300,000**          | ** ** | **—**          | ** ** | **—**      | ** ** | **170,000** | ** ** | **470,000** | ** ** |
|                               |       | 2004       |       | 300,000              |       | —              |       | —          |       | 170,000     |       | 470,000 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Mr. Fred Bart                 | ** ** | **2005**   | ** ** | **30,000**           | ** ** | **2,700**           |       | —          | ** ** | **42,500**  | ** ** | **75,200** | ** ** |
|                               |       | 2004       |       | 30,000               |       | —              |       | —          |       | 42,500      |       | 72,500 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Mr. Henry Bosch AO            | ** ** | **2005**   | ** ** | **—**           | ** ** | **—**          | ** ** | **—**      | ** ** | **—**  | ** ** | **—** | ** ** |
| (appointed June 24, 2005)     |       | 2004       |       | —               |       | —              |       | —          |       | —      |       | — |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Mr. John S. Dawkins AO        | ** ** | **2005**   | ** ** | **18,044**           | ** ** | **1,624**           |       | —          | ** ** | **—**  | ** ** | **19,668** | ** ** |
| (appointed November 24, 2004) |       | 2004       |       | —               |       | —              |       | —          |       | —      |       | — |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Mr. Robert J. Edge            | ** ** | **2005**   | ** ** | **30,000**           | ** ** | **2,700**           |       | —          | ** ** | **23,119**  | ** ** | **55,819** | ** ** |
|                               |       | 2004       |       | 5,918                |       | —              |       | —          |       | —      |       | 5,918 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Prof. Deon J. Venter               | ** ** | **2005**   | ** ** | **109,038**          | ** ** | **2,804**           |       | —          | ** ** | **89,250**  | ** ** | **201,092** | ** ** |
|                               |       | 2004       |       | 137,725              |       | —              |       | —          |       | 52,183      |       | 189,908 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Mr. Ian A. Dennis             | ** ** | **2005**   | ** ** | **207,440**          | ** ** | **20,175**          | ** ** | **37,396**      | ** ** | **85,000**  | ** ** | **350,011** | ** ** |
| (resigned November 24, 2004)  |       | 2004       |       | 200,500              |       | 19,500              |       | —          |       | 85,000      |       | 305,000 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Totals                             | ** ** | **2005**   | ** ** | **694,522**          | ** ** | **30,003**          | ** ** | **37,396**      | ** ** | **409,869** | ** ** | **1,171,790** | ** ** |
|                               |       | 2004       |       | 674,143              |       | 19,500              |       | —          |       | 349,683     |       | 1,043,326 |   |

 

59

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Thefollowing table discloses the remuneration of the principal executive officersof the Company and its subsidiaries for services in all capacities to us during2005 and 2004.  All figures are stated inAustralian dollars.

 
| ** **                         | ** ** | ** ** | ** ** | **Primary benefits** | ** ** | **Post employment** | ** ** | **Equity**      | ** ** | ** **  | ** ** |
|------------------------------------|------------|------------|------------|----------------------|------------|---------------------|------------|-----------------|------------|-------------|------------|
| **Name of Executive**              | ** ** | **Year**   | ** ** | **Salary / fees**    | ** ** | **Superannuation**  | ** ** | **Termination** | ** ** | **Options** | ** ** | **Totals** | ** ** |
| ** **                         | ** ** | ** ** | ** ** | **$**                | ** ** | **$**               | ** ** | **$**           | ** ** | **$**       | ** ** | **$** | ** ** |
| Mr. Thomas G. Howitt          | ** ** | **2005**   | ** ** | **166,153**          | ** ** | **14,953**          | ** ** | **—**      | ** ** | **21,253**  | ** ** | **202,359** | ** ** |
|                               |       | 2004       |       | 8,000                |       | 775                 |       | —          |       | —      |       | 8,775 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Mr. Geoffrey E. Newing        | ** ** | **2005**   | ** ** | **100,000**          | ** ** | **—**          | ** ** | **—**      | ** ** | **—**  | ** ** | **100,000** | ** ** |
| (appointed November 15, 2004) |       | 2004       |       | —               |       | —              |       | —          |       | —      |       | — |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Mr. Ian N. Christensen        | ** ** | **2005**   | ** ** | **119,734**          | ** ** | **18,900**          | ** ** | **—**      | ** ** | **18,000**  | ** ** | **156,634** | ** ** |
|                               |       | 2004       |       | 113,415              |       | 18,200              |       | —          |       | 18,000      |       | 149,615 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Mr. W. Ian Smith              | ** ** | **2005**   | ** ** | **130,165**          | ** ** | **11,714**          | ** ** | **—**      | ** ** | **25,500**  | ** ** | **167,379** | ** ** |
|                               |       | 2004       |       | 128,868              |       | 11,598              |       | —          |       | 25,500      |       | 165,966 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Ms. M. Luisa Ashdown          | ** ** | **2005**   | ** ** | **118,480**          | ** ** | **8,974**           | ** ** | **—**      | ** ** | **25,500**  | ** ** | **152,954** | ** ** |
|                               |       | 2004       |       | 118,938              |       | 10,074              |       | —          |       | 25,500      |       | 154,512 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Dr. Adrian L.M. Hodgson       | ** ** | **2005**   | ** ** | **120,579**          | ** ** | **10,852**          | ** ** | **313**         | ** ** | **—**  | ** ** | **131,744** | ** ** |
| (resigned May 12, 2005)       |       | 2004       |       | 133,267              |       | 11,003              |       | —          |       | 39,010      |       | 183,280 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Dr. Glenn Tong                | ** ** | **2005**   | ** ** | **46,780**           | ** ** | **4,210**           | ** ** | **14,623**      | ** ** | **—**  | ** ** | **65,613** | ** ** |
| (resigned October 29, 2004)   |       | 2004       |       | 124,992              |       | 11,249              |       | —          |       | —      |       | 136,241 |   |
|                               |       |       |       |                 |       |                |       |            |       |        |       |   |   |
| Totals                             | ** ** | **2005**   | ** ** | **801,891**          | ** ** | **69,603**          | ** ** | **14,936**      | ** ** | **90,253**  | ** ** | **976,683** | ** ** |
|                               |       | 2004       |       | 627,480              |       | 62,899              |       | —          |       | 108,010     |       | 798,389 |   |

 

Executiveofficers are those officers involved in the strategic direction, generalmanagement or control of the business at a company or operating divisionlevel.  We do not have a bonus or profitsharing plan or other form of discretionary share option scheme and do notcurrently anticipate establishing such a plan.

 

**Options**

 

Weintroduced a new Staff Share Plan on November 30, 2001.  The Plan establishes the eligibility of ouremployees and those of any subsidiaries, and of consultants and independentcontractors to a participating company who are declared by the Board to beeligible, 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.

 

**Indemnificationand Insurance with Respect to Directors**

 

We areobligated pursuant to an indemnity agreement, to indemnify the currentDirectors and executive officers and former directors against all liabilitiesto third parties that may arise from their position as directors or officers ofthe Company and our controlled entities, except where to do so would beprohibited by law.  Under the terms ofthis agreement, we are obligated to meet the full amount of any suchliabilities, 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 respectof directors’ and officers’ liabilities for current and former directors,company secretary and executive officers or employees.

 

60

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| **Item 6.C** | ** ** | **Board  Practices** |
|--------------|------------|----------------------|

 

**TheBoard of Directors**

 

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

 

The role of the Board includes:

 

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

 

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

 

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

 

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

 

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

 

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

 

The Boardmeets to discuss business regularly throughout the year, with additionalmeetings being held when circumstances warrant. Included in the table below are details of the meetings of the Board andthe committees of the Board that were held during the 2005 financial year.

 
| ** **                  | ** ** | **Directors’ meetings** | ** ** | **Audit Committee** | ** ** | **Nomination and   Remuneration Committee** | ** ** |
|-----------------------------|------------|------------------------------|------------|---------------------|------------|---------------------------------------------|------------|
| **Name of Directors**       | ** ** | **Eligible**                 | ** ** | **Attended**        | ** ** | **Eligible**                                | ** ** | **Attended** | ** ** | **Eligible** | ** ** | **Attended** | ** ** |
|                        |       |                         |       |                |       |                                        |       |   |   |   |   |   |   |
| Dr. Mervyn Jacobson    |       | 5                            |       | 5                   |       | —                                      |       | — |   | 1 |   | 1 |   |
| Mr. Fred Bart          |       | 5                            |       | 4                   |       | 3                                           |       | 3 |   | — |   | — |   |
| Mr. Henry Bosch AO     |       | 1                            |       | 1                   |       | —                                      |       | — |   | — |   | — |   |
| Mr. John S. Dawkins AO |       | 4                            |       | 4                   |       | 1                                           |       | 1 |   | 1 |   | 1 |   |
| Mr. Robert J. Edge     |       | 5                            |       | 3                   |       | 4                                           |       | 4 |   | — |   | — |   |
| Prof. Deon J. Venter        |       | 5                            |       | 5                   |       | 4                                           |       | 2 |   | 1 |   | 1 |   |
| Mr. Ian A. Dennis      |       | 1                            |       | 1                   |       | —                                      |       | — |   | — |   | — |   |

 

----

**Notes:**

 

During2005, a total of 17 Circular Resolutions of the Directors were also passed.

 

During2005, one Circular Resolution was also passed by each Committee of the Board. 

 

Mr. Dawkinswas appointed as a Director of the Company on November 24, 2004.

 

Mr. Boschwas appointed as a Director of the Company on June 24, 2005.

 

Mr. Dennisresigned as a Director of the Company on November 24, 2004.

 

Inaccordance with the charter, the auditor attended two meetings of the AuditCommittee at the request of the Committee.

 

TheNomination and Remuneration Committee subsequently changed its name to theCorporate Governance Committee.

 

**AuditCommittee**

** **

The Boardhas established an Audit Committee, which operates under a charter approved bythe Board.  It is the Board’sresponsibility to ensure that an effective internal control framework existswithin the entity.  This includesinternal controls to deal with both the effectiveness and efficiency ofsignificant business processes, the safeguarding of assets, the maintenance ofproper accounting records, and the reliability of financial information as wellas non-financial considerations such as the benchmarking of operational keyperformance indicators.  The Board hasdelegated the responsibility for the establishment and maintenance of aframework of internal control and ethical standards for the management of theconsolidated entity to the Audit Committee.

 

61

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The AuditCommittee also provides the Board with additional assurance regarding thereliability of financial information for inclusion in the financial reports.

 

The membersof the Audit Committee as of the date of this Annual Report were:

 
| **Name**                             |
|--------------------------------------|
| ** **                           |
| Mr. Robert J. Edge *(Chairman)* |
|                                 |
| Mr. Henry Bosch AO              |
|                                 |
| Mr. John S. Dawkins AO          |

 

The U.S.Public Company Accounting Reform and Investor Protection Act of 2002, alsoknown as Sarbanes-Oxley Act of 2002, was enacted on July 30, 2002 andcontains significant new rules on corporate governance for US and foreigncompanies reporting in the United States, especially in the area of auditcommittee composition and authority.  Weare closely monitoring SEC rulemaking pursuant to the Sarbanes-Oxley Act toensure our compliance with any rules as they become applicable to us as aforeign private issuer.

 

**CorporateGovernance Committee**

 

The Board established a Nomination and RemunerationCommittee in March 2005.  Laterduring 2005, the Board resolved to change the name of the committee to theCorporate Governance Committee and to expand its charter to include matters ofcorporate governance.  The Committeeprovides the Board with guidance on all matters relating to corporategovernance and the nomination and remuneration of Directors and employees.  

 

The members of the Corporate Governance Committee asof the date of this Annual Report were:

 
| **Name**                                |
|-----------------------------------------|
| ** **                              |
| Mr. John S. Dawkins AO*(Chairman)* |
|                                    |
| Dr. Mervyn Jacobson                |
|                                    |
| Mr. Henry Bosch AO                 |
|                                    |
| Mr. Robert J. Edge                 |

 

**Compliance with NASDAQRules**

 

NASDAQ listing rules requirethat we disclose the home country practices that we will follow in lieu ofcompliance with NASDAQ corporate governance rules.  The following describes the home countrypractices and the related NASDAQ rule:

 

Majority of IndependentDirectors:  We follow home country practice rather thanNASDAQ’s requirement in Marketplace Rule 4350(c)(1) that the majorityof the Board of each issuer be comprised of independent directors as defined inMarketplace Rule 4200.  Our Board ofDirectors is not currently comprised of a majority of independent directors, apractice which is not prohibited by the laws of Australia.  The ASX does not have a requirement that eachissuer’s Board be comprised of a majority of independent directors.  Furthermore, no law, rule or regulationof the Australian Securities and Investments Commission (“ASIC”), the publicauthority which exercises securities law jurisdiction over the Company, hassuch a requirement nor does the Corporations Act (the “Act”), which is theapplicable corporate law legislation.  

 

Compensation of Officers:  Wefollow home country practice rather than NASDAQ’s requirement in Marketplace Rule 4350(c)(3) thatchief executive compensation be determined or recommended to the Board by themajority of independent directors or a compensation committee of independentdirectors.  Similarly, compensation ofother officers is not determined or recommended to the Board by a majority ofthe independent directors or a compensation committee comprised solely ofindependent directors.  These decisionsare made by our corporate governance committee and it is not comprised of amajority of independent directors.  TheASX does not have a requirement that each listed issuer have a remunerationcommittee or otherwise follow the procedures embodied in NASDAQ’s MarketplaceRule.  Furthermore, no law, rule orregulation of the ASIC has such a requirement nor does the applicable corporatelaw legislation.  Such home countrypractices are not prohibited by the laws of Australia.

 

62

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Nomination:  We follow home country practice rather thanNASDAQ’s requirement in Marketplace Rule 4350(c)(4) that directornominees be selected or recommended by a majority of the independent directorsor by a nominations committee comprised of independent directors.  These decisions are made by the nominationand remuneration committee and it is not comprised of a majority of independentdirectors.  The ASX does not have arequirement that each listed issuer have a nominations committee or otherwisefollow the procedures embodied in NASDAQ’s Marketplace Rule.  Furthermore, no law, rule or regulationof the ASIC has such a requirement nor does the applicable corporate lawlegislation.  Accordingly, selections orrecommendations of director nominees by a committee that is not comprised of amajority of directors that are not independent is not prohibited by the laws ofAustralia.

 

Quorum:  We follow home country practice rather thanNASDAQ’s requirement in Marketplace Rule 4350(f) that each issuerprovide for a quorum of at least 331/3 percent of the outstanding shares of theissuer’s common 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.

 

Pursuant to theSarbanes-Oxley Act of 2002, the Securities and Exchange Commission issued new rules that,among other things, require NASDAQ to impose independence requirements on eachmember of the audit committee of a listed company and the NASDAQ alsoreformulated its corporate governance requirements.  The recently-adopted SEC and NASDAQ rules willapply to the Company as of July 31, 2005. The Company has taken the appropriate steps with respect to itscorporate governance system, including the addition of independent directors toits audit committee, to assure timely compliance with the SEC rules andthe amended corporate governance standards of NASDAQ.

 
| **Item 6.D** | ** ** | **Employees** |
|--------------|------------|---------------|

 

There arecurrently 45 full time employees including executive directors.  The number of employees as at the end of eachrespective financial year ended June 30 are as follows:

 
| 2005 |   | 49 |
|------|--------|----|
| 2004 |   | 37 |

 
| **Item 6.E** | ** ** | **Share  Ownership** |
|--------------|------------|----------------------|

 

Therelevant interest of each director in the share capital of the Company asnotified by the directors to the Australian Stock Exchange in accordance withS205G(1) of the Corporations Act 2001 as of the date of this Annual Reportis as follows:

 
| **Director**                          | ** ** | **Ordinary shares** | ** ** | **Options over ordinary shares** | ** ** |
|---------------------------------------|------------|---------------------|------------|----------------------------------|------------|
| Dr. Mervyn Jacobson (refer note) |       | 150,200,900         |       | 2,000,000                        | (a)        |
| Mr. Fred Bart (refer note)       |       | 25,918,214          |       | 500,000                          | (a)        |
| Mr. Henry Bosch AO               |       | 185,000             |       | 500,000                          | (b)        |
| Mr. John S. Dawkins AO           |       | —              |       | 500,000                          | (b)        |
| Mr. Robert J. Edge               |       | —              |       | 500,000                          | (c)        |
| Prof. Deon J. Venter                  |       | 25,000              |       | 1,000,000                        | (d)        |

 

----

**Notes:**

 

Dr. Jacobsonalso holds 130,000 options over ordinary shares in Gtech InternationalResources Limited, a subsidiary of the Company. Mr. Bart also controls 88,500 common shares in Gtech InternationalResources Limited.

 

Detailsof the options held by directors are as follows:

 

(a)          exercisable at A$0.61 on or before November 30, 2007

 

(b)         exercisable at A$0.56 on or before November 23, 2011

 

(c)          exercisable at A$0.48 on or before April 19, 2010

 

(d)         exercisable at A$0.48 on or before May 20, 2009

 

63

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| **Item 7.** | ** ** | **Major  Shareholders and Related Party Transactions** |
|-------------|------------|--------------------------------------------------------|

 
| **Item 7.A** | ** ** | **Major  Shareholders** |
|--------------|------------|-------------------------|

 

Thefollowing table sets forth the beneficial owners of 5% or more of our votingsecurities as of the date of this Annual Report:

 
| **Name**                  | ** ** | **Number of Ordinary Shares held** | ** ** | **Percentage of Capital held** | ** ** |
|---------------------------|------------|------------------------------------|------------|--------------------------------|------------|
| Dr. Mervyn  Jacobson |       | 150,200,900                        | (a)        | 41.5                           | %          |
|                      |       |                               |       |                           |       |
| Mr. Fred  Bart       |       | 25,918,214                         | (b)        | 7.2                            | %          |

 

----

(a)                   includes shares held by MervynJacobson ApS and JGT ApS, some of which are registered in the name of ANZNominees Limited.

 

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

 

The numberof Ordinary Shares on issue in Genetic Technologies as of the date of thisAnnual Report was 362,389,899.  Thenumber of holders of Ordinary Shares in Genetic Technologies as of the date ofthis Annual Report was approximately 4,075. 

 

The Companyis not aware of any direct or indirect ownership or control of it by anothercorporation(s), by any foreign government or by any other natural or legalperson(s) severally or jointly. Principal shareholders do not enjoy any special or different votingrights from those to which other holders of Ordinary Shares are entitled.

 

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

 
| **Item 7.B** | ** ** | **Related  Party Transactions** |
|--------------|------------|---------------------------------|

 
| ** **                                                                                                                                                                                                                                                                                    | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                                                                                                                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 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     |       | 31,574     |       |
|                                                                                                                                                                                                                                                                                          |       |       |       |       |       |       |       |
| Bankberg Pty. Ltd. is associated with  Dr. Mervyn Jacobson (Director in common) and provided the office and  laboratory premises to a wholly-owned subsidiary at Hanover Street, Fitzroy.  During the respective periods, the subsidiary paid Bankberg Pty. Ltd. rent  and outgoings of: |       | 318,044    |       | 266,650    |       | 213,159    |       |
|                                                                                                                                                                                                                                                                                          |       |       |       |       |       |       |       |
| GrapeSeed International is associated with  Mr. Russell Granzow (a former Director in common) and provided  management services to the Company for the period April 17, 2003 to  January 31, 2004 and received:                                                                |       | —     |       | 82,589     |       | 34,358     |       |

 

As stated in the 2005 Financial Statements, theCompany owns a total of 30,189 common shares in XY, Inc. (adirector-related entity) representing approximately 0.42% of the issued commonshares of XY, Inc.  As of June 30,2005, these shares were valued at $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 its director-related entities during the2005 year totaled $46,053 (2004: $56,271, 2003: $30,995, 2002: $3,173; and2001: $nil).

 

All transactions with directors are on normalcommercial terms and conditions.

 

All these transactions are eliminated on consolidationand have no effect on the group result. 

 

64

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

 

Not applicable.

 
| **Item 8.** | ** ** | **Financial  Information** |
|-------------|------------|----------------------------|

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

 

Theinformation included in Item 18 of this Annual Report is referred to andincorporated by reference into this Item 8.A.

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

 

OnApril 1, 2003, we reported to the market that we had initiated legalaction against three U.S. biotechnology companies for patent infringement underthe terms of a patent insurance policy held by us.  Two of these actions were settled in November 2003.  The third case, against Applera Corporationof Foster City, California, the parent company of Applied Biosystems, CeleraDiagnostics and Celera Corporation, continued to run until December 2005.  This proceeding was heard in the U.S.District Court for the Northern District of California.  A significant proportion of the costsassociated with this litigation were met by our patent insurance.  In the Markman hearing (a claims constructionhearing) held on September 1, 2004, in which the judge rules on theprecise meaning of terms in the patent claims, the District Court ruled infavor of us in respect of 13 out of 15 disputed terms and, in respect of theremaining terms, the Court adopted positions of its own constructions whichwere not inconsistent with our proposals. The Company subsequently attended several mediation conferences in SanFrancisco, California in respect of its action against Applera, under thesupervision of Judge Spero.  Following amediation conference held on August 16, 2005, the Parties announced thatthey had reached a settlement in principle and that a Confidential Term Sheethad been executed by the Parties and submitted to the Court.  On December 12, 2005, we announced thatwe had reached a final settlement of our patent dispute with Applera, furtherto a settlement conference held in San Francisco.  The parties have executed a number of bindingagreements, including a final Settlement Agreement plus license agreements anda supply agreement, and subsequently they have jointly applied to NorthernCalifornia District Court requesting that all claims and counterclaims in thelegal action be dismissed forthwith.  Thetotal value of the consideration receivable by us is approximately A$15million, payable partly in cash and partly in kind - including agreementssupplying the Company with certain Applera equipment, reagents and intellectualproperty rights.  

 

On August 13, 2004, Auckland DistrictHealth Board (“ADHB”) lodged a Statement of Claim in the High Court of NewZealand alleging that the Company made “groundless threats of patentinfringement” against ADHB.  On October 22,2004, the Company filed a Statement of Defense. A further amended Statement of Defense was filed by the Company on October 29,2004, together with a Memorandum of Counsel. A Judicial Conference was attended by the attorneys for the parties inAuckland on February 23, 2005 in the presence of an Associate Judge of theHigh Court of New Zealand Auckland Registry, and a further timetable wasset.  On June 15, 16and 17, 2005, the parties met in Auckland, New Zealand to pursue mediationdiscussions 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 licences to our non-codingpatents to four commercial NZ entities - AgResearch, HortResearch, ForestResearch and Livestock Improvement Corporation, who together paid NZ$450,000 toGTG.

 

With theexception of these proceedings, we are unaware of any proceedings involving us.

 
| **Item 8.C** | ** ** | **Dividends** |
|--------------|------------|---------------|

 

Until ourbusinesses are profitable beyond our expected research and development needs,our directors will not be able to recommend that any dividend be paid to ourshareholders.  Our directors will notresolve a formal dividend policy until we generate profits.  Our current intention is to reinvest ourincome in the continued development and operation of our business.

 

65

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| **Item 8.D** | ** ** | **Significant  Changes** |
|--------------|------------|--------------------------|

 

Since June 30,2005, there has not been any matter or circumstance, other than as referred toelsewhere in this Annual Report, the Financial Statements or the notes thereto,that has arisen that has significantly affected, or may significantly affectour operations, results of those operations or the state of our affairs infuture years.

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

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

 

The Company’sOrdinary Shares were listed on the Australian Stock Exchange Ltd. (the “ASX”)in July 1987 (under the name of Concord Mining NL).  The following table sets forth, for theperiods indicated, the highest and lowest market quotations for the OrdinaryShares reported on the Daily Official List of the ASX.

 
| **Financial Year** | ** ** | **Quarter/ Month**   | ** ** | **High**        | ** ** | **Low** | ** ** |
|--------------------|------------|----------------------|------------|-----------------|------------|---------|------------|
| ** **         | ** ** | ** **           | ** ** | **(in A$0.00)** | ** ** |
| 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 2004  |       | 0.61            |       | 0.38    |       |
|               |       | Fourth  Quarter 2004 |       | 0.445           |       | 0.32    |       |
|               |       |                 |       |            |       |    |       |
| 2006               |       | July 2005       |       | 0.47            |       | 0.335   |       |
|               |       | August 2005     |       | 0.46            |       | 0.335   |       |
|               |       | September 2005  |       | 0.49            |       | 0.395   |       |
|               |       | October 2005    |       | 0.55            |       | 0.395   |       |
|               |       | November 2005   |       | 0.595           |       | 0.49    |       |

 

The Company’ssecurities are also listed on NASDAQ National Market (under the ticker symbolGENE) in the form of American Depositary Shares.  Each American Depositary Share evidencesthirty Ordinary Shares.  Since listing onthe NASDAQ National Market on September 2, 2005, the ADRs have traded in arange from a low of $8.00 to a high of $13.85. The most recent sale of the ADRs occurred at a price of $10.00.

 

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

 

66

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Followingthe recent listing of the ADRs, our Ordinary Shares are registered under Section 12of the Securities Exchange Act of 1934 and we file an annual report with theSecurities and Exchange Commission on Form 20-F.  As a foreign private issuer, we are not besubject to the proxy rules under Section 14 of the Securities ExchangeAct of 1934, and our officers, directors and principal stockholders are not besubject to the insider short-swing profit disclosure and recovery provisions ofSection 16 of such Act.

 

The Companyhas registered one class of American Depositary Shares (ADSs) on Form F-6pursuant to the U.S. Securities Act of 1933, as amended.  One American Depositary Share (“ADS”)represents thirty Ordinary Shares without par value (the “ADSs”).  As of June 30, 2005 there were 4,400ADSs outstanding.

 

Starting inJanuary 14, 2002, the ADSs have traded in the U.S. over-the-counter marketunder the symbol “GNTLY” and dealers’ prices for the ADSs have been quoted inthe “pink sheets” published by the National Quotations Bureau, Inc.  Commencing on September 2, 2005, ourADSs were listed on the NASDAQ National Market under the symbol “GENE”.  As of June 30, 2005 there were tworegistered holders of the ADSs.  As ofthat date, there were two U.S. beneficial owners of the ADSs (based on theiraddresses only), representing less than 0.05% of the Shares.

 

The tablebelow sets forth the high and low sales prices for the ADSs trading on the U.S.over-the-counter market during the periods indicated:                                                 

 
| ** ** | ** ** | **High  US$** | ** ** | **Low  US$** | ** ** |
|------------|------------|---------------|------------|--------------|------------|
| 1Q2002     |       | —        |       | —       |       |
| 2Q2002     |       | —        |       | —       |       |
| 3Q2002     |       | —        |       | —       |       |
| 4Q2002     |       | 5.16          |       | 5.16         |       |
| 1Q2003     |       | 4.26          |       | 4.26         |       |
| 2Q2003     |       | —        |       | —       |       |
| 3Q2003     |       | —        |       | —       |       |
| 4Q2003     |       | —        |       | —       |       |
| 1Q2004     |       | —        |       | —       |       |
| 2Q2004     |       | —        |       | —       |       |
| 3Q2004     |       | —        |       | —       |       |
| 4Q2004     |       | —        |       | —       |       |
| 1Q2005     |       | —        |       | —       |       |
| 2Q2005     |       | —        |       | —       |       |
| 3Q2005     |       | 13.15         |       | 9.00         |       |
| 4Q2005     |       | 13.85         |       | 8.00         |       |

 

Asof June 30, 2005 there was a total of 4,027 record holders of our OrdinaryShares, of which 12,848,469 shares (representing 3.5% of the total OrdinaryShares issued and outstanding) were held of record by 42 U.S. residents (basedsolely on their address).

 
| **Item 9.B** | ** ** | **Plan  of Distribution** |
|--------------|------------|---------------------------|

** **

Not applicable.

 
| **Item 9.C** | ** ** | **Markets** |
|--------------|------------|-------------|

 

Effective September 2,2005, our ADSs were listed on the NASDAQ National Market under the symbol “GENE”.  Our Ordinary Shares are listed and trade onthe ASX under the symbol “GTG.”  OurOrdinary Shares were added to the S&P ASX 300 index starting September 22,2003.

 
| **Item 9.D** | ** ** | **Selling  Shareholders** |
|--------------|------------|---------------------------|

 

Not applicable.

 

67

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| **Item 9.E** | ** ** | **Dilution** |
|--------------|------------|--------------|

** **

Not applicable.

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

 

Not applicable.

 
| **Item 10.** | ** ** | **Additional  Information** |
|--------------|------------|-----------------------------|

 
| **Item 10.A** | ** ** | **Share  Capital** |
|---------------|------------|--------------------|

** **

We had atotal of 362,369,899 Ordinary Shares authorized and issued as of June 30,2005, all of which were listed and freely tradable.  As of the date of this Annual Report we had atotal of 362,389,899 Ordinary Shares authorized and issued, all of which arelisted and freely tradable, with the exception of 13,333,333 Ordinary Shareswhich are subject to voluntary escrow arrangements.

 

Based on our review of shareholder records (basedsolely on the addresses) there are as of June 30, 2005, 42 U.S. residentshareholders of our Ordinary Shares holding 12,848,469 shares representing 3.5%of the total issued and outstanding Ordinary Shares.  Our Ordinary Shares do not have a par value.

 

During the last four years, our capital has increased,in connection with acquisition transactions and the exercise of options.  In 2001, we issued 9,754,080 Ordinary Sharesto owners of shares of Cytomation Inc. resulting in 257,793,804 Ordinary Shareson issue as of June 30, 2001.  On July 30,2001 we acquired the business of DNA-Id Labs of Perth, Western Australia, bypayment of consideration that included 94,340 Ordinary Shares; furtherconsideration was paid on August 1, 2002, following fulfillment ofperformance warranties.  On September 4,2000, our shares were transferred from the mining board of the ASX to theindustrial board under the new symbol of “GTG”. Between July 1, 2001 and June 30, 2003, we issued a total of4,440,621 Ordinary Shares resulting from the exercise of vendor options,exercise of options granted under the Staff Share Plan, a small placement forcash of 1,000,000 shares, two exchanges of GTG 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 A$0.75 each, raising A$10,000,000.  As part of the placement, we also issued6,666,667 options to the subscribers to the placement with an exercise price ofA$1.00 on or before September 30, 2005. On June 15, 2004 we issued 16,666,667 Ordinary Shares to the C.Y. O’ConnorERADE Village Foundation, as consideration under our licensing agreement withthat Foundation (see point 17).  Duringthe year ended June 30, 2005, we issued a further 65,561,338 OrdinaryShares resulting from the exercise of vendor options and a small number ofoptions granted under the Staff Share Plan, all of which resulted in362,369,899 Ordinary Shares being outstanding as of June 30, 2005.

 

As at June 30, 2005 and 2004, we had thefollowing outstanding unlisted options that were convertible into Ordinary Shares.  The exercise prices are quoted in Australiandollars.

 
| **Description of options**               | ** ** | **2005**   | ** ** | **Weighted ave. exercise   price** | ** ** | **2004** | ** ** | **Weighted ave. exercise price** | ** ** |
|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|----------|------------|----------------------------------|------------|
| Expiring 6 September 2010           |       | 750,000    |       | $                                       | 0.48       |     | —     |                             | —     |   |
| Expiring 19 April 2010              |       | 500,000    |       | $                                       | 0.48       |     | —     |                             | —     |   |
| Expiring 30 November 2007           |       | 1,750,000  |       | $                                       | 0.56       |     | 2,075,000  |                             | $          | 0.56 |   |
| Expiring 30 November 2007           |       | 4,250,000  |       | $                                       | 0.61       |     | 4,250,000  |                             | $          | 0.61 |   |
| Expiring 30 November 2007           |       | 902,500    |       | $                                       | 0.49       |     | 1,157,500  |                             | $          | 0.49 |   |
| Expiring 20 May 2009                |       | 1,000,000  |       | $                                       | 0.48       |     | 1,000,000  |                             | $          | 0.48 |   |
| Expiring 20 May 2009                |       | 1,600,000  |       | $                                       | 0.44       |     | 1,600,000  |                             | $          | 0.44 |   |
| Expiring 20 May 2009                |       | 175,000    |       | $                                       | 0.38       |     | 175,000    |                             | $          | 0.38 |   |
| Expiring 15 December 2009           |       | —     |       | —                                  |       | 750,000  |       | $                                | 0.59       |   |
| Expiring 27 February 2010           |       | 580,000    |       | $                                       | 0.56       |     | —     |                             | —     |   |
| Expiring 27 February 2010           |       | 500,000    |       | $                                       | 0.49       |     | —     |                             | —     |   |
|                                     |       |       |       |                                    |       |     |       |                             |       |   |
| Balance at the end of the financial year |       | 12,007,500 |       | $                                       | 0.54       |     | 11,007,500 |                             | $          | 0.55 |   |

 

68

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11,407,500 of the options as of June 30, 2005have been granted as executive compensation. See Item 6B “Compensation” for a description of the terms of optionsgranted as executive compensation.  Seealso Note 13 to the Financial Statements for a description of other optionsgranted by us.

 
| **Item 10.B** | ** ** | **Our  Constitution** |
|---------------|------------|-----------------------|

** **

At the Annual General Meeting of the Company held onNovember 23, 2005, the shareholders resolved to replace the existingConstitution with a revised version.  Acopy of the new Constitution has been posted on the Company’s website:www.gtg.com.au and is filed as Exhibit 1.1 to this Annual Report.

 

The principal changes which have been implemented inthe new Constitution may be summarized as follows:

 

•                           General changes – general changes are proposed to make the Constitutionconsistent with best practice, update legal matters under the existingConstitution consistent with legislative and regulatory developments and toaddress certain content and language aspects.

 

•                           ASX Listing Rules – it provides that the ListingRules prevail in the event 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 clausein it 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 Corporations Act requirements.  The proposed Constitution does not includethis clause on the basis that it offers no real benefit.

 

•                           Unmarketable parcels – the proposed Constitution permits the Company tosell holdings of less than a marketable parcel in accordance with theprocedural and timing requirements of the Listing Rules.  This only applies if a shareholder has anopportunity to opt out of any proposed sale arrangement and does not do so.

 

•                           Notice of shareholders’ meetings – the proposed Constitution enablesnotice of shareholders’ meetings to be given by electronic means.

 

•                           Changes to general meetings – the proposed 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 being personallypresent, 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 Directorsfrom time to time which until otherwise determined by the Directors is ten.

 

•                           Share qualification – a Director need not hold any shares in theCompany in order to be a Director.

 

•                           Alternate directors – there are no provisions entitling the Directorsto appoint alternate directors, on the basis that this is an outdated andundesirable approach.

 

•                           Directors’ tenure of office – a Director must retire from office orseek re-election by no later than the third annual general meeting followinghis or her appointment or re-election or three years, whichever is longer(other than the Managing Director).

 

•                           Vacation of office – the office of a Director is automatically vacatedif the Director is an Executive Director under an employment or servicesagreement and that agreement terminates, unless the Board otherwise determines.

 

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

 

69

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

 

•                           Quorum for Directors’ meetings – the quorum for Directors’ meetings isthree, unless the Directors otherwise determine.

 

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

 

•                           Indemnity – it contains an updated indemnity clause in favour of thecurrent and former Directors, Secretaries indemnifying them from liabilityconsistent with the Corporations Act provisions and to the maximum extent permittedby 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 andother records of the Company for the purposes of legal proceedings involvingthe person.

 
| **Item 10.C** | ** ** | **Material  Contracts** |
|---------------|------------|-------------------------|

 

There were no material contracts entered into duringthe two years immediately preceding the date of this Annual Report outside ofthe ordinary course of our business. 

 

See also Item 4B “Our Licenses and CommercialCollaborations”.

 
| **Item 10.D** | ** ** | **Exchange  Controls and Other Limitations Affecting Security Holders** |
|---------------|------------|-------------------------------------------------------------------------|

** **

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

 

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

 

**TakeoversAct**

** **

There are no limitations, either under the laws ofAustralia or under the Constitution of Genetic Technologies, to the right ofnon-residents to hold or vote Genetic Technologies Ordinary Shares other thanthe Commonwealth Foreign Acquisitions and Takeovers Act 1975 (the “TakeoversAct”).  The Takeovers Act may affect theright of non-Australian residents, including US residents, to hold OrdinaryShares but does not affect the right to vote, or any other rights associatedwith, any Ordinary Shares held in compliance with its provisions.  Acquisitions of shares in Australiancompanies by foreign interests are subject to review and approval by theTreasurer of the Commonwealth of Australia under the Takeovers Act.  The Takeovers Act applies to any acquisitionof outstanding shares of an Australian company that exceeds, or results in aforeign person or persons controlling the voting power of more than a certainpercentage of those shares.  Thethresholds are 15% where the shares are acquired by a foreign person, or groupof associated foreign persons, or 40% in aggregate in the case of foreignpersons who are not associated.  Anyproposed acquisition that would result in an individual foreign person (withassociates) holding more than 15% must be notified to the Treasurer in advanceof the acquisition.  As of the date ofthis Annual Report, approximately 14% of the fully paid outstanding OrdinaryShares in the Company were held by shareholders whose registered addresses werelocated outside Australia.  In additionto the Takeovers Act, there are statutory limitations in Australia on foreignownership of certain businesses, such as banks and airlines, not relevant toGenetic Technologies.  However, there areno other statutory or regulatory provisions of Australian law or AustralianStock Exchange requirements that restrict foreign ownership or control ofGenetic Technologies.

 

70

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**Corporations Act 2001**

** **

As applied to Genetic Technologies, the CorporationsAct 2001 (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 mustbe strictly complied with to be applicable.

 

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

 

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

 

A person’s voting power in Genetic Technologies isthat percentage of the total votes attached to Ordinary Shares in which thatperson and its associates (as defined in the Corporations Act 2001) holds arelevant interest.

 
| **Item 10.E** | ** ** | **Taxation** |
|---------------|------------|--------------|

 

This summary of material tax consequences is based on the tax laws of the United States (including theInternal Revenue Code of 1986, as amended, its legislative history, existingand proposed regulations thereunder, published rulings and court decisions) and on theAustralian tax law and practice asin effect on the date hereof.  Inaddition, this summary is based on the income tax conventionbetween 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 inpart upon the representations of our ADR Depositary and the assumption thateach obligation in the Deposit Agreement and any related agreement will beperformed in accordance with its terms.

 

The discussion does not address any aspectsof U.S. taxation other than federal income taxation or any aspects ofAustralian taxation other than federal income taxation, stamp duty and goodsand services tax.  This discussion doesnot address all aspects of U.S. or Australian federal tax considerations thatmay be important to particular investors in light of their individualinvestment circumstances or investors subject to special tax regimes, like broker-dealers,insurance companies or financial institutions, tax-exempt organizations,regulated investment companies, real estate investment trusts or financialasset securitization investment trusts, persons who actually or constructivelyown ten percent or more of our ADRs or Ordinary Shares, persons who hold ADRsor Ordinary Shares as part of a straddle, “hedge” or “conversion transaction”with other investments, persons who have elected mark-to-market accounting, orpersons who acquired their ADRs or Ordinary Shares through the exercise ofoptions or similar derivative securities or otherwise as compensation.  Prospectiveinvestors are urged to consult their tax advisers regarding the U.S. andAustralian federal, state and local tax consequences and any other taxconsequences of owning and disposing of ADRs and shares.

 

**AustralianTax Consequences**

** **

In this section we discuss Australian taxconsiderations that apply to non-Australian tax residents who are residents ofthe United States with respect to the ownership and disposal by the absolutebeneficial owners of ADRs.  This summarydoes not discuss any foreign or state tax considerations, other than stampduty.

 

71

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**Natureof ADRs for Australian Taxation Purposes**

** **

ADRs held by a U.S. holder will be treated for Australiantaxation purposes as 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 paid on the underlying Ordinary Shareswill also be treated as dividends paid to the ADR holder, as the personbeneficially entitled to those dividends. Therefore, in the following analysis we discuss the tax consequences tonon-Australian resident holders of Ordinary Shares which, for Australiantaxation purposes, will be the same as to U.S. holders of ADRs.

 

**Taxationof 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%.

 

**Taxon Sales or other Dispositions of Shares - Capital Gains Tax**

** **

Non-Australian resident stockholders will notbe subject to Australian capital gains tax on the gain made on a sale or otherdisposal of our shares, unless they, together with their associates, hold 10% or more of our issued capital at anytime during the five years before the disposal of the shares.  If a non-Australian resident stockholder did, together with his or her associates, own a 10% or more interest,that stockholder would be subject to Australian capital gains tax to the sameextent as Australian resident stockholders. The Australian Taxation Office maintains the view that the DoubleTaxation Convention between the United States and Australia does not limitAustralian capital gains tax. Australian capital gains tax applies to netcapital gains charged at ataxpayer’s marginal tax rate but,for certain stockholders, adiscount of the capital gain may apply if the shares have been held for 12months or more.  For individuals, thisdiscount is 50%.  For superannuation funds, the discount is 33%.  There is no discount for a company thatderives a capital gain.  Netcapital gains are calculated after reduction for capital losses, which may onlybe offset against capital gains.

 

**Taxon Sales or other Dispositions of Shares - Stockholders Holding Shares onRevenue Account**

** **

Some non-Australian resident stockholders may holdshares on revenue rather than on capital account, for example, sharetraders.  These stockholders may have thegains made on the sale or other disposal of the shares included in theirassessable income under the ordinary income provisions of the income tax law,if the gains are sourced in Australia. Non-Australian resident stockholders assessable under these ordinaryincome provisions in respect of gains made on shares held on revenue accountwould be assessed for those gains at the Australian tax rates fornon-Australian residents, which start at a marginal rate of 29%.  Some relief from the Australian income taxmay be available to non-Australian resident stockholders under the DoubleTaxation Convention between the United States and Australia, for example,because the stockholder does not have a permanent establishment in Australia.

 

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

 

**Dual Residency**

 

If a stockholder were a resident of bothAustralia and the United States under those countries’ domestic taxation laws,that stockholder may be subject to tax as an Australian resident.  If, however, the stockholder is determined tobe a U.S. resident for the purposes of the Double Taxation Convention betweenthe United States and Australia, the Australian tax would be subject tolimitation by the Double Taxation Convention. Stockholders should obtainspecialist taxation advice in these circumstances.

 

72

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**Stamp Duty**

** **

Any transfer of shares through trading on theAustralian Stock Exchange, whether by Australian residents or foreignresidents, is not subject to stamp duty within Australia.

 

**AustralianDeath Duty**

** **

Australia does not have estate or death duties. Nocapital gains tax liability is realized upon the inheritance of a deceasedperson’s shares.  The disposal ofinherited shares by beneficiaries, may, however, give rise to a capital gainstax liability.

 

**Goodsand Services Tax**

** **

The issue or transfer of shares will not incurAustralian goods and services tax and does not require a stockholder toregister for Australian goods and services tax purposes.

 

**UnitedStates Federal Income Taxation**

 

As used below,a “U.S. holder” is a beneficial owner of an ADR or Ordinary Share that is, forU.S. federal income tax purposes, (i) a citizen or resident alien individual ofthe United States, (ii) a corporation (or an entity treated as a corporation)organized under the law of the United States, any State thereof or the Districtof Columbia, (iii) an estate the income of which is subject to U.S. federalincome tax without regard to its source or (iv) a trust if (1) a court withinthe 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 or Ordinary Share that is (i) a nonresident alien individual, (ii) a corporation(or an entity treated as a corporation) created or organized in or under thelaw of a country other than the United States or a political subdivisionthereof 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 thepartnership generally will depend on the status of the partner and theactivities of the partnership.  A holderof an ADR that is a partnership and partners in that partnership should consulttheir own tax advisers regarding the U.S. federal income tax consequences ofholding and disposing of ADRs.

 

**Natureof 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 OrdinaryShares.  Accordingly, except asspecifically noted below, the tax consequences discussed below with respect toADRs will be the same as for Ordinary Shares in the Company, and exchanges ofOrdinary Shares for ADRs, and ADRs for Ordinary Shares, generally will not besubject to U.S. federal income tax.

 

**Taxationof Dividends**

 

**U.S.holders.**  In general, subject to the passive foreigninvestment company rules discussed below, a distribution on an ADR willconstitute a dividend for U.S. federal income tax purposes to the extent 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.

 

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The gross amount of any dividend on an ADR (which willinclude the amount of any Australian taxes withheld) will be subject 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.  AnyAustralian withholding tax will be treated as a foreign income tax eligible forcredit against a U.S. Holder’s U.S. federal income tax liability, subject togenerally applicable limitations under U.S. federal income tax law.  For purposes of computing those limitationsseparately under current law for specific categories of income, a dividendgenerally will constitute foreign source “passive income” or, in the case ofcertain holders, “financial services income” for purposes of the currentforeign tax credit limitation rules.  Fortaxable years beginning after December 31, 2006, “financial servicesincome” generally will be treated as “general category income,” and “passiveincome” 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 under an obligation to make related payments withrespect to substantially similar or related property.  Any days during which a U.S. holder hassubstantially diminished its risk of loss on the ADRs are not counted towardmeeting the 16-day holding period required by the statute.  The rules relating to the determinationof the foreign tax credit are complex, and you should consult your own taxadviser to determine whether and to what extent you would be entitled to thiscredit.  Alternatively, any Australianwithholding tax may be taken as a deduction against taxable income if the U.S.Holder elects to deduct rather than credit all of his foreign incometaxes.  A dividend will not beeligible for the corporate dividends received deduction.

 

Subject to certain exceptions for short-termand hedged positions, a dividend an individual receives on an ADR before January 1,2009 will be subject to a maximum tax rate of 15% if the dividend is a “qualifieddividend”.  A dividend on an ADR will bea qualified dividend if (i) we are eligible for the benefits of acomprehensive income tax treaty with the United States that the Secretary ofthe Treasury determines is satisfactory for purposes of these rules andthat includes an exchange of information program, and (ii) the Company wasnot, in the year prior to the year the dividend was paid, and is not, in theyear the dividend is paid, a passive foreign investment company (“PFIC”),foreign personal holding 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 taxableyear.  Effective for taxable years offoreign corporations beginning after December 31, 2004, the rules relatingto FPHCs and FICs have been repealed. Based on our audited financial statements and our current expectationsregarding the value and nature of our assets, the sources and nature of ourincome, and relevant market and shareholder data, we do not anticipate becominga PFIC, FPHC or FIC for our 2006 taxable year. However, because the determination of whether we are a PFIC is basedupon the composition of our income and assets from time to time, it is possiblethat we may become a PFIC for any future taxable year.  Moreover, as described in the section belowentitled “Passive Foreign Investment Company Rules,” if the Company were a PFICin a year while a U.S. Holder held an ADR or Ordinary Share, and if the U.S.Holder has not made a qualified electing fund election effective for the firstyear the U.S. Holder held the ADR or Ordinary Share, the ADR or Ordinary Shareremains 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 the Company does not satisfy the tests to be a PFIC in either ofthose years.  The U.S. Treasury hasannounced its intention to promulgate rules pursuant to which holders of stockof non-U.S. corporations, and intermediaries though whom the stock is held,will be permitted to rely on certifications from issuers to establish thatdividends are 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 Ordinary Shares shouldconsult their own tax advisers regarding the availability of the reduced dividendtax rate in the light of their own particular circumstances.

 

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

 

**Taxation of 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 determinedin U.S. dollars.  Any gain a U.S. holderrecognizes generally will be U.S. source income for U.S. foreign tax creditpurposes and, subject to certain exceptions, any loss generally will be a U.S.source loss.  If an Australian tax ispaid on a sale or other disposition of an ADR, the generally applicablelimitations under U.S. federal income tax law on crediting foreign income taxesmay preclude a U.S. holder from obtaining a foreign tax credit for theAustralian tax.

 

74

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In general, any adjusted net capital gain of anindividual in a taxable year ending before January 1, 2009 is subject to amaximum tax rate of 15%.  In later years,the maximum 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 income tax on gain recognized on a sale or other disposition of an ADRunless (i) the gain is effectively connected with the conduct of trade orbusiness by the non-U.S. holder within the United States (and is attributableto a permanent establishment or fixed base the non-U.S. holder maintains in theUnited States if an applicable income tax treaty so requires as a condition forthe non-U.S. holder to be subject to U.S. taxation on a net income basis onincome from the ADR), or (ii) in the case of a non-U.S. holder who is anindividual, the holder is present in the United States for 183 or more days inthe taxable year of the sale or other disposition and certain other conditionsapply.  Any effectively connected gain ofa corporate non-U.S. holder may also be subject under certain circumstances toan additional “branch profits tax,” the rate of which may be reduced pursuantto an applicable income tax treaty.

 

**PassiveForeign Investment Company Rules**

 

A special set of U.S. federal income taxrules applies to a foreign corporation that is a PFIC for U.S. federal incometax purposes.  As noted above, based onour audited financial statements and relevant market and shareholder data, webelieve we were not a PFIC for U.S. federal income tax purposes for our 2005taxable year.  In addition, based on ouraudited financial statements and our current expectations regarding the valueand nature of our assets, the sources and nature of our income, and relevantmarket and shareholder data, we do not anticipate becoming a PFIC for our 2006taxable year.

 

The PFIC rules are designed generally toeliminate any benefits of deferral of U.S. federal income tax that a U.S.holder could derive from investing in a corporation that is organized outsidethe United States (a “foreign corporation”). In general, a foreign corporation is a PFIC if at least 75% of its grossincome for the taxable year is passive income or if at least 50% of its assetsfor the taxable year produce passive income or are held for the production ofpassive income.  In general, passiveincome for this purpose means, with certain designated exceptions, dividends, interest,rents, royalties (other than certain rents and royalties derived in the activeconduct of trade or business), annuities, net gains from dispositions ofcertain assets, net foreign currency gains, income equivalent to 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 aparticular shareholder that is a United States person, it remains stock in aPFIC in the hands of that shareholder.

 

If we are treated as a PFIC,contrary to the tax consequences described in “U.S. federal Income TaxConsiderations—Taxation of Dividends” and “—U.S. federal Income TaxConsiderations—Taxation of Capital Gains” above, a U.S. holder that does notmake an election described in the succeeding two paragraphs would be subject tospecial rules with respect to (i) any gain realized on a sale orother disposition of an ADR and (ii) any “excess distribution” by theCompany to the U.S. holder (generally, any distribution during a taxable yearin which distributions to the U.S. holder on the ADR exceed 125% of the averageannual taxable distributions the U.S. holder received on the ADR during thepreceding three taxable years or, if shorter, the U.S. holder’s holding periodfor the ADR).  Under those rules, (i) thegain or excess distribution would be allocated ratably over the U.S. holder’sholding period for the ADR, (ii) the amount allocated to the taxable yearin which the gain or excess distribution is realized would be taxable asordinary income and (iii) the amount allocated to each prior year, withcertain exceptions, would be subject to tax at the highest tax rate in effectfor that year, and the interest charge generally applicable to underpayments oftax would be imposed in respect of the tax attributable to each of thoseyears.  A U.S. holder who owns an ADRduring any year we are a PFIC must file Internal Revenue Service Form 8621.

75

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The special PFIC rules described above will notapply to a U.S. holder if the U.S. holder makes a timely election to treat theCompany as a “qualified electing fund” (“QEF”) in the first taxable year inwhich the U.S. holder owns an ADR and the Company is a PFIC and if the Companycomplies with 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 actualdividend from the Company would qualify for the 15% maximum tax rate ondividends described above if the Company is a PFIC in the taxable year theordinary income is realized or the dividend is paid or in the preceding taxableyear.  We have not yet determinedwhether, if we are a PFIC, we would make the computations necessary to supplyU.S. holders with the information needed to report income and gain pursuant toa QEF election.  It is, therefore,possible that U.S. holders would not be able to make or retain that election inany year we are a PFIC.  Although a QEFelection generally cannot be revoked, if a U.S. holder made a timely QEFelection for the first taxable year it owned an ADR and the Company is a PFIC(or is treated as having done so pursuant to any of certain elections), the QEFelection will not apply during any later taxable year in which the Company doesnot satisfy the tests to be a PFIC.  If aQEF election is not made in that first taxable year, an election in a lateryear generally will require the payment of tax and interest, and in certaincircumstances the election may cease to be available at a later date.

 

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 themark-to-market election were made, the rules set forth in the secondpreceding paragraph would not apply for periods covered by the election.  A mark-to-market election will not applyduring any later taxable year in which the Company does not satisfy the teststo be a PFIC.  In general, the ADRs willbe marketable stock if the ADRs are traded, other than in *de minimis* quantities, on at least 15 daysduring each calendar quarter on a national securities exchange that isregistered with the SEC or on a designated national market system or on anyexchange or market that the Treasury Department determines to have rules sufficientto ensure that the market price accurately represents the fair market value ofthe stock.  The ADRs will be listed onthe NASDAQ SmallCap Market.  It is notclear whether their trading on that market, or the level of their trading onthat market, will qualify them as readily tradable on an established securitiesmarket in the United States.  Thus, thereis no certainty that the ADRs will be considered “marketable stock” for thispurpose unless and until the Internal Revenue Service designates the AustralianStock Exchange as having rules adequate to carry out the purposes of thePFIC rules.  There can be no assurancethat the Internal Revenue Service will make that designation.

 

**Information Reporting and Backup Withholding**

 

Dividendspaid on, and proceeds from the sale or other disposition of, an ADR to a U.S.holder generally may be subject to information reporting requirements and maybe subject to backup withholding at the rate of 28% unless the U.S. holderprovides an accurate taxpayer identification number or otherwise establishes anexemption.  The amount of any backupwithholding collected from a payment to a U.S. holder will be allowed as acredit against the U.S. holder’s U.S. federal income tax liability and mayentitle the U.S. holder to a refund, provided certain required information isfurnished to the Internal Revenue Service. A non-U.S. holder generally will be exempt from these informationreporting requirements and backup withholding tax but may be required to complywith certain certification and identification procedures in order to establishits eligibility for exemption.

 

The discussion above is notintended to constitute a complete analysis of all tax considerations applicableto an investment in ADRs or Ordinary Shares. A holder should consult his tax adviser concerning the tax consequencesto him in his particular situation.

 
| **Item 10.F** | ** ** | **Dividends  and Paying Agents** |
|---------------|------------|----------------------------------|

 

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

 
| **Item 10.G** | ** ** | **Statement  by Experts** |
|---------------|------------|---------------------------|

** **

Not applicable.

 

76

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

 

The documents concerning the Company which arereferred to in this Annual Report may be inspected at the offices of theCompany at 60-66 Hanover Street, Fitzroy, Victoria 3065 Australia.  Following our listing on NASDAQ NationalMarket in September 2005, we are now subject to the informationrequirements of the U.S. Securities Exchange Act of 1934, as amended, and, inaccordance therewith, we are required to file reports, including annual reportson Form 20-F, and other information with the U.S. Securities and ExchangeCommission in electronic form.  Thesematerials, including this Annual Report and the exhibits thereto, may beinspected and copied at the Commission’s public reference room in Washington,D.C. Please call the Commission at 1-800-SEC-0330 for further information onthe public reference rooms.  As a foreignprivate issuer, we are required to make filings with the Commission byelectronic means.  Any filings we makeelectronically will be available to the public over the Internet at theCommission’s website at http://www.sec.gov. We also maintain a website at www.gtg.com.au.  Information on our website and website linkedto it do not constitute a part of this Annual Report.

 
| **Item 10.I** | ** ** | **Subsidiary  Information** |
|---------------|------------|-----------------------------|

 

The following is a list of the Company’s subsidiariesas 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 Limited                        |   | Australia          |   | 100%  |   |
| ImmunAid Pty. Ltd.                         |   | Australia          |   | 65%   |   |
| Gtech International Resources Limited      |   | Canada             |   | 75.8% |   |
| AgGenomics Pty. Ltd.                       |   | Australia          |   | 50.1% |   |

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

 

Genetic Technologies has exposure to changes inforeign currency exchange rates and interest rates.

 

We invest excess cash in interest-bearing,investment-grade securities and time deposits in high-qualityinstitutions.  We do not utilizederivative financial instruments, derivative commodity instruments, positionsor transactions in any material matter. Accordingly, we believe that, while the investment-grade securities andtime-deposits we hold are subject to changes in financial standing of theissuer of such securities, the principal is not subject to any material risksarising from changes in interest rates, foreign currency exchange rates,commodity prices, equity prices or other market changes that affect market risksensitive instruments.  Since we investin locations outside Australia, we are subject to certain cross-border risks.

 

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

 

77

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Credit risk represents the accounting loss that wouldbe recognized at the reporting date if counterparties failed completely toperform as contracted.  Concentrations ofcredit risk (whether on or off-balance sheet) that arise from financialinstruments exist for groups of customers or counterparties when they havesimilar economic characteristics that would cause their ability to meetcontractual obligations to be similarly affected by changes in economic orother conditions.  Financial instrumentson the balance sheet that potentially subject the Company to concentration ofcredit risk consist principally of cash and cash equivalents and trade accountsreceivable.  The Company places its cashand cash equivalents with high credit quality institutions in order to limitthe degree of credit exposure.  TheCompany has established guidelines relative to credit ratings, diversificationand maturities that seek to maintain safety and liquidity.  The Company does not require collateral to providecredit.  In addition, the majority of theCompany’s licensing customers are large, reputable organizations, which alsoreduces the risk of credit exposure.  TheCompany has not entered into any transactions that would qualify as a financialderivative instrument.

 

At June 30, 2005, one customer accounted for31% ($137,444) of accounts receivable. At June 30, 2004, four customers accounted for 24% ($58,138), 21%($50,449), 16% ($38,479) and 14% ($34,760) of accounts receivable,respectively.  

 

At June 30, 2005, one supplier accounted for62% ($1,210,825) of accounts payable.  AtJune 30, 2004, three suppliers accounted for 24% ($339,485), 17%($231,389) and 10% ($144,111) of accounts payable, respectively.

 

In 2005, one customer accounted for 46% ($3,782,000)of the Company’s revenue.  In 2004, onecustomer accounted for 19% ($513,434) of the Company’s revenue.

 

Export sales, principally to the USA, were$4,560,862, $306,938 and $2,615,544 in 2005, 2004 and 2003, respectively.

 

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

** **

**Item 12.A**                                           Debt Securities

** **

Not applicable.

 

**Item 12.B**                                           Warrants and Rights  

** **

Not applicable.

 

**Item 12.C**                                           Other Securities  

** **

Not applicable

 

**Item 12.D**                                           American Depositary Shares

** **

Not applicable.

 

**PART II**

** **

**Item 13.**                                                    Defaults, Dividend Arrearages andDelinquencies

** **

Not applicable.

 

**Item 14.**                                                    Material Modifications to The Rights OfSecurity Holders and Use Of Proceeds

** **

Not applicable.

 

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**Item 15.**                                                    Controls and Procedures

** **

**Item 15A.**                                           Controlsand Procedures

** **

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed in the reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in therules and forms of the Securities and Exchange Commission.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed in our reports filed or submitted under the SecuritiesExchange Act of 1934 is accumulated and communicated to management, includingour Chief Executive Officer and ChiefFinancial Officer, asappropriate, to allow timely decisions regarding required disclosure.

 

Our management, under the supervision and with theparticipation of our Chief ExecutiveOfficer and Chief Financial Officer,have evaluated the effectiveness of our disclosure controls and procedures asof June 30, 2005 and, based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controlsand procedures were effective as of such date.

 

**Item 15B.**                                           Management’s annual report on internal control overfinancial reporting

** **

Not applicable.

 

**Item 15C.**                                           Attestation report of the registered public accountingfirm

** **

Not applicable.

 

**Item 15D.**                                           Changes in internal control over financial reporting 

** **

In connection with the audit of our fiscal year ended June 30, 2005,Ernst & Young, the Company’s independent auditors, informed our AuditCommittee that they consider the following matters represent materialweaknesses in the operation of our internal control over financial reporting:

 

•                                          The financial statement close process andknowledge of US GAAP; and

•                                          Adequate segregation of duties.

 

In order to address the weakness in our knowledge ofUS GAAP, our senior finance staff are committed to attending targeted US GAAPand SEC reporting courses and subscribing to additional information publicationsand updates of SEC and US GAAP releases and rule changes and ofinformation about the requirements of the Public Company Accounting OversightBoard.  We will also consider mitigatingthis weakness by conferring and/or hiring outside accounting advisers withrespect to the technical requirements applicable to our financial statements.

 

Our management and Audit Committee continuallyassess the level of segregation of duties existing within the financialreporting function and are committed to segregating duties where practicallypossible.  Given the number of staffemployed in our finance department it is sometimes not practicable to segregateall duties.

 

**Item 15E.**                                             Limitations on the effectiveness of controls

** **

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosurecontrols and procedures or our internal control over financial reporting willassure that all appropriate information will, in fact, be communicated tomanagement to allow timely decisions to be made or prevent all error andfraud.  A control system, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met.  Additionally, the design of a control systemmust reflect the fact that there are resource constraints, and the benefit ofcontrols must be considered relative to their costs.  Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the company have beendetected or that our control system will operate effectively under allcircumstances.  Moreover, the design ofany system of controls is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions.

 

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

** **

Our Board of Directors has determined that Mr. Robert John Edge, amember of its Board of Directors and a member of its Audit Committee, is anaudit committee financial expert within the meaning of the Sarbanes-Oxley andrelated regulations.

 

**Item 16B.**                                           Code Of Ethics

** **

We have adopted a Code of Ethics (styled Code ofConduct) that applies to all of our Directors employees, including ourprincipal executive officer, principal financial officer, principal accountingofficer or controller.  The Code can bedownloaded at our website (www.gtg.com.au). Additionally, any person, upon request, can ask for a hard copy orelectronic file of such Code.  If we makeany substantive amendment to the Code of Ethics or grant any waivers, includingany implicit waiver, from a provision of the Code of Ethics, we will disclosethe nature of such amendment or waiver on our website.  During the year ended June 30, 2005, nosuch amendment was made or waiver granted. Our Board ofDirectors is responsible for the corporate governance of the consolidatedentity and guides and monitors the business and affairs of Genetic TechnologiesLimited on behalf of the shareholders by whom they are elected and to whom theyare accountable.  We are required topublish a Corporate Governance Statement annually that accords with theintroduction last year of the Australian Stock Exchange Corporate GovernanceCouncil’s (the “Council’s”) “Principles of Good Corporate Governance and BestPractice Recommendations”.  In accordancewith the Council’s recommendations, the Corporate Governance Statement must nowcontain certain specific information and must disclose the extent to which wehave followed the guidelines during the period. Where a recommendation has not been followed, that fact must bedisclosed, together with the reasons for the departure.  The Company’s Corporate Governance Statementis now structured with reference to the Corporate Governance Council’sprinciples and recommendations.  Below isan extract from the Company’s most recent Corporate Governance Statement:

 

Corporate Governance is the system by which companies are controlled,and governance policies need to fit the circumstances of the company.  Genetic Technologies Limited is movingrapidly from being an entrepreneurial start-up company towards being anestablished and profitable entity in which the governance system fully reflectsthe Principles and Recommendations of the ASX Corporate GovernanceCouncil.  During the 2005 financial year,an Executive Director retired and two independent Non-Executive Directors, JohnDawkins AO and Henry Bosch AO, were appointed. All members of the Audit Committee are now independent.  A new Chief Financial Officer and CompanySecretary, Tom Howitt, has been appointed and is located in Melbourne so thatthe finance and secretarial functions are now located with the Company’s mainoperations.

 

The Board of Directors has adopted a number of policies and procedureswhich comply fully with the relevant Principles and the 28 Recommendations of theASX Corporate Governance Council and is in the process of developingothers.  Work is continuing on otherareas of the Company’s governance structure.

 

The principal innovations made during the 2005 financial year are theestablishment or adoption of:

 

•                  anAudit Committee, comprised of three independent Directors;

•                  aNomination and Remuneration Committee, chaired by an independent Director;

•                  aBoard Charter which defines the role of the Board and that of management;

•                  aBoard Protocol which clarifies the responsibilities of Directors and theCompany’s expectations of them;

•                  aSecurities Trading Policy;

•                  aContinuous Disclosure Policy;

•                  aShareholder Communications Policy; and

•                  aCode of Conduct.

 

The Board considers that, with the exception of the following, itcomplies with the relevant Principles and Recommendations of the ASX CorporateGovernance Council.  The Company does notas yet meet ASX Recommendation 2.1, in that only three of the six Directors areindependent; or Recommendations 2.2 and 2.3, in that the Chairman,Dr. Mervyn Jacobson, also serves as the Chief Executive Officer.Dr. Jacobson is one of the founders of the original company, GeneType AG,and the Board considers his position appropriate at the present stage of the Company’sdevelopment. In addition, the Company does not as yet meet Recommendation 8.1,in that systems of performance evaluation have not been fully developed.Further consideration will be given to satisfying these ASX Recommendations asthe Company grows.

 

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**Item 16C.**                                           Principal Accountant Fees 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 June 30, 2005 and 2004, respectively:

 
| ** **             | ** ** | **2005 (in US$)** | ** ** | **2004 (in US$)** | ** ** |
|------------------------|------------|-------------------|------------|-------------------|------------|
| Audit fees             |       | 322,849           |       | 153,338           |       |
| Audit-related services |       | —            |       | —            |       |
| Tax fees               |       | 61,042            |       | 24,962            |       |
| Other services         |       | —            |       | —            |       |
|                   |       |              |       |              |       |
| Total                  |       | 383,891           |       | 178,300           |       |

 

The significant increase in audit fees during the 2005financial year was largely attributable to additional services provided byErnst & Young in connection with the preparation of the Company’sRegistration Statement on Form 20-F that was submitted as part of theLevel II listing of its ADRs on NASDAQ.

 

Audit fees in the above table are the aggregate feesbilled by Ernst & Young in connection with the audit of our annualfinancial statements and review of our semi-annual financial information.

 

*AuditCommittee Pre-Approval Policies and Procedures*

* *

Our Board of Directors has established pre-approvaland procedures for the engagement of its Independent Registered PublicAccounting Firm for audit and non-audit services.

 

The Board of Directors reviews the scope of theservices to be provided, before their commencement, in order to ensure thatthere are no independence issues and the services are not prohibited services,as defined by Sarbanes-Oxley Act of 2002.

 

**Item 16D.**                                           Exemptions From The Listing Standards ForAudit Committees

** **

Not applicable.

 

**Item 16E.**                                             Purchases Of Equity Securities By The IssuerAnd Affiliated Purchasers

** **

Not applicable.

 

**PART III**

** **

**Item 17.**                                                    Financial Statements

** **

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

 

81

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**Item 18.**                                                    Financial Statements

 

**GENETIC TECHNOLOGIES LIMITED**

** **

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| Genetic Technologies Limited - Report of Independent  Registered Public Accounting Firm.                                                           | F1     |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                               |   |
| Genetic  Technologies Limited - Consolidated Balance Sheets for the years ended  June 30, 2005 and 2004.                                      | F2     |
|                                                                                                                                               |   |
| Genetic Technologies  Limited - Consolidated Statements of Operations for the years ended  June 30, 2005, 2004 and 2003.                      | F3     |
|                                                                                                                                               |   |
| Genetic Technologies  Limited - Consolidated Statements of Changes in Shareholders’ Equity for the  years ended June 30, 2005, 2004 and 2003. | F4     |
|                                                                                                                                               |   |
| Genetic Technologies  Limited - Consolidated Statements of Cash Flows for the years ended  June 30, 2005, 2004 and 2003.                      | F5     |
|                                                                                                                                               |   |
| Genetic  Technologies Limited - Notes to Consolidated Financial Statements.                                                                        | F6     |

 

**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 ofJanuary 14, 2002, by and among Genetic Technologies Limited, The Bank ofNew York, as Depositary, and the Owners and Holders of American DepositaryReceipts (such agreement is incorporated herein by reference to the AnnualReport on Form F-6 relating to the ADSs (File No. 333-14270) filedwith the Commission on January 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. StephenKent for Technical Review Committee for ImmunAid Pty. Limited, datedSeptember 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 between Genetic Technologies Limited and University of Sydney, andAgreement to Assign Intellectual Property dated September 4, 2003. +

 

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

 

4.6                                 License Agreement dated as ofDecember 31, 2003 between Genetic Technologies Limited and TM BioscienceCorporation. +

 

4.7                                 License Agreement dated as ofFebruary 5, 2004 between Genetic Technologies Limited and LaboratoryCorporation of America Holdings.* ++

 

82

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4.8                                 Settlement and License Agreement dated as ofJune 15, 2004 between Genetic Technologies Limited and C.Y. O’Connor ERADEVillage Foundation (incorporating the Immunogenetics Research Foundation andthe Institute of Molecular Genetics and Immunology Incorporated). +

 

4.9                                 Sponsored Research Agreement dated as ofJune 15, 2004 between Genetic Technologies Limited and the C.Y.  O’Connor ERADE Village Foundation. +

 

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

 

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

 

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

 

4.13                           License Agreement dated as ofSeptember 27, 2004 among the Company, MetaMorphix, Inc. and MMIGenomics, Inc. +

 

12.01                     Certification by the Company’s ChiefExecutive Officer required by Item 15.

 

12.02                     Certification by the Company’s ChiefFinancial Officer 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.

 

----

*  Certain provisions of this exhibit have beenomitted and filed separately with the Commission pursuant to an application forconfidential treatment under Rule 24b-2 promulgated under the SecuritiesExchange Act of 1934, as amended.

 

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

 

++ Previously filed withAmendment No. 1 to the Company’s Registration Statement on Form 20-F(File No. 0-51504), filed with the Commission on August 29, 2005 andincorporated herein by reference. 

 

83

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**SIGNATURES**

** **

The registrant hereby certifies that it meets all ofthe requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this Annual Report on its behalf.

 
|                          | GENETIC TECHNOLOGIES LIMITED |
|-------------------------------|------------------------------|
|                          |                         |
|                          |                         |
| Dated: December 30, 2005 | By:                          | /s/ Mervyn Jacobson |   |
|                          |                         | Name: Dr. Mervyn Jacobson |
|                          |                         | Title:Chief Executive Officer |

 

84

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

**To the Board of Directors and Shareholders of Genetic TechnologiesLimited**

 

We haveaudited the accompanying consolidated balance sheets of Genetic TechnologiesLimited (“the Company”) as of June 30, 2005 and 2004, and the relatedconsolidated statements of operations, changes in shareholders’ equity, andcash flows for each of the three years in the period ended June 30, 2005.These financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements basedon our audits.

 

We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. We were not engaged to perform anaudit of the Company’s internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In ouropinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Genetic TechnologiesLimited at June 30, 2005 and 2004, and the consolidated results of theiroperations and their cash flows for each of the three years in the period endedJune 30, 2005, in conformity with U.S. generally accepted accountingprinciples.

 

 
| /s/ ERNST  & YOUNG              |   |
|-------------------------------------|--------|
|                                |
|                                |
| Sydney, New  South Wales, Australia |
| September  29, 2005                 |

 

F1

----

 

**GENETIC TECHNOLOGIESLIMITED**

 
| **CONSOLIDATED BALANCE SHEETS** | **(U.S.  DOLLARS)** |
|---------------------------------|---------------------|

 
| ** **                                                                                                     | ** ** | ** ** | ** ** | **June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|------------|------------|--------------|------------|
| ** **                                                                                                     | ** ** | **Note**   | ** ** | **2005**     | ** ** | **2004** | ** ** |
| ***Assets***                                                                                                   |       |       |       |         |       |   |   |
| **Current assets**                                                                                             |       |       |       |         |       |   |   |
| Cash and cash equivalents                                                                                      |       |       |       | $            | 13,464,416 |   | $ | 7,899,760 |   |
| Trade accounts receivable                                                                                      |       |       |       | 382,258      |       | 243,531 |   |
| GST receivable                                                                                                 |       |       |       | 54,161       |       | 869,000 |   |
| Sundry debtors and prepaids                                                                                    |       |       |       | 471,490      |       | 24,684 |   |
| Restricted security deposits                                                                                   |       |       |       | 630,050      |       | 26,873 |   |
| **Total current assets**                                                                                       |       |       |       | $            | 15,002,375 |   | $ | 9,063,848 |   |
| ** **                                                                                                     |       |       |       |         |       |   |   |
| **Non-current assets**                                                                                         |       |       |       |         |       |   |   |
| Cost-method investments *                                                                                      |       | 4          |       | $            | 500,010    |   | $ | 504,509 |   |
| Property, plant and equipment, net of accumulated depreciation of  $1,479,791 (2004: $826,229)                 |       | 5          |       | 1,985,302    |       | 1,287,225 |   |
| Sundry debtors and prepaids                                                                                    |       |       |       | 63,865       |       | — |   |
| Patents, net                                                                                                   |       | 6          |       | 4,415,266    |       | 4,481,143 |   |
| Goodwill, net                                                                                                  |       | 8          |       | 346,983      |       | 316,648 |   |
| **Total non-current assets**                                                                                   |       |       |       | $            | 7,311,426  |   | $ | 6,589,525 |   |
| **Total assets**                                                                                               |       |       |       | $            | 22,313,801 |   | $ | 15,653,373 |   |
|                                                                                                           |       |       |       |         |       |   |   |
| ***Liabilities and shareholders’ equity***                                                                |       |       |       |         |       |   |   |
| **Current liabilities**                                                                                        |       |       |       |         |       |   |   |
| Trade accounts payable                                                                                         |       |       |       | $            | 2,288,975  |   | $ | 1,401,102 |   |
| GST relating to acquisition                                                                                    |       |       |       | —       |       | 869,000 |   |
| Provision for tax                                                                                              |       | 9          |       | 491,986      |       | 277,991 |   |
| Provision for employee entitlements                                                                            |       |       |       | 259,328      |       | 222,183 |   |
| Hire purchase finance liability                                                                                |       | 12         |       | 331,711      |       | — |   |
| Deferred revenue                                                                                               |       | 7          |       | 366,790      |       | 462,931 |   |
| **Total current liabilities**                                                                                  |       |       |       | $            | 3,738,790  |   | $ | 3,233,207 |   |
| ** **                                                                                                     |       |       |       |         |       |   |   |
| **Non-current liabilities**                                                                                    |       |       |       |         |       |   |   |
| Unsecured loan                                                                                                 |       | 10         |       | $            | 533,260    |   | $ | 486,640 |   |
| Hire purchase finance liability                                                                                |       | 12         |       | 691,700      |       | — |   |
| **Total non-current liabilities**                                                                              |       |       |       | $            | 1,224,960  |   | $ | 486,640 |   |
| **Total liabilities**                                                                                          |       |       |       | $            | 4,963,750  |   | $ | 3,719,847 |   |
| ** **                                                                                                     |       |       |       |         |       |   |   |
| **Commitments and contingencies**                                                                              |       | 12         |       | —       |       | — |   |
| ** **                                                                                                     |       |       |       |         |       |   |   |
| **Minority interest**                                                                                          |       |       |       | $            | 125,336    |   | $ | 82,196 |   |
| ** **                                                                                                     |       |       |       |         |       |   |   |
| **Shareholders’ equity**                                                                                  |       |       |       |         |       |   |   |
| Common shares, no par value, issued and outstanding –  362,369,899 shares (2004: 296,808,561 shares) |       | 13         |       | $            | 27,575,104 |   | $ | 17,291,502 |   |
| Accumulated deficit                                                                                            |       |       |       | (12,982,113  | )          | (7,239,164 | ) |
| Accumulated other comprehensive income                                                                         |       |       |       | 2,631,724    |       | 1,798,992 |   |
| **Total shareholders’ equity**                                                                            |       |       |       | $            | 17,224,715 |   | $ | 11,851,330 |   |
| **Total liabilities and shareholders’ equity**                                                            |       |       |       | $            | 22,313,801 |   | $ | 15,653,373 |   |

 

----

*            Includesshares in XY, Inc. (a director related company) carried at cost of $301,890(2005) and $304,607 (2004).

 

Seeaccompanying notes to financial statements.

 

F2

----

 

**GENETIC TECHNOLOGIESLIMITED**

 
| **CONSOLIDATED  STATEMENTS OF OPERATIONS** | **(U.S.  DOLLARS)** |
|--------------------------------------------|---------------------|

 
| ** **                                                                                                      | ** ** | ** ** | ** ** | **Year ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------|------------|-------------------------|------------|
| ** **                                                                                                      | ** ** | **Note**   | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Revenues**                                                                                                    |       |       |       |                    |       |   |   |   |   |
| License revenues                                                                                                |       |       |       | $                       | 4,970,007  |   | $ | 507,910 |   | $ | 2,615,544 |   |
| Service testing revenues                                                                                        |       |       |       | 1,809,301               |       | 1,969,963 |   | 1,727,617 |   |
| Grant income                                                                                                    |       |       |       | 437,278                 |       | 154,702 |   | 50,244 |   |
| Other income                                                                                                    |       |       |       | 3,469                   |       | 12,427 |   | 10,722 |   |
| **Total revenues**                                                                                              |       |       |       | $                       | 7,220,055  |   | $ | 2,645,002 |   | $ | 4,404,127 |   |
| **Total operating income**                                                                                      |       |       |       | $                       | 7,220,055  |   | $ | 2,645,002 |   | $ | 4,404,127 |   |
|                                                                                                            |       |       |       |                    |       |   |   |   |   |
| **Operating expenses**                                                                                          |       |       |       |                    |       |   |   |   |   |
| Service testing expenses                                                                                        |       |       |       | $                       | 3,518,398  |   | $ | 2,229,307 |   | $ | 1,820,490 |   |
| Research and development *,  including stock compensation expense of $nil (2005) and $52,077 (2004)   |       |       |       | 1,826,984               |       | 1,659,914 |   | 512,345 |   |
| Patent and license fees                                                                                         |       |       |       | 4,591,710               |       | 763,739 |   | 428,335 |   |
| Sales and marketing                                                                                             |       |       |       | 537,039                 |       | 960,619 |   | 661,211 |   |
| General and administrative #,  including stock compensation expense of $nil (2005) and $10,827 (2004) |       |       |       | 2,668,002               |       | 2,383,879 |   | 1,182,856 |   |
| **Total operating expenses**                                                                                    |       |       |       | $                       | 13,142,133 |   | $ | 7,997,458 |   | $ | 4,605,237 |   |
| **Loss from operations**                                                                                        |       |       |       | $                       | (5,922,078 | ) | $ | (5,352,456 | ) | $ | (201,110 | ) |
|                                                                                                            |       |       |       |                    |       |   |   |   |   |
| **Other income (expenses)**                                                                                     |       |       |       |                    |       |   |   |   |   |
| Interest income                                                                                                 |       |       |       | $                       | 484,286    |   | $ | 352,605 |   | $ | 68,387 |   |
| Net profit (loss) on sale of assets                                                                             |       |       |       | 97,809                  |       | 406,224 |   | (100,191 | ) |
| Net foreign exchange losses                                                                                     |       |       |       | (140,861                | )          | (171,960 | ) | (558,292 | ) |
| Interest expense                                                                                                |       |       |       | (31,750                 | )          | — |   | (5,979 | ) |
| **Total other income (expenses)**                                                                               |       |       |       | $                       | 409,484    |   | $ | 586,869 |   | $ | (596,075 | ) |
| **Net loss before income taxes**                                                                                |       |       |       | $                       | (5,512,594 | ) | $ | (4,765,587 | ) | $ | (797,185 | ) |
| Income taxes                                                                                                    |       | 9          |       | (195,339                | )          | (27,579 | ) | (167,412 | ) |
| **Net loss before minority interest**                                                                           |       |       |       | $                       | (5,707,933 | ) | $ | (4,793,166 | ) | $ | (964,597 | ) |
| Minority interest                                                                                               |       |       |       | (35,016                 | )          | (23,560 | ) | 4,202 |   |
| **Net loss**                                                                                                    |       |       |       | $                       | (5,742,949 | ) | $ | (4,816,726 | ) | $ | (960,395 | ) |
| ** **                                                                                                      |       |       |       |                    |       |   |   |   |   |
| **Net loss per common share (basic and diluted)**                                                               |       |       |       | $                       | (0.02      | ) | $ | (0.02 | ) | $ | (0.00 | ) |
| ** **                                                                                                      |       |       |       |                    |       |   |   |   |   |
| **Weighted average shares outstanding (basic and diluted)**                                                     |       |       |       | 315,264,068             |       | 277,806,689 |   | 261,541,405 |   |

 

----

*            Includesrent expense of $318,044 (2005), $315,662 (2004) and $239,145 (2003) paid to acompany associated with Dr. Mervyn Jacobson, the Company’s Chief ExecutiveOfficer.  Total rental recoveriesreceived by the Company from director related entities amounted to $46,053(2005), $56,271 (2004) and $30,993 (2003).

 

#            Includesmanagement fees of $27,231 (2005), $25,675 (2004) and $31,574 (2003) paid to acompany associated with Mr. Fred Bart, a Director of the Company; andmanagement fees of $nil (2005), $82,589 (2004) and $34,358 (2003) paid to acompany associated with Mr. Russell Granzow, a former director of the Company.

 

See accompanying notes to financial statements.

 

F3

----

 

**GENETIC TECHNOLOGIESLIMITED**

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

 
| ** **                                                               | ** ** | **Note** | ** ** | **Number of********Common Shares** | ** ** | **Paid in********Capital** | ** ** | **Accumulated********Deficit** | ** ** | **Accumulated Other  Comprehensive Income** | ** ** | **Totals** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|------------------------------------|------------|----------------------------|------------|--------------------------------|------------|---------------------------------------------|------------|------------|------------|
| **Balance - July 1, 2002**                                               |       |     |       | 261,328,474                        |       | $                          | 5,470,407  |                           | $          | (1,462,043                                  | )          | $          | 112,581    |   | $ | 4,120,945 |   |
| Issuance of shares at 22 cents each in respect of business acquisition   |       |     |       | 121,951                            |       | 27,165                     |       | —                         |       | —                                      |       | 27,165     |       |
| Issuance of shares at 25 cents each to acquire investments               |       |     |       | 700,000                            |       | 171,676                    |       | —                         |       | —                                      |       | 171,676    |       |
| Issuance of common shares at 13 cents each on exercise of stock  options |       | 14       |       | 84,000                             |       | 10,939                     |       | —                         |       | —                                      |       | 10,939     |       |
| Stock options issued as compensation                                     |       |     |       | —                             |       | 35,254                     |       | —                         |       | —                                      |       | 35,254     |       |
| Other comprehensive income (loss), net of tax of $nil:                   |       |     |       |                               |       |                       |       |                           |       |                                        |       |       |       |
| Foreign Currency Translation adjustment                                  |       |     |       | —                             |       | —                     |       | —                         |       | 798,726                                     |       | 798,726    |       |
| Net loss                                                                 |       |     |       | —                             |       | —                     |       | (960,395                       | )          | —                                      |       | (960,395   | )          |
| Comprehensive loss                                                       |       |     |       |                               |       |                       |       |                           |       |                                        |       | (161,669   | )          |
|                                                                     |       |     |       |                               |       |                       |       |                           |       |                                        |       |       |       |
| **Balance - June 30, 2003**                                              |       |     |       | 262,234,425                        |       | $                          | 5,715,441  |                           | $          | (2,422,438                                  | )          | $          | 911,307    |   | $ | 4,204,310 |   |
| ** **                                                               |       |     |       |                               |       |                       |       |                           |       |                                        |       |       |       |
| Issuance of 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 common shares at 13 cents on exercise of Vendor options      |       | 14       |       | 3,336,636                          |       | 440,190                    |       | —                         |       | —                                      |       | 440,190    |       |
| Issuance of common shares at 27 cents to acquire patents                 |       |     |       | 16,666,667                         |       | 4,524,000                  |       | —                         |       | —                                      |       | 4,524,000  |       |
| Issuance of common shares at 30 cents on exercise of Director options    |       | 14       |       | 1,000,000                          |       | 295,560                    |       | —                         |       | —                                      |       | 295,560    |       |
| Issuance of common shares at 32 cents on exercise of Staff options       |       | 14       |       | 112,500                            |       | 36,032                     |       | —                         |       | —                                      |       | 36,032     |       |
| Issuance of common shares at 37 cents on exercise of Staff options       |       | 14       |       | 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 common shares at 16 cents on exercise of Vendor options      |       | 14       |       | 65,418,838                         |       | 10,228,372                 |       | —                         |       | —                                      |       | 10,228,372 |       |
| Issuance of common shares at 40 cents on exercise of Staff options       |       | 14       |       | 75,000                             |       | 29,959                     |       | —                         |       | —                                      |       | 29,959     |       |
| Issuance of common shares at 37 cents on exercise of Staff options       |       | 14       |       | 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 |   |

 

F4

----

 

**GENETIC TECHNOLOGIESLIMITED**

 
| **CONSOLIDATED  STATEMENTS OF CASH FLOWS** | **(U.S.  DOLLARS)** |
|--------------------------------------------|---------------------|

 
| ** **                                             | ** ** | **Year ended June 30,** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Operating activities**                               |       |                    |       |   |   |   |   |
| Net loss                                               |       | $                       | (5,742,949 | ) | $ | (4,816,726 | ) | $ | (960,395 | ) |
| Depreciation                                           |       | 550,477                 |       | 399,542 |   | 79,855 |   |
| Amortization of patents                                |       | 491,669                 |       | 38,632 |   | — |   |
| Amortization of leased assets                          |       | 96,684                  |       | — |   | — |   |
| Net loss (gain) from sale of assets                    |       | (97,809                 | )          | (406,224 | ) | 14,570 |   |
| Proceeds from sale of assets                           |       | —                  |       | 593,647 |   | 288,026 |   |
| Stock-based compensation                               |       | —                  |       | 62,904 |   | 35,254 |   |
| Net foreign exchange losses                            |       | (45,565                 | )          | 34,141 |   | 459,221 |   |
| Net write-down of cost-method investments              |       | —                  |       | — |   | 85,621 |   |
| Equipment received as part of license fees             |       | —                  |       | — |   | (440,727 | ) |
| Marketable securities received as part of license fees |       | —                  |       | — |   | (205,037 | ) |
| Loss on disposal of laboratory equipment               |       | —                  |       | — |   | 42,864 |   |
| Minority interest                                      |       | 35,016                  |       | 23,560 |   | (4,202 | ) |
|                                                   |       |                    |       |   |   |   |   |
| Net change in operating assets and liabilities         |       |                    |       |   |   |   |   |
| Receivables                                            |       | (138,727                | )          | (960,727 | ) | (98,645 | ) |
| Sundry debtors                                         |       | (564,832                | )          | (20,797 | ) | 5,758 |   |
| Restricted security deposits                           |       | (603,177                | )          | 6,494 |   | — |   |
| Payables                                               |       | 887,873                 |       | 1,340,951 |   | 207,071 |   |
| Provisions                                             |       | 211,084                 |       | 80,015 |   | 213,194 |   |
| Deferred revenue                                       |       | (96,141                 | )          | 462,931 |   | — |   |
| **Net cash used in operating activities**              |       | $                       | (5,016,397 | ) | $ | (3,161,657 | ) | $ | (277,572 | ) |
|                                                   |       |                    |       |   |   |   |   |
| **Investing activities**                               |       |                    |       |   |   |   |   |
| Payment for plant and equipment                        |       | $                       | (467,689   | ) | $ | (640,737 | ) | $ | (117,428 | ) |
| Proceeds from the sale of plant and equipment          |       | 448,413                 |       | — |   | — |   |
| Payment for acquisition of business                    |       | —                  |       | — |   | (56,140 | ) |
|                                                   |       |                    |       |   |   |   |   |
| **Net cash used in investing activities**              |       | $                       | (19,276    | ) | $ | (640,737 | ) | $ | (173,568 | ) |
|                                                   |       |                    |       |   |   |   |   |
| **Financing activities**                               |       |                    |       |   |   |   |   |
| Proceeds from stock options exercised                  |       | $                       | 10,283,602 |   | $ | 817,982 |   | $ | 10,939 |   |
| Repayment of hire purchase principal                   |       | (215,676                | )          | — |   | — |   |
| Proceeds from issuance of common shares                |       | —                  |       | 6,400,200 |   | — |   |
| Share issue costs                                      |       | —                  |       | (223,825 | ) | — |   |
|                                                   |       |                    |       |   |   |   |   |
| **Net cash provided by financing activities**          |       | $                       | 10,067,926 |   | $ | 6,994,357 |   | $ | 10,939 |   |
|                                                   |       |                    |       |   |   |   |   |
| **Net change before exchange rate changes**            |       | $                       | 5,032,253  |   | $ | 3,191,963 |   | $ | (440,201 | ) |
| Effect of exchange rate changes on cash                |       | 532,403                 |       | 798,595 |   | 329,611 |   |
|                                                   |       |                    |       |   |   |   |   |
| **Net change in cash and cash equivalents**            |       | $                       | 5,564,656  |   | $ | 3,990,558 |   | $ | (110,590 | ) |
| Cash and cash equivalents, beginning of year           |       | 7,899,760               |       | 3,909,202 |   | 4,019,792 |   |
|                                                   |       |                    |       |   |   |   |   |
| **Cash and cash equivalents, end of year**             |       | $                       | 13,464,416 |   | $ | 7,899,760 |   | $ | 3,909,202 |   |
|                                                   |       |                    |       |   |   |   |   |
| **Supplemental disclosure of cashflow information**    |       |                    |       |   |   |   |   |
| Cash paid for interest                                 |       | $                       | 31,750     |   | $ | — |   | $ | 5,979 |   |

 

ReferNote 17 for non-cash investing and financing transactions.

 

Seeaccompanying notes to financial statements.

 

F5

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**GENETIC TECHNOLOGIESLIMITED**

 

***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 engagedin research and development in the area of genetics and the licensing of its patented genetic technologies.  In August 2000, anAustralian company, Duketon Goldfields Ltd. (“Duketon”), acquired GeneType as awholly owned subsidiary.  Underaccounting principles generally accepted in the United States of America (“USGAAP”), the company whose former shareholders retain the majority of the votingrights in the combined business must be treated as the acquirer for accountingpurposes.  Accordingly, this transaction wasaccounted for as a reverse acquisition for financial reporting purposes, withGeneType identified 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 has focused primarily onbiotechnology, particularly in the area of genetics.

 

The Company is a publiccompany incorporated in Australia and listed on the Australian Stock Exchange(ASX).  On September 2, 2005, the Companyalso completed a Level II listing of its American Depositary Receipts (ADRs) onthe NASDAQ National Market (NASDAQ).  Itoperates in Australia, Canada and Europe and owns patents in the areas ofhuman, animal and plant genetic diagnostics and genomics.  The Company is pursuing commercial opportunitiesin three main areas of activity:

 

(i)                                     licensing of its non-codingpatents globally;

 

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

 

(iii)                               supporting certain researchprojects in various fields of biotechnology, particularly genetics and genomics.

 

TheCompany generates revenue from two principal sources: firstly, by entering intolicensing agreements with companies wishing to use GeneticTechnologies’ intellectualproperty relating to non-coding DNA; and secondly, from the provision of a widerange 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.

 

*Registered Office and Principal Place of Business*

 

60-66Hanover Street

Fitzroy Victoria 3065

Australia

 

***2.******                                     ******Basis of presentation and summaryof significant accounting policies***

 

***Basis of presentation***

 

The Company’s principal activities include the licensing of its patentedgenetic technologies, the provision of genetic tests and the conducting ofvarious research and developments projects in the fields of genetics andgenomics.  Revenues are principallygenerated from license fees and genetic testing.  The consolidated financialstatements are presented in United States dollars and have been prepared inaccordance with US GAAP.

 

***Principles of consolidation***

 

Theaccompanying consolidated financial statements include the accounts of GeneticTechnologies and its subsidiaries (collectively referred to as the “Company”),all of which are majority owned and controlled by Genetic Technologies.  All significant intercompany balances andtransactions 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.

 

***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.

 

F6

----

 

***Foreign currency translation***

 

The accounts of the Company are translated to the reportingcurrency in accordance 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”), the reportingcurrency.  The Australian dollar (“AUD”) is the functionalcurrency for the Company.  The method offoreign exchange translation adopted for foreign subsidiaries depends on thefunctional currency of such entities.  Inall cases for the Company, the functional currency of foreign, self-sustaining subsidiariesis their foreign currency, being the currency of the primary environment inwhich they operate.  The financialstatements of these entities are translated into AUD and consolidated into theparent company.  The consolidated financialstatements are then translated into USD, the reporting currency.  Accordingly;

 

(i)                           assets and liabilities are translated using thecurrent rate on the balance sheet date;

 

(ii)                        revenues and expenses are translated at the weighted-averageexchange rates prevailing throughout the period; and

 

(iii)                     equity accounts are translated at historicalexchange rates.

 

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

 

Receivables and liabilities denominated in foreigncurrencies are remeasured at period-end exchange rates.  Gains and losses resulting from foreigncurrency transactions are reported in the consolidated statements ofoperations.

 

The rates usedto translate AUD to USD for assets and liabilities were:

 
| **June 30,** | ** ** |
|--------------|------------|
| **2005**     | ** ** | **2004** | ** ** |
| ** **   | ** ** | ** ** | ** ** |
| $            | 0.7618     |   | $ | 0.6952 |   |
|              |            |  |  |  |  |  |

 

Revenues andexpenses are translated at the average exchange rate during the year.  The rates used to translate revenues andexpenses were:

 
| **June 30,** | ** ** |
|--------------|------------|
| **2005**     | ** ** | **2004** | ** ** | **2003** | ** ** |
|         |       |   |   |   |   |
| $            | 0.7564     |   | $ | 0.7132 |   | $ | 0.5847 |   |
|              |            |  |  |  |  |  |  |  |

 

Commitments, contingencies and expected futureincome detailed in the notes have been translated into U.S. currency at therate of exchange at June 30, 2005 of AUD1.00 = $0.7618.

 

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

 

Thepreparation of financial statements requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported results of operations during the reporting period.  In preparing these consolidated financialstatements, estimates and assumptions have been made by management concerningthe selection of useful lives of property and equipment and goodwill,provisions necessary for trade receivables and contingent liabilities, thecarrying value of certain investments, income tax valuation allowances,assumptions relating to the value of stock options, and other similarevaluations.  Actual results may varyfrom those estimates.

 

***Marketable securities***

 

TheCompany classifies its marketable securities as trading securities.  The securities consist of equity securities,which are stated at fair value, and unrealized gains or losses on thesecurities are recorded in the consolidated statement of operations.  Dividends on securities classified as tradingare included in dividend income when declared.

 

***Research and development***

 

Research anddevelopment costs are charged to expense as incurred.  Such costs include direct salaries,laboratory expenses, contractor fees, rent, utilities, and certain related administrativeexpenses.

 

F7

----

 

***Cost-method investments***

 

Investments in which theCompany does not have significant influence or in which the Company holds anownership interest of less than 20% are recorded using the cost method ofaccounting.  Such investments areperiodically reviewed for impairment, with fair values determined based on thelatest round of fund raising.  If adecline in value is judged to be other than temporary, the cost basis of theinvestment is written down to the recoverable amount.  The resulting realized loss is included inthe consolidated statements of operations in the period in which the declinewas deemed to be other than temporary.  Thefair value of the cost-method investments is not estimated as there are noidentified events or changes in circumstances that may have a significantadverse effect on the fair value of the investment and it is not practicable todo so.

 

***Property, plant and equipment***

 

Property, plant and equipmentare measured at cost, net of accumulated depreciation.  Expenditures for upgrades, maintenance andrepairs are expensed as incurred. Depreciation is provided, on both straight-line and diminishing valuebases, on all property, plant and equipment. Major depreciation and amortisation periods are:

 
| ** **                    | ** ** | **2005**     | ** ** | **2004**     | ** ** |
|-------------------------------|------------|--------------|------------|--------------|------------|
| Laboratory equipment          |       | 3 to 5 years |       | 3 to 5 years |       |
| Computer equipment            |       | 2 to 5 years |       | 2 to 5 years |       |
| Office equipment              |       | 2.5 years    |       | 2.5 years    |       |
| Equipment under hire purchase |       | 3 years      |       | 3 years      |       |
| Leasehold improvements        |       | Lease term   |       | Lease term   |       |

 

***Goodwill***

 

Goodwillrepresents the excess of the cost of businesses acquired over the fair value ofthe identifiable net assets acquired. Prior to the adoption of SFAS No. 142:*Goodwill and Other Intangible Assets*(“SFAS 142”), through June 30, 2002, goodwill was amortized on a straight-linebasis over a period of between 10 to 20 years. Subsequent to the adoption of SFAS 142 on July 1, 2002, amortization ofgoodwill ceased.  Goodwill attributableto purchase business combinations completed subsequent to June 30, 2001 wasnever amortized pursuant to SFAS No. 142.

 

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.  The Company hasnot recorded any impairment of goodwill since SFAS 142 was adopted.

 

##### ***Impairment of long-lived assets***

 

Pursuant toguidance established in SFAS No. 144: *Accountingfor the Impairment or Disposal of Long-Lived Assets* the Companyevaluates the recoverability of its long-lived assets whenever events orchanges in circumstances indicate that the carrying amount of such assets maynot be recoverable.  Management considersthe carrying value not to be recoverable if it exceeds the future projectedcash flows (undiscounted and without interest charges) from the use of theasset and its eventual disposition. Management also re-evaluates the periods of amortization to determinewhether subsequent events and circumstances warrant revised estimates of usefullives.  An impairment loss is recognizedwhen the carrying amount of the asset exceeds its fair value.  The resulting impairment loss is classified asa component of loss from operations.  No impairment losses have been recognized.

 

***Accruals for employee entitlements***

 

The Companyaccrues compensated absences and related benefits as current charges toearnings when the following criteria are met: (i) the employee’s right toreceive compensation for the future absences is attributable to servicesalready performed by the employee; (ii) the employee’s right to receive thecompensation for the future absences is vested, or accumulates; (iii) it isprobable that the compensation will be paid; and (iv) the amount ofcompensation is reasonably estimable.

 

F8

----

 

***Income taxes***

 

The Companyaccounts 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 attributableto differences between the financial statement carrying amounts of existingassets and liabilities and their respective tax bases as well as operating lossand tax credit carry forwards.  Deferredtax assets and liabilities are measured using enacted tax rates expected toapply to taxable income in the years in which those temporary differences areexpected to be recovered or settled.  Theeffect on deferred tax assets and liabilities of a change in tax rates isrecognized in the consolidated statement of operations in the period thatincludes the enactment date.  Valuationallowances are established when it is more likely than not that some or all ofthe deferred tax assets will not be realized.

 

***Revenue recognition***

 

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

 

*Rendering of services*

 

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

 

*Interest revenue*

 

Interest income is recognized as it accrues.

 

*Research and development grants*

 

The Company receives non-refundablegrants that assist the Company to fund specific research and developmentprojects.  These grants generally providefor reimbursement of approved costs incurred as defined in the variousagreements.  Government grants arerecorded as revenue when key milestones set within each agreement are achievedand accepted by all parties to the grant, no performance obligation remains andcollectibility is reasonably assured.  Grantfunds received in advance of the Company completing its performance obligationsare deferred.  Whenthe Company 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.

 

*Royalties*

 

The Companylicenses the use of its patented genetic technologies.  Royalties from these licenses are recognizedwhen earned and no future performance is required by the Company, andcollection is reasonably assured.

 

*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.  The Company grants no refunds to its customers.

 

In 2003, inpartial payment for a license fee, the Company received laboratory equipmentwith a fair value $440,727 and shares of the licensee with a fair value of$205,037.  The fair value of theequipment was determined based on the price charged by the licensee to otherpurchasers in Australia, being the fair value declared by the licensee forAustralian GST purposes when the equipment was imported to Australia.  The fair value of the shares was determinedbased on the licensee’s sale of shares in a private placement transactionshortly before the license with the Company was executed.

 

***Sales and marketingexpenses***

 

Sales and marketing expenses, including advertisingexpenses, are expensed as incurred. Total advertising expenses incurred during the years ended June 30,2005, 2004 and 2003 were $101,522, $405,372 and $262,232, respectively.

 

F9

----

 

***Receivables***

 

Tradereceivables and other receivables are recorded at amounts due less any estimatefor doubtful debts.  Bad debts arecharged off directly to accounts receivable.  Amounts are charged off when management hasdeemed them to be uncollectible.  Indetermining whether amounts are uncollectible, management considers multiplefactors including the aging of the accounts, historical bad debt experience,and the general economic environment.  TheCompany recorded bad debt expenses of $nil, $28,597 and $nil during the yearsended June 30, 2005, 2004 and 2003, respectively.

 

***Stock-based compensation***

 

The Company has elected to account for its stock-based employeecompensation plan under the intrinsic value method inaccordance with the Accounting Principals Board Opinion No. 25: *Accounting for Stock Issued to Employees* (“APB 25”) and relatedinterpretations.  The Company has adoptedthe disclosure-only provisions of FASB Statement No. 123:*Accounting for Stock-Based Compensation*(“SFAS 123”) as amended by FASB Statement No. 148: *Accounting**for Stock Based Compensation – Transition andDisclosure* (“SFAS148”).

 

In accordancewith APB 25, for options granted to employees, the Company records andamortizes, over the related vesting periods, deferred compensation representingthe difference between the exercise price of stock options granted and the intrinsicvalue of the Company’s common shares on the measurement date.  Options granted to consultants and othernon-employees are accounted for in accordance with Emerging Issues Task ForceConsensus No. 96-18: *Accounting for EquityInstruments That Are Issued toOther Than Employees for Acquiring, or In Conjunction with Selling, Goods orServices*, and valued using the Black-Scholes option valuation model. In circumstances in which the Company’s sharesare issued in exchange for services, compensation is recorded based on the fairvalue of the shares at the date of measurement, as determined by reference toquoted market price.

 

Proforma information regarding net loss is required by SFAS 123, as amended by SFAS148, and has been determined as if the Company had accounted for its employeestock options under the fair value method of SFAS 123 as of its effectivedate.  The fair value of the optionsissued to employees was estimated at the date of grant using the Black-Scholesoption-pricing model with the following weighted-average assumptions:

 
| ** **              | ** ** | **June 30,** | ** ** |
|-------------------------|------------|--------------|------------|
| ** **              | ** ** | **2005**     | ** ** | **2004** | ** ** | **2003** | ** ** |
| Risk Free Interest Rate |       | 5.21         | %          | 5.80 | % | 5.09 | % |
| Expected Dividend Yield |       | —       |       | — |   | — |   |
| Expected Volatility     |       | 0.55         |       | 0.89 |   | 0.63 |   |
| Expected Lives (years)  |       | 5.0          |       | 6.0 |   | 3.8 |   |

 

Had theCompany elected to adopt the fair value recognition provisions of SFAS 123, proforma net loss would be as follows:

 
| ** **                                                                                                     | ** ** | **Year ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                     | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net  loss as reported                                                                                          |       | $                       | (5,742,949 | ) | $ | (4,816,726 | ) | $ | (960,395 | ) |
| Employee  stock-based compensation, net of taxes, as calculated under APB 25 included  in net loss as reported |       | 591                     |       | 976 |   | 692 |   |
| Employee  stock-based compensation, net of taxes, as calculated under SFAS 123                                 |       | (606,418                | )          | (532,408 | ) | (366,658 | ) |
| Pro  forma net loss                                                                                            |       | $                       | (6,348,776 | ) | $ | (5,348,158 | ) | $ | (1,326,361 | ) |
|                                                                                                           |       |                    |       |   |   |   |   |
| Net  loss per common share (basic and diluted) as reported                                                     |       | $                       | (0.02      | ) | $ | (0.02 | ) | $ | (0.00 | ) |
|                                                                                                           |       |                    |       |   |   |   |   |
| Pro  forma net loss per common share (basic and diluted) as reported                                           |       | $                       | (0.02      | ) | $ | (0.02 | ) | $ | (0.01 | ) |

 

Referto Note 14 for further details regarding the Company’s stock options plans.

 

F10

----

 

***Patents***

 

External costsincurred in filing, defending and protecting patent applications for which nofuture benefit is reasonably assured are expensed as patent fees asincurred.  As of June 30, 2005 and 2004,none of these external costs have been capitalized.  Acquired patents for which a future benefitis reasonably assured, are capitalized and amortized over their useful life,being 10 years.

 

***Goods and services tax***

 

Revenues,expenses and assets are recognized net of the amount of goods and services tax(“GST”), except where the amount of GST incurred is not recoverable from theAustralian Taxation Office (“ATO”).  Inthese circumstances, the GST is recognized as part of the cost of acquisitionof the asset or as part of an item of revenue or expense.  Receivables and payables are stated with theamount of GST included.  The net amountof GST recoverable from, or payable to, the ATO is included as a current assetor a liability in the consolidated balance sheet.

 

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

 

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of common 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 common shares were exercised or converted into common shares or resulted in the issue of common shares that then shared in the net loss of the Company.

 

All of the common 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***

 

SFASNo. 130: *Reporting Comprehensive Income*establishes standards for reporting and display of comprehensive income and itscomponents in financial statements.  Itrequires that all items that are required to be recognized under accountingstandards as components of comprehensive income be reported in a financialstatement that is displayed with the same prominence as other financialstatements.  For the Company,comprehensive loss consists of net loss and foreign currency translationadjustments, and is presented in the consolidated statements of changes inshareholders’ 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 arise fromfinancial instruments, service contracts, guarantees, leases or otherarrangements with the variable interest entity.  An entity that will absorb a majority of thevariable interest entity’s expected losses or expected residual returns, asdefined in FIN 46, is considered the primary beneficiary of the variableinterest entity.  The primary beneficiarymust include the variable interest entity’s assets, liabilities and results ofoperations in its consolidated financial statements.  FIN 46 was immediately effective for allvariable interest entities created after January 31, 2003.  For variable interest entities created priorto this date, the provisions of FIN 46 were originally required to be appliedno later than the Company’s first quarter of Fiscal 2004.  In December 2003, the FASB issued FASB StaffPosition (FSP) FIN 46-6, Effective Date of FASB Interpretation No. 46: *Consolidation of Variable Interest Entities*.  The FSP provided a limited deferral (until theend of the Company’s second quarter of 2004) of the effective date of FIN 46for certain interests of a public entity in a variable interest entity or apotential variable interest entity.  TheCompany adopted FIN 46 for the year ended June 30, 2003.

 

During2002, the Company formed an incorporated joint venture with AgricultureVictoria Services Pty. Ltd. (“AVS”) for the purpose of using ultra-highthroughput genomic technologies to facilitate breeding programs in both theplant and animal agricultural industries.  The Company owns 50.1% of the shares in the jointventure company AgGenomics Pty. Ltd. (“AgGenomics”).  Under the terms of the agreement, the Companyis required to provide working capital to AgGenomics to help fund AgGenomics’operations.  At June 30, 2005 and 2004,AgGenomics has outstanding loans payable to the Company in the amount of $364,642and $322,335, respectively.  AgGenomicshas no other outstanding debt.  TheCompany also receives a management fee for various services provided toAgGenomics.  AVS is not required toprovide funding in addition to its capital contribution of $28.  The Company is the primary beneficiary ofAgGenomics and, accordingly consolidates AgGenomics in the accompanyingfinancial statements.

 

F11

----

 

***Tax consolidation system***

 

Legislation to allow groups, comprising a parententity and its Australian resident wholly owned entities, to elect toconsolidate and be treated as a single entity for income tax purposes, wassubstantively enacted on October 21, 2002.  The legislation, which includes both mandatoryand elective elements, is applicable to the Company.  Effective July 1, 2003, for the purposes ofincome tax, Genetic Technologies and its wholly owned subsidiaries have formeda tax consolidation group.  Members ofthe group propose to enter into a tax sharing arrangement in order to allocateincome tax expense to the wholly owned Australian subsidiaries on a pro-ratabasis when they lodge the income tax return.  In addition, the agreement will provide forthe allocation of income tax liabilities between the entities should the Companydefault on its tax payment obligations.

 

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

 

Leases and hire purchaseagreements which effectively transfer substantially all of the risks andbenefits incidental to ownership of the leased item to the group are capitaliseat the present value of the minimum 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 shorter of the estimateduseful life of the assets and the term of the respective agreement.  Minimum lease or hire purchase payments areallocated between interest expense and reduction of the lease or hire purchase liability,with the interest expense calculated using the interest rate implicit in thelease and recognised directly in net profit. The cost of improvements to or on leasehold property is capitalized,disclosed as leasehold improvements, and amortized over the unexpired period ofthe lease or the estimated useful lives of the improvements, whichever is theshorter.

 

***Restricted securitydeposits***

 

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.

 

***Operating leases***

 

The Companyhas 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.

 

***Recentpronouncements***

 

*Share-BasedPayments*

 

InDecember 2004, the FASB issued SFAS No. 123 (Revised 2004):*Share-Based Payments* (SFAS 123-R),which replaces the existing SFAS 123 and supersedes APB 25.  SFAS 123-R requires companies to measureand record compensation expense for stock options and other share-basedpayments based on the instruments’ fair value. SFAS 123-R is effective for interim and annual reporting periodsbeginning after June 15, 2005.  TheCompany will adopt SFAS 123-R on July 1, 2005 by using the modifiedprospective approach, which requires recognizing an expense for options grantedprior to the adoption date equal to the fair value of the unvested amounts overtheir remaining vesting period.  Theportion of these options’ fair value attributable to vested awards prior to theadoption of SFAS 123-R is never recognized.  For unvested stock-based awards grantedbefore January 1, 2003 (“APB 25 awards”), the Company will expense thefair value of the awards as at the grant date over the remaining vestingperiod.  The Company expects that therewill be a negative impact from recognizing the stock compensation expense forthe unvested APB 25 awards under the new standard.  The Company continues to evaluate otheraspects of adopting SFAS 123-R.

 

*Exchanges of NonmonetaryAssets*

 

InDecember 2004, the FASB issued SFAS 153, *Exchanges ofNonmonetary Assets* which is applicable for periods beginning afterJune 15, 2005.  SFAS 153 requiresentities to measure exchanges of monetary assets based on the fair values ofthe assets exchanged.  Currently, whereapplicable, for the purposes of presenting financial information in the Company’sUS GAAP accounts, the Company has adopted US Accounting Principles BoardOpinion No. 29 *Accounting for NonmonetaryTransactions*, which required that the accounting for an exchange ofa productive asset for a similar productive asset should be based on therecorded amount of the asset relinquished. The Company will apply the new rules on accounting for exchanges ofnonmonetary assets from July 1, 2005 for presenting information in its USGAAP accounts.  The Company is currentlyevaluating the impact of applying SFAS 153.

 

F12

----

 

***3.******            ******Marketable securities***

 
| ** **                                   | ** ** | **June 30,** | ** ** |
|----------------------------------------------|------------|--------------|------------|
| ** **                                   | ** ** | **2005**     | ** ** | **2004** | ** ** |
| Cost                                         |       | $            | —     |   | $ | — |   |
| Gross  unrealised gains                      |       | —       |       | — |   |
| Foreign  currency translation                |       | —       |       | — |   |
| Fair  value                                  |       | $            | —     |   | $ | — |   |
| Net  realised gains                          |       | $            | —     |   | $ | 406,224 |   |
| Net  gains (losses) on marketable securities |       | $            | —     |   | $ | 406,224 |   |

 

***4.******            ******Cost-method investments***

 

OnDecember 13, 2001, the Company acquired 12,689 common shares, or approximately1% of the outstanding share capital, of XY, Inc., an unlisted company based inFort Collins, Colorado.  This acquisitionwas financed by the issuance of 507,560 common shares of the Company valued at$138,407.  On May 12, 2003, the Companyincreased its holding in XY, Inc. by acquiring 17,500 common shares through theissuance of 700,000 common shares of the Company, valued at $171,676. The CEOand Chairman of XY, Inc. is also the CEO of the Company.  As at June 30, 2005 and 2004, the Companyowned a total of 30,189 common shares in XY, Inc. (representing approximately 0.42%and 0.42% of the issued common shares of XY, Inc., respectively), valued at $301,890(2004: $304,607).

 

InSeptember 2002, the Company issued a limited license to Perlegen Sciences, Inc.(“Perlegen”), at which time Perlegen paid $860,000 in up-front fees for thelicense.  These fees were satisfied by thepayment of cash and the issuance of 127,000 Series B shares, giving the Companyan insignificant share holding in Perlegen. As at June 30, 2005 and 2004, the Company owned a total of 127,000Series B shares in Perlegen, valued at $198,120 (2004: $199,902).

 

***5.******            ******Property, plant and equipment***

 

Property,plant and equipment consists of the following:

 
| ** **                                        | ** ** | **June 30,** | ** ** |
|---------------------------------------------------|------------|--------------|------------|
| ** **                                        | ** ** | **2005**     | ** ** | **2004** | ** ** |
| Laboratory equipment, at cost                     |       | $            | 1,787,858  |   | $ | 1,779,674 |   |
| Accumulated amortization                          |       | (1,095,260   | )          | (663,275 | ) |
|                                              |       |         |       |   |   |
| Net laboratory equipment                          |       | $            | 692,598    |   | $ | 1,116,399 |   |
|                                              |       |         |       |   |   |
| Computer equipment, at cost                       |       | $            | 396,509    |   | $ | 246,864 |   |
| Accumulated amortization                          |       | (194,209     | )          | (117,813 | ) |
|                                              |       |         |       |   |   |
| Net computer equipment                            |       | $            | 202,300    |   | $ | 129,051 |   |
|                                              |       |         |       |   |   |
| Office equipment, at cost                         |       | $            | 80,697     |   | $ | 77,947 |   |
| Accumulated amortization                          |       | (49,292      | )          | (44,119 | ) |
|                                              |       |         |       |   |   |
| Net office equipment                              |       | $            | 31,405     |   | $ | 33,828 |   |
|                                              |       |         |       |   |   |
| Laboratory equipment under hire purchase, at cost |       | $            | 1,151,151  |   | $ | — |   |
| Accumulated amortization                          |       | (136,590     | )          | — |   |
|                                              |       |         |       |   |   |
| Net laboratory equipment under hire purchase      |       | $            | 1,014,561  |   | $ | — |   |
|                                              |       |         |       |   |   |
| Leasehold improvements, at cost                   |       | $            | 48,877     |   | $ | 8,969 |   |
| Accumulated amortization                          |       | (4,439       | )          | (1,022 | ) |
|                                              |       |         |       |   |   |
| Net leasehold improvements                        |       | $            | 44,438     |   | $ | 7,947 |   |
|                                              |       |         |       |   |   |
| Total net property, plant and equipment           |       | $            | 1,985,302  |   | $ | 1,287,225 |   |

 

F13

----

 

***6.******            ******Patents, net***

 

On June 15,2004, Genetic Technologies acquired a suite of intellectual property from theC.Y. O’Connor ERADE Village Foundation (“CYO”) in Perth, Western Australia.  Consideration for the acquisition wassatisfied via the issue by the Company of 16,666,667 common shares with amarket value of $0.27 (AUD0.39) each on the date of issue, or $4,524,000(AUD6,500,000) in total.  As part of theacquisition, GST of $869,000 was payable to CYO by the Company as of June 30,2004.  In turn, a receivable for the sameamount was due from the Australian Taxation Office.

 

Patentsconsist of the following:

 
| ** **               | ** ** | **June 30,** | ** ** |
|--------------------------|------------|--------------|------------|
| ** **               | ** ** | **2005**     | ** ** | **2004** | ** ** |
| Patents                  |       | $            | 4,951,700  |   | $ | 4,518,800 |   |
| Accumulated amortization |       | (536,434     | )          | (37,657 | ) |
| Patents, net             |       | $            | 4,415,266  |   | $ | 4,481,143 |   |

 

Patentsare reportedentirely by the Australian segment of the Company.  The change in the carrying value of patentsisrepresented by:

 
| ** **                             | ** ** | **June 30,** | ** ** |
|----------------------------------------|------------|--------------|------------|
| ** **                             | ** ** | **2005**     | ** ** | **2004** | ** ** |
| Patents, opening cost                  |       | $            | 4,518,800  |   | $ | — |   |
| Purchases                              |       | —       |       | 4,518,800 |   |
| Foreign currency exchange fluctuations |       | 432,900      |       | — |   |
|                                   |       |         |       |   |   |
| Patents, closing cost                  |       | $            | 4,951,700  |   | $ | 4,518,800 |   |
|                                   |       |         |       |   |   |
| Accumulated amortization, opening      |       | $            | 37,657     |   | $ | — |   |
| Amortization expense                   |       | 491,669      |       | 38,632 |   |
| Foreign currency exchange fluctuations |       | 7,108        |       | (975 | ) |
|                                   |       |         |       |   |   |
| Accumulated amortization, closing      |       | $            | 536,434    |   | $ | 37,657 |   |

 

Below is aschedule of estimated aggregate amortization expense for patents for the nine succeedingyears, as at June 30, 2005:

 
| **Year  ending June 30,**    | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|
| 2006                         |       | $          | 492,836    |   |
| 2007                         |       | $          | 492,836    |   |
| 2008                         |       | $          | 492,836    |   |
| 2009                         |       | $          | 492,836    |   |
| 2010                         |       | $          | 492,836    |   |
| 2011                         |       | $          | 492,836    |   |
| 2012                         |       | $          | 492,836    |   |
| 2013                         |       | $          | 492,836    |   |
| 2014                         |       | $          | 472,578    |   |
| Total estimated amortization |       | $          | 4,415,266  |   |

 

***7.******            ******Deferred revenue***

 
| ** **                                     | ** ** | **June 30,** | ** ** |
|------------------------------------------------|------------|--------------|------------|
| ** **                                     | ** ** | **2005**     | ** ** | **2004** | ** ** |
| Opening balance                                |       | $            | 462,931    |   | $ | — |   |
| Add: cash receipts from customers              |       | 326,361      |       | 474,917 |   |
| Less: amount of revenue recognized in earnings |       | (439,779     | )          | — |   |
| Add: foreign exchange movements                |       | 17,277       |       | (11,986 | ) |
| Closing balance                                |       | $            | 366,790    |   | $ | 462,391 |   |

 

F14

----

 

***8.******            ******Goodwill, net***

 

Goodwillconsists of the following:

 
| ** **               | ** ** | **June 30,** | ** ** |
|--------------------------|------------|--------------|------------|
| ** **               | ** ** | **2005**     | ** ** | **2004** | ** ** |
| Goodwill                 |       | $            | 364,150    |   | $ | 332,314 |   |
| Accumulated amortization |       | (17,166      | )          | (15,666 | ) |
| Goodwill, net            |       | $            | 346,983    |   | $ | 316,648 |   |

 

Goodwill is reportedentirely by the Australian segment of the Company.  The change in the carrying value of goodwillis represented by:

 
| ** **                              | ** ** | **June 30,** | ** ** |
|-----------------------------------------|------------|--------------|------------|
| ** **                              | ** ** | **2005**     | ** ** | **2004** | ** ** |
| Goodwill, opening cost                  |       | $            | 332,314    |   | $ | 320,603 |   |
| Purchases                               |       | —       |       | — |   |
| Foreign currency exchange  fluctuations |       | 31,836       |       | 11,711 |   |
| Goodwill, closing cost                  |       | $            | 364,150    |   | $ | 332,314 |   |
|                                    |       |         |       |   |   |
| Accumulated amortization,  opening      |       | $            | 15,666     |   | $ | 15,114 |   |
| Amortization expense                    |       | —       |       | — |   |
| Foreign currency exchange  fluctuations |       | 1,500        |       | 552 |   |
| Accumulated amortization,  closing      |       | $            | 17,166     |   | $ | 15,666 |   |

 

***9.******            ******Income taxes***

 

Lossbefore income taxes for the years ended June 30, 2005, 2004 and 2003 wasrealized in the following jurisdictions:

 
| ** **               | ** ** | **Year ended June 30,** | ** ** |
|--------------------------|------------|-------------------------|------------|
| ** **               | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Australia                |       | $                       | (5,477,481 | ) | $ | (4,668,845 | ) | $ | (474,341 | ) |
| Switzerland              |       | (16,902                 | )          | (181,292 | ) | (301,405 | ) |
| Canada                   |       | (18,211                 | )          | 84,550 |   | (21,439 | ) |
| Loss before income taxes |       | $                       | (5,512,594 | ) | $ | (4,765,587 | ) | $ | (797,185 | ) |

 

Significantcomponents of the Company’s deferred income tax assets at June 30, 2005, 2004and 2003 are as follows:

 
| ** **                       | ** ** | **Year ended June 30,** | ** ** |
|----------------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Deferred tax asset**           |       |                    |       |   |   |   |   |
| Temporary differences            |       |                    |       |   |   |   |   |
| Patents                          |       | $                       | 892,823    |   | $ | 927,409 |   | $ | 997,959 |   |
| Foreign withholding taxes        |       | 491,986                 |       | 277,991 |   | 250,412 |   |
| Employee provisions and other    |       | 188,657                 |       | 96,725 |   | 79,265 |   |
| Net operating loss carry forward |       | 4,643,253               |       | 5,399,517 |   | 3,637,387 |   |
| Total deferred tax asset         |       | $                       | 6,216,719  |   | $ | 6,701,642 |   | $ | 4,965,023 |   |
| Impact of valuation allowance    |       | (6,216,719              | )          | (6,701,642 | ) | (4,965,023 | ) |
| Net                              |       | $                       | —     |   | $ | — |   | $ | — |   |

 

F15

----

 

Impactof foreign currency movement in gross deferred tax assets relating to taxlosses:

* *
| ** **                                            | ** ** | **Year ended June 30,** | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|
| ** **                                            | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Deferred tax asset relating to tax losses**         |       |                    |       |   |   |   |   |
| Tax losses brought forward from prior year            |       | $                       | 5,399,517  |   | $ | 3,637,387 |   | $ | 2,859,524 |   |
| Current year tax losses                               |       | 1,879,394               |       | 1,451,205 |   | 1,529 |   |
| Tax losses lost                                       |       | (2,265,920              | )          | — |   | — |   |
| Effect of foreign currency translations               |       | (369,738                | )          | 310,925 |   | 776,334 |   |
| Total gross deferred tax asset relating to tax losses |       | $                       | 4,643,253  |   | $ | 5,399,517 |   | $ | 3,637,387 |   |

 

TheCompany, based upon its history of losses, location of losses and management’sassessment of when operations are anticipated to generate taxable income, hasconcluded that it is unable to determine whether or not the deferred tax asset willbe realized through future taxable earnings and has therefore established avaluation allowance for the full amount.

 

The following table reconciles the income taxprovision at the Australian statutory rate to that in the financial statements:

 
| ** **                                     | ** ** | **Year ended June 30,** | ** ** |
|------------------------------------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Loss before income taxes and minority interest |       | $                       | (5,512,594 | ) | $ | (4,765,587 | ) | $ | (797,185 | ) |
| Income tax rate                                |       | 30                      | %          | 30 | % | 30 | % |
| Income tax benefit at statutory rate           |       | $                       | (1,653,778 | ) | $ | (1,429,676 | ) | $ | (239,156 | ) |
| Tax losses utilized                            |       | —                  |       | 38,985 |   | 274,060 |   |
| Adjust for permanent differences:              |       |                    |       |   |   |   |   |
| Stock compensation                             |       | —                  |       | 13,732 |   | 11,738 |   |
| Difference in tax rates                        |       | 2,359                   |       | 44,896 |   | 63,302 |   |
| Research and development concessions           |       | (227,975                | )          | (119,142 | ) | (111,473 | ) |
| Benefits of operating loss carry forward       |       | $                       | (1,879,394 | ) | $ | (1,451,205 | ) | $ | (1,529 | ) |
| Increase in valuation allowance                |       | 1,879,394               |       | 1,451,205 |   | 1,529 |   |
| Foreign taxes                                  |       | 195,338                 |       | 27,579 |   | 167,412 |   |
| Income tax expense                             |       | $                       | 195,338    |   | $ | 27,579 |   | $ | 167,412 |   |
| Other foreign currency movements               |       | 18,657                  |       | — |   | — |   |
| Opening provision for income tax               |       | 277,991                 |       | 250,412 |   | 83,000 |   |
| Closing provision for income tax               |       | $                       | 491,986    |   | $ | 277,991 |   | $ | 250,412 |   |

 

TheCompany has consulting arrangements that are conducted in tax jurisdictionsoutside of Australia.  Based on theadvice of legal counsel, management does not believe the Company is subject toany foreign taxes as a result of these arrangements.

 

The net operating loss carried forward whichrelates to tax losses generated in Australia of $3,598,876 is indefinite as touse.  The net operating loss carriedforward which relates to tax losses generated in Switzerland of $67,474 expiresover seven years commencing the financial year ending June 30, 2008.  The net operating loss carried forward thatrelates to tax losses generated in the United States of America of $810,000expires over fifteen years commencing with the financial year ending June 30, 2006up to and including financial year ending June 30, 2021.  Finally, the net operating loss carriedforward which relates to tax losses generated in Canada of $166,883 expiresover seven years commencing the financial year ending June 30, 2008.  The foreign taxcredits of $491,986 expire over 5 years commencing in the financial year endingJune 30, 2007.

 

F16

----

 
| ** **    | ** ** | **Year ended June 30,** | ** ** |
|---------------|------------|-------------------------|------------|
| ** **    | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Tax rates** |       |                    |       |   |   |   |   |
| Australia     |       | 30                      | %          | 30 | % | 30 | % |
| United States |       | 39                      | %          | 39 | % | 39 | % |
| Switzerland   |       | 8.5                     | %          | 8.5 | % | 8.5 | % |
| Canada        |       | 37                      | %          | 37 | % | 37 | % |

 

***10.******           ******Unsecured loan***

 
| ** **     | ** ** | **June 30,** | ** ** |
|----------------|------------|--------------|------------|
| ** **     | ** ** | **2005**     | ** ** | **2004** | ** ** |
| Unsecured loan |       | $            | 533,260    |   | $ | 486,640 |   |
|           |       | $            | 533,260    |   | $ | 486,640 |   |

 

Thelong-term loan represents an unsecured, non-interest bearing 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 before January15, 2009, if the Company commercializes a product as a result of the researchcovered under the grant.  If no productis commercialized, the Company will recognize grant revenue after January 15,2009, when the loan is no longer repayable. The costs associated with the research have been expensed.

 

***11.******         ******Related party transactions and balances***

 
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **As of and for the year ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **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 Dr. Mervyn Jacobson (director in  common) and provided the office and laboratory premises to GeneType Pty.  Ltd., a wholly owned subsidiary at Hanover Street, Fitzroy. During the  respective periods, GeneType Pty. Ltd. paid Bankberg Pty. Ltd. rent and  outgoings of |       | $                                          | 318,044    |   | $ | 266,650 |   |
|                                                                                                                                                                                                                                                                                                            |       |                                       |       |   |   |   |   |
| 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 and received                                                                                              |       | $                                          | —     |   | $ | 82,589 |   |

 

OnMay 12, 2003, the Company increased its holding in XY, Inc. by acquiring 17,500common shares through the issuance of 700,000 common shares of the Company,valued at $171,676.  As at June 30, 2005and 2004 the Company owned a total of 30,189 common shares in XY, Inc.(representing approximately 0.42% of the issued common shares of XY, Inc. atboth dates), valued at $301,890 and $304,607, respectively.

 

Premisesleased by the Company are subleased to director related entities.  Rental recoveries are included against rentexpenses in the consolidated statement of operations.  Total rental recoveries for cancelable leases receivedby the Company from director related entities during the year ended June 30,2005 amounted to $46,053 (2004: $56,271).

 

F17

----

 

***12.******         ******Commitments and contingencies***

 

***Capital expenditure commitments***

 

The Companydoes not have any significant capital expenditure commitments that are subjectto binding contracts.  However, theCompany has continuing minimal expenditure requirements of the WesternAustralian Mines Department in respect of its prospecting and explorationlicenses and mining leases, which are met by its joint venture partners.

 

The Companyhas an investment in the Duketon Belt Joint Venture with Johnson’s Well MiningNL.  The Company is not contributing anyfunding towards the project by agreement with the joint venture partner anddoes not have any involvement in its operations.  All liabilities are borne by the jointventure partner.  The Company’sinvestment has been valued at nil in the years ended June 30, 2005 and 2004,respectively.  As a result of this electionnot to contribute its share of expenditures, the Company’s interest in thejoint venture was diluted down to 18.11% as at June 30, 2005 (2004: 18.82%).

 

***Research and development commitments***

 

On June 15,2004, the Company entered into a Sponsored Research Agreement with C.Y. O’ConnorERADE Village Foundation whereby Genetic Technologies will contribute $625,680(AUD900,000) per annum in research for the next 5 years, being a totalcommitment of $3,128,400 (AUD4,500,000) and own any intellectual property arisingfrom the research.  Since the end of the 2004financial year, the Company has paid the first three instalments of $1,003,140(AUD1,350,000) in cash and supplied a letter of credit for $325,440 (AUD450,000)for the term of the agreement.

 

On May 31,2005, the Company agreed to extend its research agreement with King’s College,London on the “Bioinformatic and Functional Analysis of VNTR’s” project for theperiod from June 1, 2005 to December 31, 2005. The total expenditure commitment is GBP51,360 which is payable in twoinstalments.  The first of thesepayments, for $46,530 (GBP25,680), was paid on August 16, 2005.  As at June 30, 2005, an amount of $46,347 (GBP25,680)remains payable under the Agreement.  Refer*Note 18: Significant research and developmentagreements* for further information on the King’s Collegearrangement.

 

***Hire purchase commitments***

 

On January 14,2005, the Company executed a Master Asset Finance Agreement with NationalAustralia Bank Limited (the “Bank”) in respect of a $1,951,250 (AUD2,500,000)asset finance facility (the “Facility”). During the period up to June 30, 2005, the Company financed theacquisition of laboratory and office equipment under the Facility with a totalvalue of $1,179,409 (AUD1,511,094).  Acash security deposit of $563,382 (AUD739,540) was held by the Bank as of June30, 2005.  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 Company entered into a sale-and-hire-back transaction pursuant towhich it sold three items of laboratory equipment back to the Bank for $444,961(AUD588,262).  The equipment was then refinancedby the Bank under the Facility.

 

Details of theCompany’s future hire purchase commitments under the Facility as of June 30,2005 are as follows:

 
| Minimum  hire purchase payments                                          |   |     |      |
|--------------------------------------------------------------------------|--------|----------|-----------|
| Year  ending 2006                                                        |   | $        | 393,784   |   |
| Year  ending 2007                                                        |   | 393,784  |      |
| Year  ending 2008                                                        |   | 346,552  |      |
| Total  minimum hire purchase payments                                    |   | $        | 1,134,120 |   |
| Less:  future finance charges                                            |   | (110,709 | )         |
| Aggregate  hire purchase expenditure contracted for as at reporting date |   | $        | 1,023,411 |   |
| Aggregate  expenditure commitments comprise:                             |   |     |      |
| Current  liability                                                       |   | $        | 331,711   |   |
| Non-current  liability                                                   |   | 691,700  |      |
| Total  expenditure commitments                                           |   | $        | 1,023,411 |   |

 

F18

----

 

***Leases***

 

Operatingleases relate to office premises and laboratory facilities in Melbourne andoffice premises in Sydney with lease terms between 2 and 10 years.  The Melbourne office premises and laboratoryfacility have an option to extend for a further 10 years.  A company associated with the Chief ExecutiveOfficer owns the Melbourne facilities (refer *Note 11*).  All operating lease contracts contain marketreview clauses in the event that the Company exercises its option to renew.  The Company does not have an option topurchase the leased assets at the expiry of the lease periods.

 

The followingis a schedule of future minimum lease payments for operating leases that hadinitial or remaining non-cancellable lease terms in excess of one year as ofJune 30, 2005:

 
| **Year  ending,**            | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|
| 2006                         |       | 304,159    |       |
| 2007                         |       | 304,159    |       |
| 2008                         |       | 304,159    |       |
| 2009                         |       | 304,159    |       |
| 2010 and thereafter          |       | 608,318    |       |
| Total minimum lease payments |       | $          | 1,824,954  |   |
|                              |            |            |            |  |

 

Rent expensetotalled $318,044, $315,662 and $239,145 for the years ended June 30, 2005,2004 and 2003, respectively.

 

***Contingencies***

 

The Companyhas been notified of a number of native title claims covering explorationtenements in the Duketon Belt Joint Venture in Western Australia held by the Companyunder the Commonwealth Native Title Act, 1993.  Until further information regarding the claimsand the affected area is available, the Company will not be in a position toassess 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.

 

***13.******         ******Shareholders’ equity***

 

***Terms and conditions***

 

Common shareshave the right to receive dividends as declared and, in the event of winding upthe Company, to participate in the proceeds from sale of all surplus assets inproportion to the number of and amounts paid up on shares held.  Common shares entitle their holder to onevote, either in person or by proxy, at a meeting of the Company.

 

***Restricted securities***

 

OnJune 15, 2004, the Company issued a total of 16,666,667 common shares to C.Y. O’Connor ERADE Village Foundation pursuant to a SponsoredResearch Agreement between the parties.  Underthe terms of the Agreement, these common shares are subject to a voluntary escrowperiod contractually agreed by the parties the details of which are tabledbelow.  A total of 3,333,333 shares havealready been released from escrow:

 
| **Date of  escrow expiry**     | ** ** | **Number of common shares  released from escrow** | ** ** |
|--------------------------------|------------|---------------------------------------------------|------------|
| December 15, 2005              |       | 3,333,333                                         |       |
| December 15, 2006              |       | 3,333,333                                         |       |
| December 15, 2007              |       | 3,333,333                                         |       |
| December 15, 2008              |       | 3,333,334                                         |       |
| Total number of common  shares |       | 13,333,333                                        |       |

 

Restrictedsecurities have all the rights and obligations of unrestricted securitiesduring the escrow period, other than the ability to sell the shares.

 

F19

----

 

***14.******         ******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 commonshare 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 (“Director Options”) at an exercise priceof $0.26 (AUD0.45).  Each of theseDirector Options was exercisable into one common share at any time on or beforeApril 14, 2005.  Noexpense was previously recognised.  During the year ended June 30, 2004, a total of1,000,000 Director Options were exercised. The remaining 2,000,000 Director Options 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 expire on May 22, 2006.  OnFebruary 3, 2005, Mr. Fred Bart exercised a total of 38,500 directors’ optionsin Gtech International Resources Limited at an exercise price of $0.16(CAD0.20).  Noexpense was recognised for 2005, 2004 or 2003.

 

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 issued to GMCG, LLC a total of 600,000 options that have metspecific performance criteria. Subsequent to June 30, 2005, the parties agreed not to proceed with theissue of the 300,000 remaining options, notwithstanding the successful listingof the Company’s Level II ADR’s on NASDAQ on September 2, 2005, as certainperformance criteria were not met by GMCG, LLC.  Inaccordance with SFAS 123, the Company recorded an expense of $10,827 in theyear ended June 30, 2004.  No expense was recognised for 2005 and 2003.  Allof the 600,000 options are outstanding and exercisable as of June 30, 2005.

 

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 common shares.  Each option was exercisable into one commonshare of the Company at any time on or before September 30, 2005.  These options vested immediately and carried no rights to dividends and no voting rights.  These options were non-compensatory and wereaccounted for in permanent equity.  Theseoptions subsequently lapsed on September 30, 2005.

 

OnNovember 30, 2001, the Company established a Staff Share Plan that permits theCompany, at the discretion of the Board, to issue incentive stock options todirectors, employees and consultants. The Company is required to receive shareholder approval if the Company wishesto grant any options to directors.  Thenumber of options available to be issued by the Board is not restricted innumber, but if the Company issues options under the Plan which, together withother share issues, represents greater than 15% of the total share capital, theCompany is required to obtain shareholder approval.

 

Optionsissued under the Staff Share Plan carry no rights to dividends and no votingrights.  In accordance with the terms of theStaff Share Plan, options vest on the basis of 25% per annum and can beexercised at any time after vesting to the date of their expiry.  The options have an expiry date of six yearsfrom the date of grant.  The Company records an expensebased upon the difference between the exercise price and the issue price of theCompany’s common shares at the date of the option grant.  In the years ended June 30, 2005, 2004 and2003, this expense was $591, $976 and $692, respectively.

 

Under the StaffShare Plan, the Company also issued options to consultants who would not bedeemed employees of the Company.  The Company records an expense inaccordance with SFAS 123 based on the fair value of the options issued inexchange for the services and the vesting period.  In the years ended June 30, 2005, 2004 and2003, this expense was $nil, $51,101 and $34,562, respectively.

 

In accordance with SFAS123, the Company recorded a total compensation expense relating tonon-employees of $nil, $61,928 and $34,562 in the years ended June 30, 2005,2004 and 2003, respectively.

 

F20

----

 

A summary ofthe Company’s stock option activity for years ended June 30, 2005, 2004 and 2003follows:

 
| ** **                      | ** ** | **Number of  share options** | ** ** | **Exercise price  per option** | ** ** | **Weighted average  exercise price per option** | ** ** |
|---------------------------------|------------|------------------------------|------------|--------------------------------|------------|-------------------------------------------------|------------|
| Outstanding  at June 30, 2002   |       | 81,016,250                   |       | $0.11 -  $0.36                 |       | $                                               | 0.14       |   |
|                            |       |                         |       |                           |       |                                            |       |
| Granted                         |       | 2,250,000                    |       | $0.25 -  $0.32                 |       | $                                               | 0.29       |   |
| Exercised                       |       | (84,000                      | )          | $0.13                          |       | $                                               | 0.13       |   |
| Forfeited/expired               |       | (750,000                     | )          | $0.27 -  $0.36                 |       | $                                               | 0.33       |   |
|                            |       |                         |       |                           |       |                                            |       |
| 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/expired               |       | (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/expired               |       | (3,604,276                   | )          | $0.15 -  $0.45                 |       | $                                               | 0.36       |   |
|                            |       |                         |       |                           |       |                                            |       |
| Outstanding  at June 30, 2005   |       | 19,274,167                   |       | $0.29 -  $0.76                 |       | $                                               | 0.53       |   |

 

----

* includes a total of65,835,614 Vendor Options (2003: 69,172,250).

 

The number of unissued common shares subject tooptions issued under the Staff Share Plan at June 30, 2005 was 12,007,500 (2004:11,007,500).

 

The following is additional information relating to all optionsoutstanding 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 |   | 2,226,875 |   | $ | 0.36 |   |
| $0.41 - $0.50                  |       | 6,580,000               |       | $                                     | 0.45       |   | 2.62 |   | 4,645,000 |   | $ | 0.45 |   |
| $0.51 - $0.60                  |       | 600,000                 |       | $                                     | 0.53       |   | 4.50 |   | 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 |   | 14,226,042 |   | $ | 0.42 |   |

 

The following is additional information relating to all optionsoutstanding 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       |   | 5.50 |   | 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.

 

F21

----

 

The following is additional information relating to all optionsoutstanding as of June 30, 2003:

 
| ** **                     | ** ** | **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                  |       | * 69,172,250            |       | $                                     | 0.11       |   | 1.79 |   | * 69,172,250 |   | $ | 0.11 |   |
| $0.21 - $0.30                  |       | 8,145,000               |       | $                                     | 0.27       |   | 3.80 |   | 5,060,000 |   | $ | 0.27 |   |
| $0.31 - $0.40                  |       | 5,115,000               |       | $                                     | 0.32       |   | 4.47 |   | 2,746,250 |   | $ | 0.33 |   |
|                           |       | 82,432,250              |       | $                                     | 0.14       |   | 2.16 |   | 76,978,500 |   | $ | 0.13 |   |

 

----

* Represents Vendor Options.

 

During 2005, 500,000options (2004: 2,000,000) were issued at an exercise price equal to the marketprice of the stock on the grant date.  Theweighted average exercise price and weighted average fair value of theseoptions were $0.38 (2004: $0.36) and $0.24 (2004: $0.28), respectively.

 

In addition, 1,830,000options (2004: 7,476,667) were granted during 2005 at exercise prices exceedingthe market prices of the stock on the respective grant dates.  The weighted average exercise price andweighted average fair value of these options were $0.39 (2004: $0.62) and $0.23(2004: $0.19), respectively.

 

***15.******         ******Financial instruments***

 

***Fair value of financialinstruments***

 

The following table presents the carrying amounts andfair values of the Company’s financial instruments for which it is practicableto estimate fair value.  SFASNo. 107: *Disclosures about Fair Value of FinancialInstruments* defines the fair value of a financial instrument as theamount at which the instrument could be exchanged in a current transactionbetween willing parties, other than in a forced or liquidation sale.

 
| ** **                   | ** ** | **June 30,**        | ** ** |
|------------------------------|------------|---------------------|------------|
| ** **                   | ** ** | **2005**            | ** ** | **2004** | ** ** |
| ** **                   | ** ** | **Carrying amount** | ** ** | **Estimated fair value** | ** ** | **Carrying amount** | ** ** | **Estimated fair value** | ** ** |
| **Assets**                   |       |                |       |   |   |   |   |   |   |
| Cash and cash equivalents    |       | $                   | 13,464,416 |   | $ | 13,464,416 |   | $ | 7,899,760 |   | $ | 7,899,760 |   |
| Trade accounts receivable    |       | 382,258             |       | 382,258 |   | 243,531 |   | 243,531 |   |
| GST receivable               |       | 54,161              |       | 54,161 |   | 869,000 |   | 869,000 |   |
| Sundry debtors and prepaids  |       | 471,490             |       | 471,490 |   | 24,684 |   | 24,684 |   |
| Restricted security deposits |       | 630,050             |       | 630,050 |   | 26,873 |   | 26,873 |   |
|                         |       |                |       |   |   |   |   |   |   |
| **Liabilities**              |       |                |       |   |   |   |   |   |   |
| Trade accounts payable       |       | $                   | 2,288,975  |   | $ | 2,288,975 |   | $ | 1,401,102 |   | $ | 1,401,102 |   |
| GST relating to acquisition  |       | —              |       | — |   | 869,000 |   | 869,000 |   |
| Unsecured loan               |       | 533,260             |       | Refer  below |   | 486,640 |   | Refer  below |   |

 

The values provided are representative of the fairvalues as of June 30, 2005 and 2004 and do not reflect subsequent changes inthe economy, interest and tax rates, and other variables that may impactdetermination of fair value.

 

F22

----

 

The following methods and assumptions were used inestimating fair values for financial instruments for which it is practicable toestimate values:

 

***Cash and cash equivalents -***The carrying amount reported in thebalance sheet for cash and cash equivalents approximates fair value due to theshort maturity of these instruments.

 

***Accounts receivable -***The carrying amounts reported in thebalance sheet for trade accounts receivable, GST receivable and sundry debtorsapproximate fair values due to the short-term nature of the balances.

 

***Restricted security deposits -***The carryingamounts reported in the balance sheet for restricted security depositsapproximate fair values due to the short-term nature of the balances.

 

***Accounts payable -***The carrying amounts reported in thebalance sheet for trade accounts payable and GST relating to acquisition approximatefair values due to the short-term nature of the balances.

 

***Unsecured loan -***The fair value of the carrying amountreported in the balance sheet cannot be reasonably determined given that theloan is forgiven if commercial revenues are not generated.

 

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***

 

Credit riskrepresents the accounting loss that would be recognized at the reporting dateif 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.  In addition, the majority of the Company’scustomers 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 30,2005, one customer accounted for 31% ($137,444) of accounts receivable,respectively.  At June 30, 2004, fourcustomers accounted for 24% ($58,138), 21% ($50,449), 16% ($38,479) and 14%($34,760) of accounts receivable, respectively.

 

At June 30,2005, one supplier accounted for 62% ($1,210,825) of accounts payable,respectively.  At June 30, 2004, three suppliersaccounted for 24% ($339,485), 17% ($231,389) and 10% ($144,111) of accounts payable,respectively.

 

In 2005, onecustomer accounted for 46% ($3,782,000) of the Company’s revenue.  In 2004, one customer accounted for 19% ($513,434)of the Company’s revenue.

 

Export sales,principally to the USA, were $4,560,862, $306,938 and $2,615,544 in 2005, 2004and 2003, respectively.

 

***Interest rate risk exposures***

 

Cash assetstotalling $13,464,416 (2004: $7,899,760) have a weighted average floatinginterest rate of 5.13% (2004: 4.50%).  Aweighted floating interest rate of 5.53% (2004: 4.98%) on security depositstotalling $630,050 (2004: $26,873) is included in other current financialassets.  Other accounts receivable, securitydeposits, accounts payable and the unsecured loan are non-interest bearing.

 

***Foreign exchange rate risk exposures***

 

The Company isexposed to foreign currency exchange rate risk through primary financial assetsand liabilities.  It is the Company’spolicy not to hedge these transactions as the exposure is considered to beminimal from a consolidated operations perspective.

 

F23

----

 

***Financing facilities available***

 

At reporting date, the following financing facilities had beennegotiated and were available:

 
| ** **                              | ** ** | **June 30,** | ** ** |
|-----------------------------------------|------------|--------------|------------|
| ** **                              | ** ** | **2005**     | ** ** | **2004** | ** ** |
| **Total facilities**                    |       |         |       |   |   |
| Hire purchase facility                  |       | $            | 1,904,500  |   | $ | — |   |
| Credit cards                            |       | $            | 83,798     |   | $ | 83,424 |   |
|                                    |       |         |       |   |   |
| **Facilities used at reporting date**   |       |         |       |   |   |
| Hire purchase facility                  |       | $            | 1,151,151  |   | $ | — |   |
| Credit cards                            |       | $            | 12,777     |   | $ | 4,662 |   |
|                                    |       |         |       |   |   |
| **Facilities unused at reporting date** |       |         |       |   |   |
| Hire purchase facility                  |       | $            | 753,349    |   | $ | — |   |
| Credit cards                            |       | $            | 71,021     |   | $ | 78,762 |   |

 

***16.******         ******Employee superannuation***

 

Asrequired by Australian superannuation legislation, the Company contributes 9%(2004: 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, 2005, 2004 and 2003, the Company made contributions tosuch superannuation funds amounting to $211,372, $158,943 and $92,569,respectively.

 

***17.******         ******Non-cash investing and financingactivities***

 

***2005***

 

On January 14,2005, Genetic Technologies executed a Master Asset Finance Agreement withNational Australia Bank Limited in respect of a $1,951,250 (AUD2,500,000) assetfinance facility (the “Facility”). During the period up to June 30, 2005, the Company financed theacquisition of laboratory and office equipment under the Facility with a totalvalue of $1,179,409 (AUD1,511,094).  Eachof the Company’s Australian-resident controlled entities has provided aguarantee to the Company in respect of the Facility.

 

***2004***

 

On June 15,2004, Genetic Technologies issued 16,666,667 common shares at $0.27 (AUD0.39)to C.Y. O’Connor ERADE Village Foundation to acquire patents and otherintellectual property at a value of $4,524,000. This transaction represents a non-cash investing activity and is part ofthe biotechnology segment.

 

***2003***

 

OnMay 12, 2003, the Company issued 700,000 common shares at $0.25 each to acquirea shareholding in XY, Inc. at a value of $171,676.  This transaction represents a non-cashinvesting activity and is part of the investment segment operations.  On August 1, 2002, the Company issued 121,951common shares at $0.22 each as part of the consideration to acquire DNA-ID Labsat a value of $27,165.  Part of theconsideration for a license granted to Pyrosequencing of Sweden, included threemachines for the Company’s Melbourne laboratory with a fair value of $440,727.  The equipment was delivered in July 2003,however, for financial statement presentation, the receivable in relation tothis equipment is presented in property and equipment at June 30, 2003.

 

F24

----

 

***18.******         ******Significant research anddevelopment agreements***

 

The Companycurrently has the following key research and development agreements inplace.  Under the details of 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******–Pathogen Genomics and Genetics Program (“PGGP”)***

 

TheCompany is party to a research agreement with the University of Melbournewhereby the Company and the University of Melbourne will conduct research intothe field of molecular parasitology from April 2003 to March 2006.  The agreement provides that all intellectualproperty developed under the agreement belongs to the Company.  As at June 30, 2005, Genetic Technologies isrequired to contribute further GST-exclusive funds in the order of $64,936(AUD85,240) 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 $340,811 (AUD490,235) towards the PGGPproject over three years.  Payments madeby the Company in accordance with the agreement totaled $141,069 (AUD186,500),$144,751 (AUD202,960) and $97,913 (AUD167,459) for the years ended June 30,2005, 2004 and 2003, respectively.

 

***Sponsored Research Agreement******– C.Y. O’Connor ERADE ResearchFoundation (“Foundation”)***

 

On June 15,2004, the Company entered into a Sponsored Research Agreement with C.Y.O’Connor ERADE Village Foundation whereby Genetic Technologies is required tocontribute $625,680 (AUD900,000) per annum to fund research for the next fiveyears amounting to a total commitment of $3,128,400 (AUD4,500,000).  Genetic Technologies will own any and allintellectual property arising from the research.  On July 7, 2004, the Company supplied aletter of credit for $325,440 (AUD450,000) for the term of the agreement.  Payments made by the Company in accordance with the agreement totaled$689,940 (AUD900,000), $313,200 (AUD450,000) and $nil for the years ended June30, 2005, 2004 and 2003, respectively.

 

***Collaborative Research Agreement******–******Horticulture AustraliaLimited***

 

On June 18, 2003, AgGenomics Pty. Ltd., a subsidiary of the Company,entered into a three-year Collaborative Research Agreement with HorticultureAustralia Limited (“HAL”) to try to identify a genetic trait for day neutralityin strawberries which, if found, could lead to an extension of the cultivationseason and consequently higher production.  Under the terms of theagreement, 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.  Duringthe year ended June 30, 2005, AgGenomics Pty. Ltd. contributed an amount of$464,995 to the project (2004: $562,821).

 

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

 

In March 2004,the Company initiated a joint research project in the United Kingdom to explorethe functionality of certain non-coding DNA elements, initially with specialfocus on the genetics of breast cancer susceptibility and the genetics ofcertain 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.  Payments made by the Company in accordance withthe various agreements totaled $96,754 (GBP53,000), $36,056 (GBP41,000) and$nil for the years ended June 30, 2005, 2004 and 2003, respectively.

 

***Research Agreement – University of Western Australia***

 

In March 2001, the Company entered into an agreement with the University of Western Australia, which is 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%.

 

F25

----

 

***19.******         ******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 selected informationfor those segments to be presented in interim financial reports issued toshareholders.  SFAS 131 also establishesstandards for related disclosures about products and services and geographicareas.

 

TheCompany currently operates in Australia, Switzerland and Canada in tworeportable segments – the biotechnology industry and investmentactivities.  The different types ofrevenues received from the Biotechnology segment is disclosed in theconsolidated statement of operations.

 

Revenuesfrom external customers from the different operating activities of the Companyare as follows:

 
| ** **    | ** ** | **Year ended June 30,** | ** ** |
|---------------|------------|-------------------------|------------|
| ** **    | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Biotechnology |       | $                       | 7,220,055  |   | $ | 2,645,002 |   | $ | 4,404,127 |   |
| Investment    |       | —                  |       | — |   | — |   |
| Total         |       | $                       | 7,220,055  |   | $ | 2,645,002 |   | $ | 4,404,127 |   |

 

Interestrevenue of $484,285 (2005), $352,605 (2004) and $68,387 (2003) related solelyto operations in the Biotechnology sector. Interest expense of $31,750 (2005), $nil (2004) and $5,979 (2003) alsorelated solely to operations in the Biotechnology sector.

 

Incometax expense of $195,338 (2005), $27,579 (2004) and $167,412 (2003) relatedsolely to operations in the Biotechnology sector.

 

Depreciationexpense based upon the operating activity, is as follows:

 
| ** **    | ** ** | **Year ended June 30,** | ** ** |
|---------------|------------|-------------------------|------------|
| ** **    | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Biotechnology |       | $                       | 550,477    |   | $ | 399,542 |   | $ | 79,855 |   |
| Investment    |       | —                  |       | — |   | — |   |
| Total         |       | $                       | 550,477    |   | $ | 399,542 |   | $ | 79,855 |   |

 

Net(loss), income based upon the operating activity, is as follows:

 
| ** **    | ** ** | **Year ended June 30,** | ** ** |
|---------------|------------|-------------------------|------------|
| ** **    | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Biotechnology |       | $                       | (5,742,949 | ) | $ | (5,222,950 | ) | $ | (686,499 | ) |
| Investment    |       | —                  |       | 406,224 |   | (273,896 | ) |
| Total         |       | $                       | (5,742,949 | ) | $ | (4,816,726 | ) | $ | (960,395 | ) |

 

Netloss for the investment segment has been determined based on the accountingpolicy described in Note 2 relating to marketable securities and cost-methodinvestments.

 

Revenuesfrom external customers based upon the country of origin of the sale are asfollows:

 
| ** **  | ** ** | **Year ended June 30,** | ** ** |
|-------------|------------|-------------------------|------------|
| ** **  | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Australia   |       | $                       | 7,220,055  |   | $ | 2,645,002 |   | $ | 4,402,971 |   |
| Switzerland |       | —                  |       | — |   | — |   |
| Other       |       | —                  |       | — |   | 1,156 |   |
| Total       |       | $                       | 7,220,055  |   | $ | 2,645,002 |   | $ | 4,404,127 |   |

 

F26

----

 

During theyears ended June 30, 2005, 2004 and 2003, one government grant individuallyaccounted for 2%, 19% and 2% of the Company’s total revenue, respectively.

 

Interestrevenue of $484,285 (2005), $352,605 (2004) and $68,387 (2003) related solelyto operations carried out in Australia. Interest expense of $31,750 (2005), $nil (2004) and $5,979 (2003) alsorelated solely to operations carried out in Australia.

 

Incometax expense of $195,338 (2005), $27,579 (2004) and $167,412 (2003) relatedsolely to operations carried out in Australia.

 

Depreciationexpense of $550,477 (2005), $399,542 (2004) and $79,855 (2003) related solelyto operations carried out in Australia.

 

Netloss, based upon the country of origin of the sale is recorded in, is asfollows:

 
| ** **  | ** ** | **Year ended June 30,** | ** ** |
|-------------|------------|-------------------------|------------|
| ** **  | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Australia   |       | $                       | (5,707,836 | ) | $ | (4,911,915 | ) | $ | (641,170 | ) |
| Switzerland |       | (16,902                 | )          | (12,904 | ) | (301,606 | ) |
| Other       |       | (18,211                 | )          | 108,093 |   | (17,619 | ) |
| Total       |       | $                       | (5,742,949 | ) | $ | (4,816,726 | ) | $ | (960,395 | ) |

 

The Company’slong-lived assets totalled $1,985,302 (2005) and $1,287,225 (2004).  All such assets are in the biotechnologysector and are located in Australia.

 

***Non-cash transactions***

 

All non-cashtransactions relate to Australia. Non-cash investing and financing transactions that related to a specificsegment are further described in Note 17. Non-cash operating transactions are disclosed in the consolidatedstatement of cash flows.  All non-cashoperating transactions excluding depreciation and transactions relating tomarketable securities and cost-method investments relate to the Biotechnology segment.  Transactions relating to marketablesecurities and cost-method investments relate to the investment segment.  The allocation of depreciation betweensegments is further described above.

 

***20.******        ******Subsequent events (unaudited)***

 

On July 7,2005, the Company announcedthat its disputes with the Auckland District HealthBoard, as the representative of all the New Zealand district health boards plusthe New Zealand Blood Service (together “ADHB”) had all been settled.  Such disputes related to law suits filed inNew Zealand in 2004 by ADHB against the Company’s non-coding DNA analysispatent and its genomic mapping patent. As a consequence of the settlement, the High Court proceedings betweenthe parties were withdrawn, without payment by either party to the other.  Further, both parties agreed not to pursuethe other in future, in relation to these patents.  In addition, as part of the settlement, theCompany granted commercial licences to its non-coding patents to one commercialand three government entities in New Zealand that together paid the Company atotal of NZD450,000.

 

On August 23,2005, the Company issued 20,000 fully paid ordinary shares in partconsideration for the purchase of certain intellectual property.

 

On September 2, 2005, the Company completed thelisting of its Level II American Depositary Receipts (ADRs) on the NASDAQNational Market in the USA.  Each ADRcomprises 30 of the Company’s fully paid ordinary shares and trade under theticker symbol GENE.  The listing of theADRs provides the Company with access to the vast North American capitalmarkets and invaluable exposure for the Company to a wide range of US andEuropean investors.

 

On November 25, 2005, the Company reached an agreementwith a co-tenant in respect of the Sydney office premises that had beenpreviously leased by the Company.  Aspart of this agreement, the Company will have no further obligations in respectof those premises as from January 1, 2006.

 

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On December 12,2005, the Company announced that it had reached a final settlement of itspatent dispute with Applera Corporation, further to a settlement conferenceheld in San Francisco, California.  Theparties had executed a number of binding agreements, including a finalSettlement Agreement plus license agreements and a supply agreement, and subsequentlythey have jointly applied to Northern California District Court requesting thatall claims and counterclaims in the legal action be dismissed forthwith.  The total value of the considerationreceivable by the Company is approximately AUD15 million, payable partly incash and partly in kind - including agreements supplying the Company withcertain Applera equipment, reagents and intellectual property rights.

 

Asat December 22, 2005, the foreign exchange rate of one Australian dollar to oneUS dollar was 0.7386, which is less than the foreign exchange rate at June 30,2005 of 0.7618.  Management is unable toassess the impact of this change on the accounts.

 

Since the end of the financial year, a total of 3,450,000unlisted options have been issued under the Staff Share Plan as follows:

 
| **Description**                                                                                 | ** ** | **Number** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|
| Directors’ options with an exercise price of AUD56  cents each, expiring November 23, 2011 |       | 1,000,000  |       |
| Staff options with an exercise price of AUD53 cents  each, expiring August 12, 2011             |       | 1,000,000  |       |
| Staff options with an exercise price of AUD43 cents  each, expiring August 12, 2011             |       | 1,450,000  |       |

 

The financial effects of the above have not beenbrought to account in the financial statements for the year ended June 30, 2005.

 

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