GENETIC TECHNOLOGIES LIMITED — Interim / Quarterly Report 2005

Jan 30, 2005

GENETIC TECHNOLOGIES LIMITED

A.B.N. 17 009 212 328

Quarterly Activities Report and Appendix 4C of the ASX Listing Rules

for the quarter ended

31 DECEMBER 2004

GENETIC TECHNOLOGIES LIMITED

QUARTERLY ACTIVITIES REPORT FOR THE QUARTER ENDED 31 DECEMBER 2004

GENETIC TESTING

Family relationships. GTG has expanded the marketing of its range of paternity and relationship testing services through new websites, information brochures and direct consultation with potential user groups. The Company's family relationship testing business continued to deliver quarterly revenues in line with the Group's cash flow forecasts for the 2005 financial year.

Diagnostics. In early November 2004, GTG announced that it had secured the world-wide testing and marketing rights, including exclusivity for Australia and New Zealand, to new tests for predisposition to epilepsy, developed by Bionomics Limited in South Australia. The first test to be launched by GTG under this program will identify cases of severe myoclonic epilepsy in infants (SMEI), a serious form of epilepsy in children. It is expected that the test will be available from February 2005.

Forensics. GTG continues to work closely with state police departments with a view to clearing forensic DNA sample backlogs. If successful, testing of samples could commence towards the middle of calendar vear 2005. This same forensic DNA testing expertise was offered to the Australian and certain Asian Governments in the immediate aftermath of the 2004 Boxing Day Tsunami, to assist with the timely identification of victims. As a nominated contractor to the disaster relief organisation. Kenvon International Emergency Services, GTG is recognised and available to provide such services.

The Company's capabilities in forensic testing have also expanded beyond humans, with GTG recently receiving canine forensic samples from several clients, including the greyhound industry. GTG is in a strong position to provide canine forensics, given its canine profiling expertise (within Australia) and its recent acquisition of exclusive canine marker technology from MetaMorphix Inc. in the United States.

Animals. The Company's canine testing program continues to grow, assisted by the regular attendance of GTG staff at animal events and concerted publicity regarding the provision of DNA testing services to dog breeders through a program endorsed by the Australian National Kennel Council (ANKC). The ANKC program provides parentage testing services for pedigree assurance and genetic testing for several of the most common canine genetic diseases. Early feedback from Greyhounds Australasia, with whom GTG has recently executed a five-year service testing contract, has been positive after receiving test reports for over 330 greyhounds during the December quarter.

Recently-acquired access to the MetaMorphix technology for bovine parentage and profiling provides GTG with a strong competitive position for the genetic testing of cattle in Australasia and also China. As announced, during the quarter, the Company has been formally invited to take a leading role in bringing new technologies to China, as part of a potentially valuable multi-year program to significantly increase milk production in that country.

Plants. During the December quarter, AgGenomics, the Company's joint venture with the Victorian State Government, executed an agreement for the development of a varietal identification assay for barley. The agreement between the Company and New Zealand company A2 Corporation Limited, to conduct genotyping of more than 5,000 dairy cattle has now ended.

Sports performance. GTG's ACTN3 Sports Performance Test™ has sparked considerable initial interest around the world, with indications that support for this unique test could be expected from a number of elite athletic training institutes. Current marketing initiatives have identified sports associations and budding athletes-to-be, as well as serious competition athletes and gym goers, as significant potential markets. The initial campaign will focus on Australia, but the test is expected to gain acceptance in North America, Europe and China. The world's largest cable sports channel, the US-based ESPN, will air a program on the test and feature it on its website and in its magazine during February 2005. This channel has in the order of 60 million viewers worldwide.

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GENETIC TECHNOLOGIES LIMITED Quarterly Activities Report for the quarter ended 31 December 2004

LICENSING

Genzyme. As mentioned in the previous Quarterly Activities Report. GTG signed its biggest license to date with Genzyme Corporation, a significant biotechnology company listed on NASDAQ (GENZ) based in Massachusetts USA. Under the license. Genzyme paid a signing fee of \$7.5 million. \$5 million of which was paid in cash and received by GTG on 15 October 2004. The remaining \$2.5 million will be satisfied by the licensing of certain intellectual property owned by Genzyme, the details of which are being negotiated by the parties. In addition to the initial fees, Genzyme will also pay GTG a fee of \$1 million per annum for the life of the non-coding patents (currently till 2015).

MetaMorphix. In October 2004, GTG signed two agreements with MetaMorphix, Inc. of Maryland USA, generating initial and recurring cash revenues and access to valuable intellectual property for use in GTG's genetic testing business. Under the first agreement, GTG granted to MetaMorphix a non-exclusive world-wide license to the GTG non-coding patents, limited to livestock, aguaculture and companion animals. The signing fee plus annual payments to be received by GTG in cash under this agreement was \$1.8 million. Under the second agreement, GTG acquired from a MetaMorphix subsidiary a license to a range of diagnostic assays and testing rights for cattle and dogs. These rights, for which GTG made a one-time, all-inclusive payment to MetaMorphix, will be applied by GTG to the provision of improved genetic tests for animals.

ViaLactia. Also during October 2004, GTG granted a commercial licence to ViaLactia Biosciences Limited in New Zealand. This was an extension of ViaLactia's original research licence to apply the GTG non-coding patents to ViaLactia's research program in the dairy industry.

Bionomics. In November 2004, a strategic alliance was struck by GTG with Bionomics Limited of South Australia to commercialise new genetic tests for epilepsy. GTG granted Bionomics a license to the GTG non-coding patents and Bionomics granted GTG world-wide testing and marketing rights, including exclusivity for Australia and New Zealand, to new tests for predisposition to epilepsy developed by Bionomics. As mentioned, the first test to be launched by GTG under this program will identify cases of severe myoclonic epilepsy in infants (SMEI) – a serious form of epilepsy in children.

AGRF. Subsequent to the end of the quarter, GTG granted a commercial license to its non-coding patents to the Australian Genome Research Facility Limited ("AGRF"). Part of the consideration for the license will be paid to GTG in cash and part will be paid "in-kind" - in the form of services which GTG will be able to access from AGRF's extensive facilities for genetic analysis.

RESEARCH AND DEVELOPMENT

RareCellect^®. RareCellect^® is a program to develop a widely applicable, non-invasive, pre-natal genetic test based on the successful isolation of foetal cells from maternal blood. Research efforts during the quarter continued with the optimisation of the procedure to facilitate commercialisation of a standard prenatal test for the pregnancy market, estimated to be in excess of \$3.5 billion annually.

ImmunAid. The ImmunAid project aims to improve the efficacy of cancer therapy and treatment of HIV-AIDS by developing a test that can be used to assist in the delivery of intervention therapies. A new research and development program commenced during the quarter at the University of Western Australia to identify novel markers to assist with the timing of such treatments.

PGGP. The first test, to sub-type the parasite Cryptosporidium spp., has been transferred to a water analysis laboratory for commercial application. Research is continuing in relation to the second program, which seeks to discover new drug targets for the control of intestinal parasitic diseases in livestock.

C.Y. O'Connor. Programs including research into marker-assisted diagnostics for tissue typing of human diseases and selected traits in sheep and dogs continued at the C.Y. O'Connor ERADE Village Foundation in W.A. during the quarter.

King's College London. Work focusing on the identification of polymorphisms of potential diagnostic use at King's College London continued during the period under review.

GENETIC TECHNOLOGIES LIMITED

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Quarterly Activities Report for the quarter ended 31 December 2004

Patents. During the period, the following changes occurred in the Company's growing patent portfolio:

• The third patented invention of the RareCellect® project entered National Phase Examination; ⋟
• ImmunAid's fourth patented invention entered National Phase Examination: ⋟
• $\geq$ C.Y. O'Connor's second Patent Application was withdrawn to enable the addition of further data and refiling of a strengthened application; and
• ⋟ A Patent Application was filed by King's College London covering tests for predispositions to addictive states.

CORPORATE MATTERS

Applera. Following the favourable ruling handed down by the United States District Court in California in mid-September 2004 in the "Markman hearing", GTG and Applera Corporation entered into a process of mediation. A first mediation conference took place in San Francisco on 14 December 2004. The parties subsequently agreed to continue this process and a further mediation conference is now scheduled for 16 February 2005.

New Zealand. GTG is also currently in discussions with certain parties in New Zealand, further to the filing of a complaint of "uniustified threats" in August 2004.

Changes to capital structure. During the period under review, the Company issued a total of 1,099,636 ordinary shares arising from the exercise of the same number of "Vendor" options, each with an exercise price of \$0.20. The exercise of these options raised a total of \$219,927 for the Company. As at the date of this Report, a total of 299,030,041 ordinary shares were on issue. During the same period, a total of 500,000 options were issued under the Company's Staff Share Plan, each with an exercise price of \$0.48 and an expiry date of 19 April 2010.

NASDAQ. Subsequent to the end of the quarter, GTG received audit clearance of its US GAAP financial statements for the four years ended 30 June 2001, 2002, 2003 and 2004 from its auditors, Ernst & Young. The statements form an integral part of the Company's package of documents required for submission to the US Securities and Exchange Commission to complete its Level 2 ADR program. The successful completion of this program will enable the ADRs to be traded on the "Small Cap" NASDAQ market. The listing of the ADRs on NASDAQ will provide the Company with access to the vast US capital markets and invaluable exposure for GTG amongst US and European investors.

Board changes. In late November 2004, GTG was delighted to announce the appointment of former Federal Treasurer, John S. Dawkins AO, to its Board. Mr. Dawkins represented the Australian Labor Party in the House of Representatives for a total of 18 years. Since leaving public life, Mr. Dawkins has been actively involved in a wide range of business activities and brings a wealth of experience to the Board. Mr. Dawkins filled a casual vacancy created by the resignation of Mr. Ian Dennis, who continues to hold the position of Company Secretary.

Signed on behalf of Genetic Technologies Limited

Dated this 31^st day of January, 2005.

DR. MERVYN JACOBSON Executive Chairman

Rule 4.7B

Appendix 4C

Quarterly report for entities admitted on the basis of commitments

Introduced 31/3/2000. Amended 30/9/2001

Name of entity

GENETIC TECHNOLOGIES LIMITED

ABN

17 009 212 328

Quarter ended ("current quarter")

31 DECEMBER 2004

Consolidated statement of cash flows

Cash flows related to operating activities		Current quarter SA'000	Year to date $(6$ months) \$A'000
1.1	Receipts from customers	7,259	8,391
1.2	(a) staff costs Payments for (b) advertising and marketing (c) research and development (d) leased assets (e) other working capital	(1,126) (190) (607) (2,675)	(2,154) (302) (1,183) (5,096)
1.3 1.4	Dividends received Interest and other items of a similar nature received	129	238
1.5 1.6 1.7	Interest and other costs of finance paid Income taxes paid Other (provide details if material)
	Net operating cash flows	2,790	(106)

⁺ See chapter 19 for defined terms.

		Current quarter \$A'000	Year to date $\binom{6}{16}$ months) \$A'000
1.8	Net operating cash flows (carried forward)	2,790	(106)
1.9	Cash flows related to investing activities Payment for acquisition of:
	(a) businesses (item 5) (b) equity investments (c) intellectual
	property (d) physical non-
	current assets (e) other non-current	(586)	(691)
1.10	assets Proceeds from disposal of:
	(a) businesses (item $5$ ) (b) equity investments (c) intellectual
	property (d) physical non-
	current assets (e) other non-current
	assets
1.11 1.12 1.13	Loans to other entities Loans repaid by other entities Other (provide details if material)
	Net investing cash flows	(586)	(691)
1.14	Total operating and investing cash flows	2,204	(797)
1.15 1.16 1.17 1.18 1.19	Cash flows related to financing activities Proceeds from issues of shares, options, etc. Proceeds from sale of forfeited shares Proceeds from borrowings Repayment of borrowings Dividends paid	257	478
1.20	Other (provide details if material)
	Net financing cash flows	257	478
	Net increase (decrease) in cash held	2,461	(319)
1.21 1.22	Cash at beginning of quarter/year to date Exchange rate adjustments to item 1.20	8,535 (139)	11,363 (187)
1.23	Cash at end of quarter	10,857	10,857

⁺ See chapter 19 for defined terms.

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

		Current quarter \$A'000
1.24	Aggregate amount of payments to the parties included in item 1.2	270
1.25	Aggregate amount of loans to the parties included in item 1.11	$\overline{\phantom{a}}$

$1.26$ Explanation necessary for an understanding of the transactions The amount included at Item 1.24 includes \$197,851 in consulting fees, directors fees, superannuation and salaries paid to Directors and entities associated with Directors during the quarter. The amount also includes rental and outgoings of \$72,615 for the Melbourne laboratory premises paid to an entity associated with a director.

Non-cash financing and investing activities

• $2.1$ Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows
• $2.2$ Details of outlays made by other entities to establish or increase their share in businesses in which the reporting entity has an interest

The Company has a minority interest (18.62%) in the Duketon Belt Joint Venture in Western Australia. No cash was contributed by the Company during the quarter.

Financing facilities available

Add notes as necessary for an understanding of the position. (See AASB 1026 paragraph 12.2).

		Amount available \$A'000	Amount used \$A'000
3.1	Loan facilities		$\bullet$
3.2	Credit standby arrangements	AM

⁺ See chapter 19 for defined terms.

Reconciliation of cash

Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.		Current quarter \$A'000	Previous quarter \$A'000
4.1	Cash on hand and at bank	950	2.404
4.2	Deposits at call	9.907	6.131
4.3	Bank overdraft
4.4	Other (provide details)
	Total: cash at end of quarter (item 1.22)	10,857	8,535

Acquisitions and disposals of business entities

		Acquisitions (Item $1.9(a)$ )	Disposals (Item $I.I0(a)$ )
5.1	Name of entity
5.2	Place of incorporation or registration
5.3	Consideration for acquisition or disposal
5.4	Total net assets
5.5	Nature of business

Compliance statement

• $\mathbf{I}$ This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act (except to the extent that information is not required because of note 2) or other standards acceptable to ASX.
• $\overline{2}$ This statement does give a true and fair view of the matters disclosed.

Sign here: ...................................... Company Secretary

Print name: IAN ALISTAIR DENNIS

Notes

⁺ See chapter 19 for defined terms.

• $\mathbf{1}$ . The quarterly report provides a basis for informing the market how the entity's activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.
• The definitions in, and provisions of, AASB 1026: Statement of Cash Flows apply to this $\overline{2}$ . report except for the paragraphs of the Standard set out below.
• $6.2$ - reconciliation of cash flows arising from operating activities to $\bullet$ operating profit or loss
• $9.2$ - itemised disclosure relating to acquisitions
• itemised disclosure relating to disposals 9.4 $\bullet$
• $12.1(a)$ policy for classification of cash items
• disclosure of restrictions on use of cash $12.3$
• 13.1 - comparative information
• $\overline{3}$ . Accounting Standards. ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

⁺ See chapter 19 for defined terms.