GENETIC TECHNOLOGIES LIMITED — Interim / Quarterly Report 2004

Feb 26, 2004

Half-Year Report of Genetic Technologies Limited for the Six Month Period Ended 31 December 2003

ACN 009 212 328

This Half-Year Report is provided to the Australian Stock Exchange (ASX) under ASX Listing Rule 4.2A.3.

Current Reporting Period:	Half year ending 31 December 2003
Previous Corresponding Period:	Half year ending 31 December 2002

Results for the Half-Year Ended 31 December 2003 for Announcement to the Market

Revenue and Net Profit/(Loss)

		Percentage Change $\frac{0}{0}$	Amount
Revenue from ordinary activities	down	49	To \$2,466,807
Profit/(loss) from ordinary activities after tax attributable to members	up	204	To $(S5, 103, 989)$
Net profit/(loss) attributable to members	up	204	To $($ 55,103,989 $)$

Dividends (Distributions)

	Amount per security	Franked amount per security
Final dividend	Nile	Nil¢
Interim dividend	Nile	Nile
Record date for determining entitlements to the dividend:
final dividend $\bullet$		N/A
interim dividend $\bullet$		N/A

Please refer to Note 3 in the Notes to the Financial Statements for the Half-Year ended 31 December 2003 for a commentary on the results.

Directors' Report

The directors of Genetic Technologies Limited (the "Company") submit herewith the financial report for the half-year ended 31 December 2003. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

The names of the directors of the Company during or since the end of the half year are:

Dr Mervyn Jacobson (Executive Chairman) Mr Fred Bart (Deputy Chairman) Mr Ian Alistair Dennis Prof Deon Venter Mr Russell Granzow

Review of Operations

The consolidated entity continues to operate in the biotechnology sector.

Further information concerning the operations and financial condition of the consolidated entity can be found in the financial report and in releases made to the Australian Stock Exchange (ASX) during the half year.

Signed in accordance with a resolution of the directors

$\mathcal{M}$

I.A Dennis Director Sydney, 24 February 2004

Consolidated Statement of Financial Performance For the Half-Year Ended 31 December 2003

	Note	6 months to 31 December 2003 \$	6 months to 31 December 2002 \$
Revenue from ordinary activities		2,466,807	4,858,300
Administrative expenses Amortisation Cost of investments sold Depreciation Employee benefits expenses Foreign exchange losses Legal and patent fees Loss on sale of fixed assets Operating lease rentals Research and development Testing supplies and services Writeup (writedown) of investments		(1, 149, 045) (1,671,228) (240, 335) (240,065) (1,705,202) (418, 288) (505, 154) (218, 436) (217, 299) (945, 984) 173,449	(423, 496) (1,704,568) (60, 474) (1, 120, 845) (480, 646) (237, 482) (71, 450) (217, 380) (301,758) (1,048,287) (335,964)
Other expenses from ordinary activities		(369, 453) (7,507,040)	(597, 753) (6,600,103)
Loss From Ordinary Activities Before Income Tax Expense/(Benefit) Income tax expense/(benefit) relating to ordinary activities	2	(5,040,233)	(1,741,803)
Loss From Ordinary Activities After Related Income Tax Expense/(Benefit)		(5,040,233)	(1,741,803)
Net (profit) loss attributable to outside equity interests		(63,756)	62,541
Net loss attributable to members of the parent entity	5	(5, 103, 989)	(1,679,262)
(Decrease)/increase in foreign currency translation reserve arising on translation of self-sustaining foreign operations
Total Revenue, Expense and Valuation Adjustments Attributable to Members of the Parent Entity Recognised Directly in Equity		(37, 981) (37,981)	524,565 524,565
Total Changes In Equity Other Than Those Resulting From Transactions With Owners As Owners		(5, 141, 970)	(1, 154, 697)
Basic earnings per share Diluted earnings per share		(1.9) (1.9)	(0.6) (0.6)

Consolidated Statement of Financial Position As at 31 December 2003

		31 December 2003	30 June 2003
	Note	\$	\$
Current Assets
Cash assets		12,999,466	5,828,540
Receivables		429,208	1,236,596
Investments		184,580	258,341
Other current financial assets		38,655	49,750
Total Current Assets		13,651,909	7,373,227
Non-Current Assets
Property, plant and equipment		1,419,440	1,490,140
Investments		676,598	749,528
Intangibles		18,953,872	20,632,107
Total Non-Current Assets		21,049,910	22,871,775
Total Assets		34,701,819	30,245,002
Current Liabilities
Payables		1,362,431	2,715,053
Provisions		281,494	253,089
Total Current Liabilities		1,643,925	2,968,142
Total Liabilities		1,643,925	2,968,142
Net Assets		33,057,894	27,276,860
Equity
Contributed equity		50,549,826	39,684,101
Reserves		654,329	692,310
Accumulated losses	5	(18,088,914)	(12,984,925)
		33,115,241	27,391,486
Parent Entity Interest
Outside equity interests		(57, 347)	(114, 626)
Total Equity		33,057,894	27,276,860

Consolidated Statement of Cash Flows For the Half-Year Ended 31 December 2003

		6 months to 31	6 months to 31
	Note	December 2003 \$	December 2002 \$
Cash Flows From Operating Activities
Receipts from customers		2,100,711	3,814,087
Payments to suppliers and employees		(5,807,659)	(3,972,643)
Interest and bill discounts received		140,326	57,300
Other		276,381	52,177
Net cash (used in) operating activities	6(b)	(3,290,241)	(49,079)
Cash Flows From Investing Activities
Proceeds on sale of investment securities		393,936
Payment for property, plant and equipment		(422, 692)	(55, 334)
Net cash provided by/(used in) investing activities		(28, 756)	(55, 334)
Cash Flows From Financing Activities
Proceeds from issues of equity securities		9,650,000
Proceeds from the exercise of options		1,215,725
Net cash provided by financing activities		10,865,725
Net increase/(Decrease) in Cash Heid		7,546,728	(104, 413)
Cash At The Beginning Of The Half Year		5,828,540	7,160,299
Effects of exchange rate changes on the balance of cash held in foreign currencies		(375, 802)	(22,000)
Cash At The End Of The Half Year	6(a)	12,999,466	7,033,886

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

1. Basis of Preparation of Half-Yearly Financial Report

The half-year report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report.

The half-year financial report should be read in conjunction with the Annual Financial Report of Genetic Technologies Limited as at 30 June 2003. It is also recommended that the half-year financial report should be considered with any public announcements made by Genetic Technologies Limited and its controlled entities during the half-year ended 31 December 2003 in accordance with continuous disclosure obligations arising under the Corporations Act 2001

This preliminary final report has been prepared in accordance with ASX Listing Rule 4.2A.3 and the disclosure requirements of ASX Appendix 4D.

(a) Basis of accounting

The half-year financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, applicable Accounting Standards including AASB 1029 "Interim Financial Reporting" and other mandatory professional requirements (Urgent Issues Group Consensus Views).

The half-year financial report has been prepared in accordance with the historical cost convention.

For the purpose of preparing the half-year report, the half-year has been treated as a discrete reporting period.

(b) Changes in accounting policies

(i) Revenue recognition of license income

During the half-year period, the Company changed its revenue recognition policy in respect of licensing income to fully align its policy in accordance with US GAAP financial requirements. The US GAAP requirements comply with Australian Accounting Standards, however, are far more prescriptive than the Australian Accounting Standards. The revenue recognition policy for license income is that license fee income is booked on the execution of a binding agreement where the income is fixed and determinable, and collection is reasonably assured. Any securities component of the upfront license fee is booked 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 of the latest capital raising by the licensee in the case of unlisted securities.

Due to the extended payment terms of certain contracts, revenue will not be recognised until the license fees are collected. The financial effect of these adjustments was that revenue previously recognised of \$333,555 was reversed in the current period. There was no impact on the comparative numbers for 2002. The adoption of the US GAAP policies was to ensure that in future periods the revenue reported under Australian Accounting Standards will be the same as the revenue reported under US GAAP, which will assist the Company when it lists its Level 2 Sponsored American Depository Receipts on NASDAQ.

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

			6 months to 31 December 2003 \$	6 months to 31 December 2002 \$
2.		(Loss)/Profit From Ordinary Activities
		Profit/(loss) from ordinary activities before income tax includes the following items of revenue and expense:
	(a)	Revenue
		Rendering of services	1,542,793	1,614,117
		Licensing and royalty income	24,808	3,160,714
		Proceeds on sale of investments	393,936
		Interest received	208,830	57,300
		Grant income	251,983
		Other revenue	44,457	26,169
		Total revenue	2,466,807	4,858,300
	(b)	Expenses
		Depreciation of non-current assets	240.065	60,474
		Amortisation of non-current assets	1,671,228	1,704,568

3. Commentary on Results

The loss for the half-year was \$5,103,989, which was \$3,424,727 higher than in the previous corresponding period. The increased loss was mainly attributed to lower licensing revenue compared to the previous period and the effect of the change in the revenue recognition policy of licensing income which resulted in a reduction of licensing income previously recognized of \$333,555 in the half-year ended 31 December 2003. No adjustment was required for the comparative period. Refer to Note 1 for further information.

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

		6 months to 31 December 2003 \$	6 months to 31 December 2002 \$
	4. Sales of Assets
	Sales of assets in the ordinary course of business have given rise to the following profits and losses: Net Profits
	Investments	153,601
	Net Losses
	Property, plant and equipment		71,450
		31 December 2003	30 June 2003
5.	Accumulated Losses
	Balance at beginning of financial period Net (loss) / profit for the period	(12, 984, 925) (5,103,989)	(8,824,594) (4,160,331)
	Balance at end of financial period	(18,088,914)	(12, 984, 925)

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

	6 months to 31 December 2003 \$	6 months to 31 December 2002 \$
Notes to the Statement of Cash Flows 6.
(a) Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial period as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows:
Cash	12,999,466	7,033,886
(b) Reconciliation of (Loss) / Profit From Ordinary Activities After Related Income Tax to Net Cash Flows From Operating Activities
(Loss)/Profit from ordinary activities after related income tax	(5,040,233)	(1,741,803)
Write down (up) of value of investments	(173, 449)	335,964
(Profit) on sale of investments	(153,601)
Depreciation of plant and equipment	240,065	60,474
Amortisation of goodwill/patents	1,671,228	1,704,568
Loss on sale of property, plant and equipment		71,450
Securities received as part of sales		(350,904)
Foreign exchange movements	424,633	494,094
Write up of value of investment	(6, 477)
Changes in assets and liabilities:
(Increase)/decrease in assets:
Current receivables	407,121	(359, 447)
Other current financial assets	11,095	20,000
Other current assets		15,078
Increase/(decrease) in liabilities:
Current trade payables	(699, 028)	(92, 557)
Other current liabilities		(239, 464)
Provisions for employee entitlements	28,405	33,468
Net cash (used) in operating activities	(3,290,241)	(49,079)

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

7. Earnings Per Share

ZUUJ $\phi$ per share	ZUUZ ¢ per share
$(1.9 \text{ cents})$	$(0.6$ cents)
$(1.9 \text{ cents})$	$(0.6$ cents)

AAAA

$\sim$

Basic Earnings per Share

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

	6 months to 31 December 2003 5	6 months to 31 December June 2002 5
Earnings (a)	(5,103,989)	(1,679,262)
	2003 No.	2002 No.
Weighted average number of ordinary shares used in the calculation of basic earnings per share	274,207,046	261,429,879

(a) Earnings used in the calculation of basic earnings per share is the same as net (loss) profit in the statement of financial performance.

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

7. Earnings Per Share (cont)

Diluted Earnings per Share

The earnings and weighted average number of ordinary and potential ordinary shares used in the calculation of diluted earnings per share are as follows:

$\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$	6 months to 31 December 2003 S	6 months to 31 December 2002 S.
Earnings (a)	(5,103,989)	(1,679,262)
	2003 No.	2002 No.
Weighted average number of ordinary shares and potential ordinary shares (b)	274,207,046	261,429,879

(a) Earnings used in the calculation of diluted earnings per share is the same as net profit (loss) in the statement of financial performance.

(b)The following are considered to be potential ordinary shares but are not dilutive and are therefore excluded from the weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share.

Vendor options	65,969,250	69,256,250
Directors options -45 cents	1.000.000	2,000,000
Directors options $-48$ cents	2,000,000	۰
Placement options	6,666,666	-
Staff Share Plan	11,232,501	8,970,000
Total unlisted options	86,868,417	80,226,250

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

8. Net Tangible Assets Per Security

2003	2002
$5.0$ cents	2.9 cents

9. Details of Entities Over Which Control Has Been Gained or Lost

Control gained over entities - None

Name of entity (or group of entities)

Net tangible assets per security

Date control gained

10. Segment Information

	External Sales			Total
	6 months to 31 December	6 months to 31 December	6 months to 31 December	6 months to 31 December
	2003	2002	2003	2002
Biotechnology	1,776,431	4,832,131	1,776,431	4,832,131
Investment	393,936		393,936
Other	296,440	26,169	296,440	26,169
Total of all segments	2,466,807	4,858,300	2,466,807	4,858,300
Eliminations
Unallocated
Consolidated	2.466,807	4,858,300	2.466,807	4.858,300

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

10. Segment Information (continued)

Segment Results
	6 months to 31 December 2003	6 months to 31 December 2002
Biotechnology	(5,367,283)	(1,405,839)
Investment	327,050	(335,964)
Other
Total of all segments	(5,040,233)	(1,741,803)
Unallocated
Loss from ordinary activities before income tax expense	(5,040,233)	(1,741,803)
Income tax expense relating to ordinary activities
Loss from ordinary activities after related income tax expense	(5,040,233)	(1,741,803)

11. Subsequent Events

On 9 February 2004, the Company announced a new licensing deal with Laboratory Corporation of America Holdings, or "LabCorp", as it is more commonly known. Financial details of the license granted to LabCorp are covered by confidentiality, but GTG can report that this license grants rights to the GTG non-coding analysis patents and the GTG non-coding mapping patents. In return, GTG will now receive a signing fee plus annual payments from LabCorp for the life of these patents that is, through 2015.

Notes to the Financial Statements for the Half-Year Ended 31 December 2003

Directors' Declaration

The directors declare that:

a) the attached financial statements and notes thereto comply with Accounting Standards;

b) the attached financial statements and notes thereto give a true and fair view of the financial position and performance of the consolidated entity;

c) in the directors' opinion, the attached financial statements and the notes thereto are in accordance with the Corporations Act 2001; and

d) in the directors' opinion there are reasonable grounds to believe that the disclosing entity will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors made pursuant to s.303(5) of the Corporations Act 2001.

On behalf of the Directors

I A Dennis Director Sydney, 24 February 2004

EIFRICT & YOUNG

The frast & Young Suilding 32.1 Kesit Singan Spring NSW 2000 Australia

■ 12 012 0248 5355 $-1$ ax $-61.2.9262.6565$ - OK - Rydney Serk forbange 70172

机转变率 核组织 医院溶胶 Salvey NBW 3601

Independent review report to members of Genetic Technologies Limited

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows and accompanying notes to the financial statements and the other information set out in Appendix 4D to the Australian Stock Exchange (ASX) Listing Rules for the consolidated entity comprising both Genetic Technologies Limited (the company) and the entities it controlled during the half-year, and the directors' declaration, for the company, for the half-year ended 31 December 2003.

The directors of the company are responsible for preparing a financial report that gives a true and fair view of the financial position and performance of the consolidated entity, and that complies with Accounting Standard AASB 1029 "Interim Financial Reporting", in accordance with the Corporations Act 2001, and the ASX Listing Rules as they relate to Appendix 4D. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Review approach

We conducted an independent review of the financial report in order to make a statement about it to the members of the company, and in order for the company to lodge the financial report with the ASX and the Australian Securities and Investments Commission.

Our review was conducted in accordance with Australian Auditing Standards applicable to review engagements, in order to state whether, on the basis of the procedures described, anything has come to our attention that would indicate that the financial report is not presented fairly in accordance with the Corporations Act 2001, Accounting Standard AASB 1029 "Interim Financial Reporting" and other mandatory professional reporting requirements in Australia, and the ASX Listing Rules as they relate to Appendix 4D, so as to present a view which is consistent with our understanding of the consolidated entity's financial position, and of its performance as represented by the results of its operations and cash flows.

A review is limited primarily to inquiries of company personnel and analytical procedures applied to the financial data. These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Independence

We are independent of the company, and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. In addition to our review of the financial report, we were engaged to undertake other non-audit services. The provision of these services has not impaired our independence.

Statement

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the financial report, as defined in the scope section, of the consolidated entity Genetic Technologies Limited and the entities it controlled during the half-year is not in accordance with:

• the Corporations Act 2001, including: $(a)$
• giving a true and fair view of the financial position of the consolidated entity at $(i)$ 31 December 2003 and of its performance for the half-year ended on that date; and
• complying with Accounting Standard AASB 1029 "Interim Financial $(ii)$ Reporting" and the Corporations Regulations 2001; and
• other mandatory financial reporting requirements in Australia and the ASX Listing $(b)$ Rules as they relate to Appendix 4D.

$\sum_{k} x_k$

Ernst & Young

$LALam$

E A Lang Partner Sydney 25 February 2004