Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 20-F

 

o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

OR

 

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2019

 

 

OR

 

 

o

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

 

For the transition period from            to

OR

 

 

o

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

 

Commission file number 000-51504

 

GENETIC TECHNOLOGIES LIMITED

(Exact name of Registrant as specified in its charter
and translation of Registrant’s name into English)

 

Australia

(Jurisdiction of incorporation or organization)

 

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

(Address of principal executive offices)

 

Dr. Jerzy Muchnicki, Interim Chief Executive Officer and Chairman

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

Telephone: 011 61 3 8412 7000; Facsimile: 011 61 3 8412 7040

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

 

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which
registered

 

 

 

 

 

N/A

 

N/A

 

N/A

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: American Depositary Shares, each representing 600 Ordinary Shares

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

There were 2,938,134,143 Ordinary Shares outstanding as of June 30, 2019

 

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

o Yes   x No

 

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

o Yes   x No

 

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

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

x Yes   o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

 

 

Emerging growth company o

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 


The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP o

 

International Financial Reporting Standards as issued
by the International Accounting Standards Board
x

 

Other o

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17   o Item 18

 

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

o Yes   x No

 


Table of Contents

 

TABLE OF CONTENTS

 

Item 1.

Identity of Directors, Senior Management and Advisers

1

 

 

 

Item 2.

Offer Statistics And Expected Timetable

1

 

 

 

Item 3.

Key Information

1

 

 

 

Item 3.A

Selected Financial Data

1

 

 

 

Item 3.B

Capitalization and Indebtedness

4

 

 

 

Item 3.C

Reasons for the Offer and Use of Proceeds

4

 

 

 

Item 3.D

Risk Factors

5

 

 

 

Item 4.

Information on the Company

17

 

 

 

Item 4.A

History and Development of the Company

17

 

 

 

Item 4.B

Business Overview

19

 

 

 

Item 4.C

Corporate Structure

28

 

 

 

Item 4.D

Property, Plant and Equipment

28

 

 

 

Item 5.

Operating and Financial Review and Prospects

29

 

 

 

Item 5.A

Operating Results

29

 

 

 

Item 5.B

Liquidity and Capital Resources

33

 

 

 

Item 5.C

Research and Development, Patents and Licenses, etc.

34

 

 

 

Item 5.D

Trend Information

34

 

 

 

Item 5E.

Off-balance sheet arrangements

35

 

 

 

Item 5F.

Information about contractual obligations

35

 

 

 

Item 6.

Directors, Senior Management and Employees

36

 

 

 

Item 6.A

Directors and Senior Management

36

 

 

 

Item 6.B

Compensation

37

 


Table of Contents

 

Item 6.C

Board Practices

45

 

 

 

Item 6.D

Employees

47

 

 

 

Item 6.E

Share Ownership

48

 

 

 

Item 7.

Major Shareholders and Related Party Transactions

48

 

 

 

Item 7.A

Major Shareholders

48

 

 

 

Item 7.B

Related Party Transactions

48

 

 

 

Item 7.C

Interests of Experts and Counsel

52

 

 

 

Item 8.

Financial Information

52

 

 

 

Item 8.A

Consolidated Statements and Other Financial Information

52

 

 

 

Item 8.B

Significant Changes to Financial Information

53

 

 

 

Item 9.

The Offer and Listing

53

 

 

 

Item 9.A

Offer and Listing Details

53

 

 

 

Item 9.B

Plan of Distribution

53

 

 

 

Item 9.C

Markets

53

 

 

 

Item 9.D

Selling Shareholders

53

 

 

 

Item 9.E

Dilution

53

 

 

 

Item 9.F

Expenses of the Issue

53

 

 

 

Item 10.

Additional Information

54

 

 

 

Item 10.A

Share Capital

54

 

 

 

Item 10.B

Our Constitution

54

 

 

 

Item 10.C

Material Contracts

55

 

 

 

Item 10.D

Exchange Controls and Other Limitations Affecting Security Holders

56

 

 

 

Item 10.E

Taxation

57

 

 

 

Item 10.F

Dividends and Paying Agents

64

 

 

 

Item 10.G

Statement by Experts

64

 

 

 

Item 10.H

Documents on Display

64

 

 

 

Item 10.I

Subsidiary Information

64

 

 

 

Item 11.

Quantitative And Qualitative Disclosures About Market Risk

64

 

ii


Table of Contents

 

Item 12.

Description Of Securities Other Than Equity Securities

65

 

 

 

Item 12.A

Debt Securities

65

 

 

 

Item 12.B

Warrants and Rights

65

 

 

 

Item 12.C

Other Securities

65

 

 

 

Item 12.D

American Depositary Shares

66

 

 

 

Item 13.

Defaults, Dividend Arrearages and Delinquencies

66

 

 

 

Item 14.

Material Modifications to The Rights Of Security Holders and Use Of Proceeds

66

 

 

 

Item 15.

Controls and Procedures

67

 

 

 

Item 15.A

Disclosure controls and procedures

67

 

 

 

Item 15.B

Management’s annual report on internal control over financial reporting

67

 

 

 

Item 15.C

Attestation report of the registered public accounting firm

68

 

 

 

Item 15.D

Changes in internal control over financial reporting

68

 

 

 

Item 16.A

Audit Committee Financial Expert

69

 

 

 

Item 16.B

Code Of Ethics

69

 

 

 

Item 16.C

Principal Accountant Fees and Services

69

 

 

 

Item 16.D

Exemptions From The Listing Standards For Audit Committees

70

 

 

 

Item 16.E

Purchases Of Equity Securities By The Issuer And Affiliated Purchasers

70

 

 

 

Item 16.F

Change in Registrant’s Certifying Accountant

70

 

 

 

Item 16.G

Corporate Governance

70

 

 

 

Item 16.H

Mine Safety Disclosure

70

 

 

 

Item 17.

Financial Statements

70

 

 

 

Item 18.

Financial Statements

70

 

 

 

Item 19.

Exhibits

71

 

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INTRODUCTION

 

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

 

Our consolidated financial statements are set out beginning on page F1 of this Annual Report (refer to Item 18 “Financial Statements”).

 

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

 

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

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report contains forward-looking statements that involve risks and uncertainties.  We use words such as “anticipates”, “believes”, “plans”, “expects”, “future”, “intends” and similar expressions to identify such forward-looking statements.  This Annual Report also contains forward-looking statements attributed to certain third parties relating to their estimates regarding the growth of Genetic Technologies and 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 materially from 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 expectations reflected in such forward-looking statements are reasonable at this time, we can give no assurance that such expectations will prove to be correct.  Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.  Important factors that could cause actual results to differ materially from our expectations are contained in cautionary statements in this Annual Report including, without limitation, in conjunction with the forward-looking statements included in this Annual Report and specifically under Item 3.D “Risk Factors”.

 

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

 

ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS

 

We are incorporated under the laws of Western Australia in the Commonwealth of Australia.  The majority of our directors and executive officers, and any experts named in this Annual Report, reside outside the U.S.  Substantially all of our assets, our directors’ and executive officers’ assets and such experts’ assets are located outside the U.S.  As a result, it may not be possible for investors to affect service of process within the U.S. upon us or our directors, executive officers or such experts, or to enforce against them or us in U.S. courts, judgments obtained in U.S. courts based upon the civil liability provisions of the federal securities laws of the U.S.  In addition, we have been advised by our Australian solicitors that there is doubt that the courts of Australia will enforce against us, our directors, executive officers and experts named herein, judgments obtained in the U.S. based upon the civil liability provisions of the federal securities laws of the U.S. or will enter judgments in original actions brought in Australian courts based upon the federal securities laws of the U.S.

 

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Table of Contents

 

PART I

 

Item 1.           Identity of Directors, Senior Management and Advisers

 

Not applicable

 

Item 2.           Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3.           Key Information

 

Item 3.A        Selected Financial Data

 

The following selected financial data for the five years ended June 30, 2019 is derived from the audited consolidated financial statements of Genetic Technologies Limited, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, which became effective for our Company as of our fiscal year ended June 30, 2006.

 

The balance sheet data as of June 30, 2019 and 2018 and the statement of comprehensive income/(loss) data for the 2019, 2018 and 2017 fiscal years are derived from our audited consolidated financial statements which are included in this Annual Report.  Balance sheet data as of June 30, 2017, 2016 and 2015 and statements of comprehensive income/ (loss) data for the 2016 and 2015 financial years are derived from our audited consolidated financial statements which are not included in this Annual Report.  The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.

 

All amounts are stated in Australian dollars as of June 30, as noted.

 

1


Table of Contents

 

GENETIC TECHNOLOGIES LIMITED

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/ (LOSS)

FOR 2019, 2018, 2017, 2016 AND 2015

 

 

 

Year ended
June 30, 2019

 

Year ended
June 30, 2018

 

Year ended
June 30, 2017

 

Year ended
June 30, 2016

 

Year ended
June 30, 2015

 

 

 

AUD

 

AUD

 

AUD

 

AUD

 

AUD

 

 

 

(in A$, except loss per share and number of shares)

 

Revenue from operations

 

 

 

 

 

 

 

 

 

 

 

Genetic testing services

 

25,444

 

189,254

 

518,506

 

824,586

 

2,011,918

 

Less: cost of sales

 

(276,267

)

(300,088

)

(492,417

)

(743,060

)

(891,243

)

Gross profit/(loss) from operations

 

(250,823

)

(110,834

)

26,089

 

81,526

 

1,120,675

 

Other revenue

 

 

 

 

300,548

 

1,027,151

 

Selling and marketing expenses

 

(576,077

)

(1,066,404

)

(2,721,474

)

(3,186,497

)

(4,504,299

)

General and administrative expenses

 

(3,830,198

)

(3,015,818

)

(3,109,530

)

(3,429,357

)

(4,222,988

)

Licensing, patent and legal costs

 

 

 

 

(103,581

)

(435,418

)

Laboratory, research and development costs

 

(2,360,762

)

(2,210,498

)

(2,366,334

)

(2,584,752

)

(2,851,665

)

Finance costs

 

(20,031

)

(28,843

)

(31,995

)

(28,889

)

(264,694

)

Foreign exchange gains reclassified on liquidation of subsidiary

 

 

527,049

 

 

 

 

Other gains/(losses)

 

(407,482

)

 

 

 

 

Gain on disposal of business

 

 

 

 

 

1,396,798

 

Impairment of intangible asset expense

 

 

 

(544,694

)

 

 

Fair value loss on ImmunAid option fee

 

 

 

 

 

(795,533

)

 

 

 

 

 

 

 

 

 

 

 

 

Fair value gain/ (loss) on financial liabilities at fair value through profit or loss

 

 

 

 

 

349,246

 

Non-operating income and expenses

 

1,019,769

 

441,476

 

344,112

 

492,037

 

370,557

 

Profit/(loss) from continuing operations before income tax

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

(8,458,965

)

(8,810,170

)

Net profit from discontinued operation

 

 

 

 

 

 

Profit/(loss) before income tax

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

(8,458,965

)

(8,810,170

)

Income tax expense

 

 

 

 

 

 

Profit/(loss) for the year

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

(8,458,965

)

(8,810,170

)

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

 

Exchange gains/(losses) on translation of controlled foreign operations

 

23,668

 

(522,966

)

(130,655

)

1,307,219

 

414,005

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income/(loss) for the year, net of tax

 

23,668

 

(522,966

)

(130,655

)

1,307,219

 

414,005

 

Total comprehensive profit/(loss) for the year

 

(6,401,936

)

(5,986,481

)

(8,534,481

)

(7,151,746

)

(8,396,165

)

Profit/(loss) for the year is attributable to:

 

 

 

 

 

 

 

 

 

 

 

Owners of Genetic Technologies Limited

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

(8,458,965

)

(8,810,170

 

 

 

 

 

 

 

 

 

 

 

 

 

Total profit/(loss) for the year

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

(8,458,965

)

(8,810,170

)

Total comprehensive income/(loss) for the year is attributable to:

 

 

 

 

 

 

 

 

 

 

 

Owners of Genetic Technologies Limited

 

(6,401,936

)

(5,986,838

)

(8,534,481

)

(7,151,746

)

(8,396,165

 

Non-controlling interests

 

 

 

 

 

 

Total comprehensive profit/(loss) for the year

 

(6,401,936

)

(5,986,838

)

(8,534,481

)

(7,151,746

)

(8,396,165

)

 

 

 

 

 

 

 

 

 

 

 

 

Earnings/(loss) per share (cents per share)

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net profit/(loss) per ordinary share

 

(0.24

)

(0.22

)

(0.40

)

(0.49

)

(0.82

)

Weighted-average shares outstanding

 

2,635,454,870

 

2,435,282,724

 

2,121,638,888

 

1,715,214,158

 

1,072,803,358

 

 

2


Table of Contents

 

GENETIC TECHNOLOGIES LIMITED

 

CONSOLIDATED BALANCE SHEET DATA
FOR 2019, 2018, 2017, 2016 AND 2015

 

 

 

As of
June 30,
2019

 

As of
June 30,
2018

 

As of
June 30,
2017

 

As of
June 30,
2016

 

As of
June 30, 2015

 

 

 

AUD

 

AUD

 

AUD

 

AUD

 

AUD

 

 

 

(in A$)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

3,195,672

 

5,990,697

 

11,631,649

 

12,131,070

 

19,566,096

 

Non-current assets

 

69,333

 

175,284

 

476,648

 

1,158,616

 

1,153,636

 

Total assets

 

3,265,005

 

6,165,981

 

12,108,297

 

13,289,686

 

20,719,732

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

(1,492,990

)

(1,450,713

)

(1,465,293

)

(1,332,189

)

(1,735,163

)

Non-current liabilities

 

(809

)

(3,390

)

(63,960

)

(74,308

)

(25,321

)

Total liabilities

 

1,493,799

 

(1,454,103

)

(1,529,253

)

(1,406,497

)

(1,760,484

)

Net assets

 

1,771,206

 

4,711,878

 

10,579,044

 

11,883,189

 

18,959,248

 

Equity

 

 

 

 

 

 

 

 

 

 

 

Contributed equity

 

125,498,824

 

122,372,662

 

122,382,625

 

115,272,576

 

115,247,128

 

Reserves

 

6,009,932

 

5,651,162

 

6,044,493

 

6,054,861

 

4,697,403

 

Accumulated losses

 

(129,737,550

)

(123,311,946

)

(117,848,074

)

(109,444,248

)

(100,985,283

)

Non-controlling interests

 

 

 

 

 

 

Total equity

 

1,771,206

 

4,711,878

 

10,579,044

 

11,883,189

 

18,959,248

 

 

Exchange rates

 

The following table sets forth, for the periods and dates indicated, certain information concerning the noon buying rate in New York City for Australian dollars expressed in U.S. dollars per $1.00 as certified for customs purposes by the Federal Reserve Bank of New York.

 

Period ended

 

At period end
USD

 

Average rate
USD

 

High
USD

 

Low
USD

 

 

 

 

 

 

 

 

 

 

 

Yearly data

 

 

 

 

 

 

 

 

 

June 2015

 

0.7704

 

0.8365

 

0.9488

 

0.7566

 

June 2016

 

0.7432

 

0.7289

 

0.7817

 

0.6855

 

June 2017

 

0.7676

 

0.7562

 

0.7680

 

0.7387

 

June 2018

 

0.7399

 

0.7753

 

0.8105

 

0.7355

 

June 2019

 

0.7009

 

0.7153

 

0.7466

 

0.686

 

 

 

 

 

 

 

 

 

 

 

Monthly data

 

 

 

 

 

 

 

 

 

April 2019

 

0.7040

 

0.7111

 

0.7178

 

0.701

 

May 2019

 

0.6930

 

0.6945

 

0.7038

 

0.6874

 

June 2019

 

0.7009

 

0.6945

 

0.7009

 

0.686

 

July 2019

 

0.6888

 

0.6977

 

0.7043

 

0.6872

 

August 2019

 

0.6749

 

0.6781

 

0.6858

 

0.6742

 

 

3


Table of Contents

 

Item 3.B Capitalization and Indebtedness

 

Not applicable.

 

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

 

Not applicable.

 

4


Table of Contents

 

Item 3.D Risk Factors

 

Before you purchase our ADSs, you should be aware that there are risks, including those described below.  You should consider carefully these risk factors together with all of the other information contained elsewhere in this Annual Report before you decide to purchase our ADSs.

 

Risks Related to our Business

 

A material uncertainty exists that may cast significant doubt about our Company’s ability to continue as a Going concern.

 

For the years ending June 30, 2019 and June 30, 2018, the Company incurred total comprehensive losses of $6,401,936 and $5,986,838, respectively, and net cash outflows from operations of $6,073,182 and $5,636,533, respectively. As at June 30, 2019 the Company held total cash and cash equivalents of $2,131,741.  We expect to continue to incur losses and cash outflows for the foreseeable future as we continue to invest resources in expanding the research and development activities in support of the distribution of existing and new products. As a result, the continuing viability of the Company and its ability to continue as a going concern and meet its debts and commitments as they fall due is dependent on our ability to raise additional financing.  We are seeking to raise equity financing in the second quarter of the current fiscal year, but there can be no assurance that we will be successful in this regard.  In addition, future offerings of our equity securities could have a material adverse effect on the price of our outstanding ADRs.

 

Due to our history of losses and cash outflows, and the uncertainty surrounding the timing, quantum or the ability to raise additional equity, there is a material uncertainty that casts significant doubt on the Company’s ability to continue as a going concern and therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.  In addition, our auditors have indicated in their report on our consolidated financial statements for the fiscal year ended June 30, 2019, that conditions exist that raise substantial doubt about our ability to continue as a going concern. However, we believe that the Company will be successful in raising required capital when needed, and accordingly, have prepared our financial statements on a going concern basis. As such no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or classification of liabilities that might be necessary should the Company not be able to continue as a going concern.

 

Our Company has a history of incurring losses.

 

We have incurred operating losses in every year since the year ended June 30, 2011.  As at June 30, 2019, the Company had accumulated losses of $129,737,550 and the extent of any future losses and whether or not the Company can generate profits in future years remains uncertain.  The Company currently does not generate sufficient revenue to cover its operating expenses.  We expect our capital outlays and operating expenditures to remain constant for the foreseeable future as we continue to focus on R&D and new product development, IP creation and the introduction of predictive genetic testing products.  If we fail to generate sufficient revenue and eventually become profitable, or if we are unable to fund our continuing losses by raising additional financing when required, our shareholders could lose all or part of their investments.

 

We may not be successful in transitioning from our existing product portfolio to our next generation of risk assessment tests, and our newly developed approach to marketing and distribution of such products may not generate revenues.

 

Although we developed and marketed our BREVAGen™ and BREVAGenplus products in the recent past, and had internally developed product distribution teams in both Australia and the U.S., we believe that our future success is dependent upon our ability to successfully introduce and sell our newly developed products, “GeneType for Breast Cancer”, and ‘GeneType for Colorectal Cancer’.  Although we believe that we now have world class products that are poised to be an important part of making predictive genetic testing a mainstream healthcare activity, we may not be successful in transitioning from our existing products to these products, and there can be no assurance that the demand for these new products will develop. Furthermore, we plan to introduce our new products to healthcare providers through a global network of distribution partners instead of through our own sales force. Although we believe that we are building worthwhile sales and distribution relationships with experienced United States and Chinese medical product distribution firms, there can be no assurance that we will be able to enter into

 

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distribution arrangements on terms satisfactory to us, and that our marketing strategy will be successful and result in significant revenues.

 

Our products may never achieve significant market acceptance.

 

We may expend substantial funds and management effort on the development and marketing of our predictive genetic testing products with no assurance that we will be successful in selling our products or services.  Our ability to enter into distribution arrangements to successfully sell our molecular risk assessment and predictive genetic testing products and services will depend significantly on the perception that our products and services can reduce patient risk and improve medical outcomes, and that our products and services are superior to existing tests.  Our business could also be adversely affected if we expend money without any return.

 

Failure to demonstrate the clinical utility of our products could have a material adverse effect on our financial condition and results of operations.

 

The Company believes that its GeneType for Breast Cancer and GeneType for Colorectal Cancer tests, along with the pipeline of new tests under development have the capacity to transform health outcomes for entire populations.  However, it is critical for the Company to demonstrate the clinical utility of its new products. Clinical utility is the usefulness of a test for clinical practice. If the Company is unable to demonstrate clinical utility, or if the data is deemed insufficient to validate utility, there may be insufficient demand for the Company’s products.

 

If our competitors develop superior products, our operations and financial condition could be affected.

 

We are currently subject to increased competition from biotechnology and diagnostic companies, academic and research institutions and government or other publicly-funded agencies that are pursuing products and services which are substantially similar to our molecular risk assessment testing products, or which otherwise address the needs of our customers and potential customers.  Our competitors in the predictive genetic testing and assessment market include private and public sector enterprises located in Australia, the U.S. and elsewhere. Many of the organizations competing with us are much larger and have more ready access to needed resources. In particular, they would have greater experience in the areas of finance, research and development, manufacturing, marketing, sales, distribution, technical and regulatory matters than we do.  In addition, many of the larger current and potential competitors have already established name / brand recognition and more extensive collaborative relationships.

 

Our competitive position in the molecular risk assessment and predictive testing area is based upon, amongst other things, our ability to:

 

·             continue to strengthen and maintain scientific credibility through the process of obtaining scientific validation through clinical trials supported by peer-reviewed publication in medical journals;

 

·             create and maintain scientifically-advanced technology and offer proprietary products and services;

 

·             continue to strengthen and improve the messaging regarding the importance and value that our cancer risk assessment tests provides to patients and physicians;

 

·             diversify our product offerings in disease types other than breast cancer;

 

·             obtain and maintain patent or other protection for our products and services;

 

·             obtain and maintain required government approvals and other accreditations on a timely basis; and

 

·             successfully market our products and services.

 

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

 

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

 

We have relationships with academic consultants, research collaborators at other institutions and other advisers who are not employed by us.  Accordingly, we have limited control over their activities and can expect only limited amounts of their time to be dedicated to our activities.  These persons may have consulting, employment or advisory arrangements with other entities that may conflict with or compete with their obligations to us.  Our consultants typically sign agreements that provide for confidentiality of our proprietary information and results of

 

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studies.  However, we may not be able to maintain the confidentiality of our technology, the dissemination of which could hurt our competitive position and results from operations.  To the extent that our scientific consultants, collaborator or advisors develop inventions or processes that may be applicable to our proposed products, disputes may arise as to the ownership of the proprietary rights to such information, and we may not be successful with any dispute outcomes.

 

We may be subject to liability and our insurance may not be sufficient to cover damages.

 

Our business exposes us to potential liability risks that are inherent in the testing, manufacturing, marketing and sale of molecular risk assessment and predictive tests.  The use of our products and product candidates, whether for clinical trials or commercial sale, may expose us to professional and product liability claims and possible adverse publicity.  We may be subject to claims resulting from incorrect results of analysis of genetic variations or other screening tests performed using our products.  Litigation of such claims could be costly.  Further, if a court were to require us to pay damages to a plaintiff, the amount of such damages could be significant and severely damage our financial condition.  Although we have public and product liability insurance coverage under broad form liability and professional indemnity policies, for an aggregate amount of A$20,000,000, the level or breadth of our coverage may not be adequate to fully cover any potential liability claims.  In addition, we may not be able to obtain additional liability coverage in the future at an acceptable cost.  A successful claim or series of claims brought against us in excess of our insurance coverage and the effect of professional and/or product liability litigation upon the reputation and marketability of our technology and products, together with the diversion of the attention of key personnel, could negatively affect our business.

 

We use potentially hazardous materials, chemicals and patient samples in our business and any disputes relating to improper handling, storage or disposal of these materials could be time consuming and costly.

 

Our research and development, production and service activities involve the controlled use of hazardous laboratory materials and chemicals, including small quantities of acid and alcohol, and patient tissue samples.  We do not knowingly deal with infectious samples.  We, our collaborators and service providers are subject to stringent Australian federal, state and local laws and regulations governing occupational health and safety standards, including those governing the use, storage, handling and disposal of these materials and certain waste products.  However, we could be liable for accidental contamination 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 providers fail to comply with applicable laws or regulations, we could be required to pay penalties or be held liable for any damages that result and this liability could exceed our financial resources.  Further, future changes to environmental health and safety laws could cause us to incur additional expense or restrict our operations.

 

In addition, our collaborators and service providers may be working with these same types of hazardous materials, including hazardous chemicals, in connection with our collaborations.  In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous materials or patient samples that may contain infectious materials.  The cost of this liability could exceed our resources.  While we maintain broad form liability insurance coverage for these risks, in the amount of up to A$8,000,000, the level or breadth of our coverage may not be adequate to fully cover potential liability claims.

 

We depend on the collaborative efforts of our academic and corporate partners for research, development and commercialization of our products.  A breach by our partners of their obligations, or the termination of the relationship, could deprive us of valuable resources and require additional investment of time and money.

 

Our strategy for research, development and commercialization of our products has historically involved entering into various arrangements with academic, corporate partners and others.  As a result, the success of our strategy depends, in part, upon the strength of those relationships and these outside parties undertaking their responsibilities and performing their tasks to the best of their ability and responding in a timely manner.  Our collaborators may also be our competitors.  We cannot necessarily control the amount and timing of resources that our collaborators devote to performing their contractual obligations and we have no certainty that these parties will perform their obligations as expected or that any revenue will be derived from these arrangements.

 

If our collaborators breach or terminate their agreement with us or otherwise fail to conduct their collaborative activities in a timely manner, the development or commercialization of the product candidate or research program under such collaborative arrangement may be delayed.  If that is the case, we may be required to undertake unforeseen additional responsibilities or to devote unforeseen additional funds or other resources to such development or commercialization, or such development or commercialization could be terminated.  The termination or cancellation of collaborative arrangements could adversely affect our financial condition, intellectual property position and general operations.  In addition, disagreements between collaborators and us could lead to delays in the collaborative research,

 

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development, or commercialization of certain products or could require or result in formal legal process or arbitration for resolution.  These consequences could be time-consuming and expensive and could have material adverse effects on the Company.

 

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

 

If our sole laboratory facility becomes inoperable, we will be unable to perform our tests and our business will be harmed.

 

We rely on our sole laboratory facilities in Melbourne, Australia, which has been certified under the U.S. Clinical Laboratory Improvements Amendments (“CLIA”). Our current lease of laboratory premises expires August 31, 2021. The facility and the equipment we use to perform our tests would be costly to replace and could require substantial lead time to repair or replace. If we were to lose our CLIA certification or other required certifications or licenses, or if the facility is harmed or rendered inoperable by natural or man-made disasters, including flooding and power outages, it will be difficult or impossible for us to perform our tests for some period of time. The inability to perform our tests or the backlog of tests that could develop if our facility is inoperable for even a short period of time may result in the loss of customers or harm our reputation, and we may be unable to regain those customers in the future.

 

If we no longer had our own facility and needed to rely on a third party to perform our tests, we could only use another facility with established state licensure and CLIA accreditation. We cannot assure you that we would be able to find another CLIA-certified facility willing to comply with the required procedures, that this laboratory would be willing to perform the tests on commercially reasonable terms, or that it would be able to meet our quality standards. In order to establish a redundant clinical reference laboratory facility, we would have to spend considerable time and money securing adequate space, constructing the facility, recruiting and training employees, and establishing the additional operational and administrative infrastructure necessary to support a second facility. We may not be able, or it may take considerable time, to replicate our testing processes or results in a new facility. Additionally, any new clinical reference laboratory facility would be subject to certification under CLIA and licensing by several states, including California and New York, which could take a significant amount of time and result in delays in our ability to begin operations.

 

The loss of key members of our senior management team or our inability to attract and retain highly skilled scientists, clinicians and salespeople could adversely affect our business.

 

Our success depends largely on the skills, experience and performance of key members of our executive management team and others in key management positions. The efforts of each of these persons together will be critical as we continue to develop our technologies and testing processes, continue our international expansion and transition to a company with multiple commercialized products. If we were to lose one or more of these key employees, we may experience difficulties in competing effectively, developing our technologies and implementing our business strategies.

 

We recently experienced significant changes in our executive officers, including the appointment of Jerzy Muchnicki as our Chief Executive Officer on September 24, 2019 following the resignation of Paul Kasian, our former Chief Executive Officer; and the appointment of Philip Hains as our Chief Financial Officer on July 15, 2019, following the resignation of Paul Viney, which followed the resignation of our previous Chief Financial Officer on December 31, 2018. While we believe our current executive officers have the skills and experience to enable us to execute our business plan, these changes may nevertheless result in a transition phase that could adversely affect our operations in the short-term.

 

Our research and development programs and commercial laboratory operations depend on our ability to attract and retain highly skilled scientists and technicians, including licensed laboratory technicians, chemists, biostatisticians and engineers. We may not be able to attract or retain qualified scientists and technicians in the future due to the competition for qualified personnel among life science businesses. In addition, if there were to be a shortage of clinical laboratory scientists in coming years, this would make it more difficult to hire sufficient numbers of qualified personnel. We also face competition from universities and public and private research institutions in recruiting and retaining highly qualified scientific personnel. In addition, our success depends on our ability to attract and retain salespeople with extensive experience in oncology and close relationships with medical oncologists, pathologists and other hospital personnel. We may have difficulties sourcing, recruiting or retaining qualified salespeople, which could cause delays or a decline in the rate of adoption of our tests. If we are not able to attract and retain the necessary

 

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personnel to accomplish our business objectives, we may experience constraints that could adversely affect our ability to support our research and development and sales programs.

 

Changes in the way that the FDA regulates our tests could result in the delay or additional expense in offering our tests and tests that we may develop in the future.

 

Historically, the U.S. Food and Drug Administration (“FDA”) has exercised enforcement discretion with respect to most  laboratory-developed tests (“LDTs”) and has not required laboratories that furnish LDTs to comply with the agency’s requirements for medical devices (e.g., establishment registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls).  In recent years, however, the FDA publicly announced its intention to regulate certain LDTs and issued two draft guidance documents that set forth a proposed phased-in risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs.  However, these guidance documents were withdrawn at the end of the Obama administration and replaced by an informal discussion paper reflecting some of the feedback that FDA had received on LDT regulation.  The FDA acknowledged that the discussion paper in January 2017 does not represent the formal position of the FDA and is not enforceable.  Nevertheless, the FDA wanted to share its synthesis of the feedback that it had received in the hope that it might advance public discussion on future LDT oversight.  Notwithstanding the discussion paper, the FDA continues to exercise enforcement discretion and may decide to regulate certain LDTs on a case-by-case basis at any time, which could result in delay or additional expense in offering our tests and tests that we may develop in the future.

 

Our business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or changing interpretations of, CLIA or state laboratory licensing laws to which we are subject.

 

The clinical laboratory testing industry is subject to extensive federal and state regulation, and many of these statutes and regulations have not been interpreted by the courts.  The regulations implementing CLIA set out federal regulatory standards that apply to virtually all clinical laboratories (regardless of the location, size or type of laboratory), including those operated by physicians in their offices, by requiring that they be certified by the federal government or by a federally approved accreditation agency.  CLIA does not preempt state law, which in some cases may be more stringent than federal law and require additional personnel qualifications, quality control, record maintenance and proficiency testing. The sanction for failure to comply with CLIA and state requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal penalties. Several states have similar laws and we may be subject to similar penalties. If the certification of one laboratory owned by the Company is suspended or revoked that may preclude the Company from owning or operating any other laboratory in the Country for two years.

 

We cannot assure you that applicable statutes and regulations and more specifically, the Food, Drug, and Cosmetic Act, will not be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect our business. Potential sanctions for violation of these statutes and regulations include significant fines and the suspension or loss of various licenses, certificates and authorizations, which could have a material adverse effect on our business. In addition, compliance with future legislation could impose additional requirements on us, which may be costly.

 

Failure to establish and comply with appropriate quality standards to assure that the highest level of quality is observed in the performance of our testing services and in the design, manufacture and marketing of our products could adversely affect the results of our operations and adversely impact our reputation.

 

The provision of clinical testing services, and the design, manufacture and marketing of diagnostic products involve certain inherent risks. The services that we provide and the products that we design, manufacture and market are intended to provide information for healthcare providers in providing patient care. Therefore, users of our services and products may have a greater sensitivity to errors than the users of services or products that are intended for other purposes.  Similarly, negligence in performing our services can lead to injury or other adverse events. We may be sued under common law, physician liability or other liability law for acts or omissions by our laboratory personnel.  We are subject to the attendant risk of substantial damages awards and risk to our reputation.

 

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If We Fail To Maintain An Effective System Of Internal Control Over Financial Reporting, We May Not Be Able To Accurately Report Our Financial Results Or Prevent Fraud.

 

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to design and implement an effective system of internal control may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses.  Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of the ADSs and our Ordinary Shares.

 

As of June 30, 2019, our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting. In connection with this assessment, we identified the following material weakness in internal control over financial reporting as of June 30, 2019: The Company did not maintain an adequate segregation of duties with respect to internal control over financial reporting, given we have limited accounting personnel to enable and sufficiently evidence an independent review of complex financial reporting matters.

 

In an effort to remediate the identified material weakness and to enhance our overall control environment, we have implemented key steps to ensure continuity in the finance team and ongoing training. However, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or that they will prevent potential future material weaknesses.

 

Failure to comply with complex federal and state laws and regulations related to submission of claims for clinical laboratory services could result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid programs.

 

We are subject to extensive federal and state laws and regulations relating to the submission of claims for payment for clinical laboratory services, including those that relate to coverage of our services under Medicare, Medicaid and other governmental health care programs, the amounts that may be billed for our services and to whom claims for services may be submitted. In addition, we are subject to various laws regulating our interactions with other healthcare providers and with patients, such as the Anti-Kickback Statute, the Anti-Inducement Statute, and the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark law.  These laws are complicated.

 

Our failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or result in attempts by third-party payers, such as Medicare and Medicaid, to recover payments from us that have already been made. Submission of claims in violation of certain statutory or regulatory requirements can result in penalties, including substantial civil penalties for each item or service billed to Medicare in violation of the legal requirement, and exclusion from participation in Medicare, Medicaid and other federal health care programs. Government authorities or whistleblowers may also assert that violations of laws and regulations related to submission or causing the submission of claims violate the federal False Claims Act, or FCA, or other laws related to fraud and abuse, including submission of claims for services that were not medically necessary. Violations of the FCA could result in significant economic liability.  For example, we could be subject to FCA liability if it were determined that the services we provided were not medically necessary and not reimbursable or if it were determined that we improperly paid physicians who referred patients to our laboratory.  It is also possible that the government could attempt to hold us liable under fraud and abuse laws for improper claims submitted by an entity for services that we performed if we were found to have knowingly participated in the arrangement that resulted in submission of the improper claims.

 

Failure to comply with HIPAA, including regarding the use of new “standard transactions,” may negatively impact our business.

 

Pursuant to the Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, we must comply with comprehensive privacy and security standards with respect to the use and disclosure of protected health information, as well as standards for electronic transactions, including specified transaction and code set rules. Under the 2009 HITECH amendments to HIPAA, the law was expanded, including requirements to provide notification of certain identified data breaches, direct patient access to laboratory records, the extension of certain HIPAA privacy and security standards directly to business associates, and heightened penalties for noncompliance, and enforcement efforts.

 

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If we fail to comply with the complex federal, state, local and foreign laws and regulations that apply to our business, we could suffer severe consequences that could materially and adversely affect our operating results and financial condition.

 

Our operations are subject to extensive federal, state, local and foreign laws and regulations, all of which are subject to change.  These laws and regulations currently include, among other things:

 

·                                          CLIA, which requires that laboratories obtain certification from the federal government, and state licensure laws;

 

·                                          FDA laws and regulations;

 

·                                          HIPAA, which imposes comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use Of certain standardized electronic transactions; amendments to HIPAA under HITECH, which strengthen and expand HIPAA privacy and security compliance requirements, increase penalties for violators, extend enforcement authority to state attorneys general and impose requirements for breach notification;

 

·                                          state laws regulating genetic testing and protecting the privacy of genetic test results, as well as state laws protecting the privacy and security of health information and personal data and mandating reporting of breaches to affected individuals and state regulators;

 

·                                          the federal anti-kickback law, or the Anti-Kickback Statute, which prohibits knowingly and willfully offering, paying, soliciting, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program;

 

·                                          other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, and false claims acts, which may extend to services reimbursable by any third-party payor, including private insurers;

 

·                                          the federal Physician Payments Sunshine Act, which requires medical device manufactures to track and report to the federal government certain payments and other transfers of value made to physicians and teaching hospitals and ownership or investment interests held by physicians and their immediate family members;

 

·                                          Section 216 of the federal Protecting Access to Medicare Act of 2014 (“PAMA”), which requires applicable laboratories to report private payor data in a timely and accurate manner beginning in 2017 and every three years thereafter (and in some cases annually);

 

·                                          state laws that impose reporting and other compliance-related requirements; and

 

·                                          similar foreign laws and regulations that apply to us in the countries in which we operate.

 

These laws and regulations are complex and are subject to interpretation by the courts and by government agencies.  Our failure to comply could lead to civil or criminal penalties, exclusion from participation in state and federal health care programs, or prohibitions or restrictions on our laboratory’s ability to provide or receive payment for our services.  We believe that we are in material compliance with all statutory and regulatory requirements, but there is a risk that one or more government agencies could take a contrary position, or that a private, party could file suit under the qui tam provisions of the federal False Claims Act or a similar state law.  Such occurrences, regardless of their outcome, could damage our reputation and adversely affect important business relationships with third parties, including managed care organizations, and other private third-party payors.

 

A failure to comply with any of federal or state laws applicable to our business, particularly laws related to the elimination of healthcare fraud, may adversely impact our business.

 

Federal officials responsible for administering and enforcing the healthcare laws and regulations have made a priority of eliminating healthcare fraud. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act of 2010, jointly the “Affordable Care Act,”  includes significant fraud and abuse measures, including required disclosures of financial arrangements between drug and device manufacturers, on the one hand, and physicians and teaching hospitals, on the other hand. Federal funding available for combating health care fraud and abuse generally has increased. While we seek to conduct our business in compliance with all applicable laws and regulations, many of the laws and regulations applicable to our business, particularly those relating to billing and reimbursement of tests and those relating to relationships with physicians,

 

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hospitals and patients, contain language that has not been interpreted by courts. We must rely on our interpretation of these laws and regulations based on the advice of our counsel and regulatory or law enforcement authorities may not agree with our interpretation of these laws and regulations and may seek to enforce legal remedies or penalties against us for violations. From time to time we may need to change our operations, particularly pricing or billing practices, in response to changing interpretations of these laws and regulations or regulatory or judicial determinations with respect to these laws and regulations. These occurrences, regardless of their outcome, could damage our reputation and harm important business relationships that we have with healthcare providers, payers and others.

 

Healthcare plans have taken steps to control the utilization and reimbursement of healthcare services, including clinical test services.

 

We also face efforts by non-governmental third-party payers, including healthcare plans, to reduce utilization and reimbursement for clinical testing services.  The healthcare industry has experienced a trend of consolidation among healthcare insurance plans, resulting in fewer but larger insurance plans with significant bargaining power to negotiate fee arrangements with healthcare providers, including clinical testing providers. Some healthcare plans have been willing to limit the PPO or POS laboratory network to only a single national laboratory to obtain improved fee-for-service pricing. There are also an increasing number of patients enrolling in consumer driven products and high deductible plans that involve greater patient cost-sharing.

 

The increased consolidation among healthcare plans also has increased the potential adverse impact of ceasing to be a contracted provider with any such insurer. Sales volumes and prices of our products depend in large part on the availability of coverage and reimbursement from third-party payers. Third-party payers include governmental programs such as U.S. Medicare and Medicaid, private insurance plans, and workers’ compensation plans. These third-party payers may deny coverage or reimbursement for a product or procedure if they determine that the product or procedure was not medically appropriate or necessary. Even though a new product may have been cleared for commercial distribution by relevant regulatory authorities, we may find limited demand for the product until reimbursement approval is assured from multiple governmental and private third-party payers. In the United States, a uniform policy of coverage does not exist across all third-party payers relative to payment of claims for all products. Therefore, coverage and payment can be quite different from payor to payor, and from one region of the country to another. This is also true for foreign countries in that coverage and payment systems vary from country to country.

 

Third-party payers are developing increasingly sophisticated methods of controlling healthcare costs through more cost-effective methods of delivering healthcare. All of these types of programs can potentially impact market access for, and pricing structures of our products, which in turn, can impact our future sales. There can be no assurance that third-party reimbursement will be available or adequate, or that current and future legislation, regulation or reimbursement policies of third-party payers will not adversely affect the demand for our products or our ability to sell our products on a profitable basis. The unavailability or inadequacy of third-party payor reimbursement could have a material adverse effect on our business, operating results, and financial condition.

 

Outside the United States, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific product lines and procedures. There can be no assurances that procedures using our products will be considered medically reasonable and necessary for a specific indication, that our products will be considered cost-effective by third-party payers, that an adequate level of reimbursement will be available, or that the third-party payers’ reimbursement policies will not adversely affect our ability to sell our products profitably.

 

We expect continuing efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical test services. These efforts may have a material adverse effect on our business.

 

Changes in health care policy could increase our costs, decrease our revenues and impact sales of and reimbursement for our tests.

 

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or the ACA became law. This law substantially changed the way health care is financed by both governmental and private insurers, and significantly impacts our industry. The ACA contains a number of provisions that are expected to impact our business and operations, some of which in ways we

 

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cannot currently predict, including those governing enrollment in state and federal health care programs, reimbursement changes and fraud and abuse, which will impact existing state and federal health care programs and will result in the development of new programs. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. Both Congress and President Trump have expressed their intention to repeal or repeal and replace the ACA, and as a result, certain sections of the ACA have not been fully implemented or were effectively repealed. The uncertainty around the future of the ACA, and in particular the impact to reimbursement levels and the number of insured individuals, may lead to delay in the purchasing decisions of our customers, which may in turn negatively impact our product sales. Further, if reimbursement levels are inadequate, our business and results of operations could be adversely affected.

 

In addition to the ACA, there will continue to be proposals by legislators at both the federal and state levels, regulators and private third-party payors to reduce costs while expanding individual healthcare benefits. Certain of these changes could impose additional limitations on the prices we will be able to charge for our tests or the amounts of reimbursement available for our tests from governmental agencies or private third-party payors.

 

We face risks associated with currency exchange rate fluctuations, which could adversely affect our operating results.

 

We receive a portion of our revenues and pay a portion of our expenses in currencies other than the United States dollar, such as the Australian dollar, the Euro, the Swiss franc, the British pound, and the Canadian dollar. As a result, we are at risk for exchange rate fluctuations between such foreign currencies and the United States dollar, which could affect the results of our operations. If the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in decreased revenues and operating expenses. We may not be able to offset adverse foreign currency impact with increased revenues. We do not currently utilize hedging strategies to mitigate foreign currency risk and even if we were to implement hedging strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications.

 

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

 

In addition to the regulatory framework governing healthcare, genetic research and testing has been the focus of public attention and regulatory scrutiny.  From time to time, federal, state and/or local governments adopt regulations relating to the conduct of genetic research and genetic testing.  In the future, these regulations could limit or restrict genetic research activities as well as genetic testing for research or clinical purposes.  In addition, if such regulations are adopted, these regulations may be inconsistent with, or in conflict with, regulations adopted by other government bodies.  Regulations relating to genetic research activities could adversely affect our ability to conduct our research and development activities.  Regulations restricting genetic testing could adversely affect our ability to market and sell our products and services.  Accordingly, any regulations of this nature could increase the costs of our operations or restrict our ability to conduct our testing business.

 

Failure in our information technology systems could significantly increase testing turn-around times or impact on the billing processes or otherwise disrupt our operations.

 

Our laboratory operations depend, in part, on the continued performance of our information technology systems. Our information technology systems are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptions. Sustained system failures or interruption of our systems in our laboratory operations could disrupt our ability to process laboratory requisitions, perform testing, and provide test results in a timely manner and/or billing process.  Failure of our information technology systems could adversely affect our business and financial condition.

 

Breaches of network or information technology, natural disasters or terrorist attacks could have an adverse impact on our business.

 

Cyber-attacks or other breaches of information technology security, natural disasters, or acts of terrorism or war may result in hardware failure or disrupt our product testing or research and development activities. There has been a substantial increase in frequency of successful and unsuccessful cyber-attacks on companies in recent years. Such an event may result in our inability, or the inability of our collaborative partners, to operate the facilities to conduct and complete the necessary activities. which even if the event is for a limited period of time, may result in significant expenses and/ or significant damage or delay to our commercial or research activities. While we maintain

 

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insurance cover for some of these events, the potential liabilities associated with these events could exceeded the cover we maintain.

 

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

 

Public opinion regarding ethical issues related to the confidentiality and appropriate use of genetic testing may influence government authorities to call for limits on, or regulation of the use of, genetic testing.  In addition, such authorities could prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure.  Furthermore, adverse publicity or public opinion relating to genetic research and testing, even in the absence of any governmental regulation, could reduce the potential markets for our products and services

 

Risks associated with our intellectual property

 

The patenting of genes and issues surrounding access to genetic knowledge are the subjects of extensive and ongoing public debate in many countries.  By way of example, the Australian Law Reform Commission has previously conducted two inquiries into the social uses of genetic information.  The patents we hold over uses of “non-coding” DNA have broad scope and have also been the subject of debate and some criticism in the media.  Individuals or organizations, in any one of the countries in which these patents have issued, could take legal action to seek their amendment, revocation or invalidation, something which has happened previously, on several occasions in various jurisdictions, though we have prevailed in all such cases.  Furthermore, any time that we initiate legal action against parties that infringe our patents we face a risk that the infringer will defend itself through a counter-claim of patent invalidity or other such claims.  Subsequent legal action could potentially overturn, invalidate or limit the scope of our patents.

 

We rely heavily upon patents and proprietary technology that may fail to protect our business.

 

We rely upon our portfolio of patent rights, patent applications and exclusive licenses to patents and patent applications relating to genetic technologies.  We expect to aggressively patent and protect our proprietary technologies.  However, we cannot be certain that any additional patents will be issued to us as a result of our domestic or foreign patent applications or that any of our patents will withstand challenges by others.  Patents issued to, or licensed by us may be infringed or third parties may independently develop the same or similar technologies.  Similarly, our patents may not provide us with meaningful protection from competitors, including those who may pursue patents which may prevent, limit or interfere with our products or which may require licensing and the payment of significant fees or royalties by us to such third parties in order to enable us to conduct our business.  We may sue or be sued by third parties regarding our patents and other intellectual property rights.  These suits are often costly and would divert valuable funds, time and technical resources from our operations and cause a distraction to management.

 

We also rely upon unpatented proprietary technologies and databases. Although we require employees, consultants and collaborators to sign confidentiality agreements, we may not be able to adequately protect our rights in such unpatented proprietary technologies and databases, which could have a material adverse effect on our business. For example, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our proprietary technologies or disclose our technologies to our competitors.

 

We may face difficulties in certain jurisdictions in protecting our intellectual property rights, which may diminish the value of our intellectual property rights in those jurisdictions.

 

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States and the European Union, and many companies have encountered significant difficulties in protecting and defending such rights in such other jurisdictions. If we or our collaboration partners encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights for our business in such jurisdictions, the value of those rights may be diminished and we may face additional competition from others in those jurisdictions.  In addition, many countries limit the enforceability of patents against governments agencies or government contractors. In those countries, the patent owner may have limited remedies, which could materially diminish the value of such patent.

 

Our operations may be adversely affected by the effects of extreme weather conditions or other interruptions in the timely transportation of specimens.

 

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We may be required to transport specimens from the U.S. or other distant locations to our laboratory located in Melbourne, Australia.  Our operations may be adversely impacted by extreme weather conditions or other interruptions in the timely transportation of such specimens or otherwise to provide our services, from time to time. The occurrence of any such event and/or a disruption to our operations as a result may harm our reputation and adversely impact our results of operations.

 

Risks Related to our Securities

 

Our ADSs may be delisted from the Nasdaq Capital Market.

 

On January 23, 2019, we received notice from Nasdaq that for 30 consecutive business days the bid price of our ADSs had closed below the minimum $1.00 per share requirement for continued inclusion under Nasdaq’s Marketplace Listing Rules. On April 29, 2019, we received notice from Nasdaq that our reported stockholders’ equity was less than the minimum specified amount of $2,500,000 as of December 31, 2018, and that Nasdaq did not believe we met the alternatives of market value of listed securities or net income from continuous operations. On June 20, 2019, we submitted a compliance plan to Nasdaq in response to their April 29, 2019 letter. On July 24, 2019, we received a letter from Nasdaq informing us that because we failed to regain compliance with the $1.00 minimum bid price requirement, our ADSs were subject to delisting.   On July 29, 2019, we appealed this delisting notice which stayed the delisting of our ADSs pending the hearing of the appeal and ultimate decision by Nasdaq’s Hearings Panel.  We regained compliance with Nasdaq Listing Rules with respect to our bid price prior to the hearing as a result of the adjustment to the ratio of our ADSs that took effect on August 15, 2019.  Our hearing with Nasdaq was held on September 5, 2019, and on September 17, 2019 the Hearings Panel ruled that we had until October 31, 2019 to regain compliance with our stockholder equity deficiency.  We intend to raise additional equity financing in order to regain compliance by October 31, 2019.  However, there can be no assurance that we will be successful in these efforts or that our securities will remain listed on the Nasdaq Capital Market.   The delisting of our ADSs by Nasdaq would have material negative impacts on the liquidity of our securities and our ability to raise future capital.

 

Our stock price is volatile and can fluctuate significantly based on events not in our control and general industry conditions.  As a result, the value of your investment may decline significantly.

 

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

 

·                  product development events;

·                  the outcome of litigation;

·                  decisions relating to intellectual property rights;

·                  the entrance of competitive products or technologies into our markets;

·                  new medical discoveries;

·                  the establishment of strategic partnerships and alliances;

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

·                  other industry and market changes or trends.

 

Since our listing on the Australian Securities Exchange in August 2000, the price of our Ordinary Shares has ranged from a low of $0.006 to a high of $0.039 per share.  Further fluctuations are likely to occur due to events

 

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which are not within our control and general market conditions affecting the biotechnology sector or the stock market generally.

 

In addition, low trading volume may increase the volatility of the price of our ADSs.  A thin trading market could cause the price of our ADSs to fluctuate significantly more than the stock market as a whole.  For example, trades involving a relatively small number of our ADSs may have a greater impact on the trading price for our ADSs than would be the case if the trading volume were higher.

 

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

 

We have never declared or paid a cash dividend on our Ordinary Shares and we do not anticipate to do so in the foreseeable future.  We intend to retain future cash earnings, if any, for reinvestment in the development and expansion of our business.  Whether we pay cash dividends in the future will be at the discretion of our Board of Directors and may be dependent on our financial condition, results of operations, capital requirements and any other factors our Board of Directors decides is relevant.  As a result, an investor may only recognize an economic gain on an investment in our stock from an appreciation in the price of our stock, which is uncertain and unpredictable. There is no guarantee that our Ordinary Shares will appreciate in value or even maintain the price at which an investor purchased the Ordinary Shares.

 

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

 

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

 

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

 

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

 

However, in line with the Australian Securities Exchange regulations, we disclose our reviewed financial results on a semi-annual basis (under International Standard on Review Engagements) and our audited financial results on an annual basis (under International Standards on Auditing).   The information, which may have an effect on our stock price on the Australian Securities Exchange, will be disclosed to the Australian Securities Exchange and also the Securities Exchange Commission.  Other relevant information pertaining to our Company will also be disclosed in line with the Australian Securities Exchange regulations and information dissemination requirements for listed companies.  We provide our semi-annual results and other material information that we make public in Australia in the U.S. under the cover of an SEC Form 6-K.  Nevertheless, you may not be afforded the same protection or information, which would be made available to you, were you investing in a United States public corporation because the requirements of a Form 10-Q and Form 8-K are not applicable to us.

 

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A lack of significant liquidity for our ADSs may negatively affect your ability to resell our securities.

 

Our ADSs have traded on the Nasdaq Capital Market since June 30, 2010.  An active trading market for the ADSs, however, may not be maintained in the future.  If an active trading market is not maintained, the liquidity and trading prices of the ADSs could be negatively affected.

 

In certain circumstances, holders of ADSs may have limited rights relative to holders of Ordinary Shares.

 

The rights of holders of ADSs with respect to the voting of Ordinary Shares and the right to receive certain distributions may be limited in certain respects by the deposit agreement entered into by us and The Bank of New York Mellon.  For example, although ADS holders are entitled under the deposit agreement, subject to any applicable provisions of Australian law and of our Constitution, to instruct the depositary as to the exercise of the voting rights pertaining to the Ordinary Shares represented by the American Depositary Shares, and the depositary has agreed that it will try, as far as practical, to vote the Ordinary Shares so represented in accordance with such instructions, ADS holders may not receive notices sent by the depositary in time to ensure that the depositary will vote the Ordinary Shares.  This means that, from a practical point of view, the holders of ADSs may not be able to exercise their right to vote.  In addition, under the deposit agreement, the depositary has the right to restrict distributions to holders of the ADSs in the event that it is unlawful or impractical to make such distributions.  We have no obligation to take any action to permit distributions to holders of our American Depositary Receipts, or ADSs.  As a result, holders of ADSs may not receive distributions made by us.

 

There is a substantial risk that we are a passive foreign investment company, or PFIC, which subjects U.S. investors to adverse tax rules.

 

Holders of our ADSs who are U.S. residents face income tax risks. There is a substantial risk that we are a passive foreign investment company, commonly referred to as a PFIC. Our treatment as a PFIC could result in a reduction in the after-tax return to the holders of our ADSs. For U.S. federal income tax purposes, we are classified as a PFIC for any taxable year in which either (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, cash is considered to be an asset that produces passive income.  As a result of our substantial cash position in relation to our other assets, we believe that we have been a PFIC in our most recent taxable years and will continue to be a PFIC in the current tax year. Highly complex rules apply to U.S. holders owning ADSs. Accordingly, you are urged to consult your tax advisors regarding the application of such rules. United States residents should carefully read “Item 10.E. Additional Information—Taxation, United States Federal Income Tax Consequences” in this Annual Report, for a more complete discussion of the U.S. federal income tax risks related to owning and disposing of our ADSs.

 

Item 4.                                 Information on the Company

 

Item 4.A                            History and Development of the Company

 

Originally incorporated under the laws of Western Australia on January 5, 1987 as Concord Mining N.L. the Company operated as a mining company.  On August 13, 1991, we changed our name to Consolidated Victorian Gold Mines N.L.  On December 2, 1991, we changed our name to Consolidated Victorian Mines N.L.  On March 15, 1995, we changed our name to Duketon Goldfields N.L.

 

On October 15, 1999, the Company’s corporate status was changed from a No Liability Company to a company limited by shares.  On August 29, 2000, following the acquisition of Swiss company GeneType AG, we changed our name to Genetic Technologies Limited, which is our current name.  At that time, the mining activities were phased out to focus on becoming a  biotechnology company, following which our stock exchange listing was duly transferred from the mining board of the ASX to the industrial board and our shares were thereafter classified under the industry Company “Health and Biotechnology”, completing our transformation from a mining company into a biotechnology company.  Our current activities in biotechnology primarily concentrate on one clearly defined area of activity which is covered under Item 4.B “Business Overview”.

 

In October 2009, a new strategic direction was established to focus efforts in creating a portfolio of tests that would be aimed at assisting medical clinicians with cancer management.  This would comprise tests that were created by the Company and in-licensed from third parties which would then be marketed by us in the Asia-Pacific region.

 

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On April 14, 2010, we announced that we had acquired certain assets from Perlegen Sciences, Inc. in California, with the main asset being the BREVAGen™ breast cancer risk assessment test (“BREVAGen™”).  In addition to the BREVAGen™ test, we also acquired a suite of patents valid to 2022 which augment and extend our current non-coding patent portfolio.  On June 28, 2010, we incorporated a wholly-owned subsidiary named Phenogen Sciences Inc. in the State of Delaware which commenced selling the BREVAGen™ test in the U.S. marketplace in June 2011. In October 2014, the Company released its next generation breast cancer risk assessment test BREVAGenplus.

 

On November 19, 2014, the Company completed the sale of its Heritage Australian Genetics business to Specialist Diagnostic Services Ltd (SDS), the wholly owned pathology subsidiary of Primary Health Care Ltd.

 

In November 2016, the Company executed an exclusive worldwide license agreement with The University of Melbourne, for the development and commercialization of a novel colorectal cancer (CRC) risk assessment test, providing the Company with an opportunity to enhance its pipeline of risk assessment products. Additionally, in June 2017, the Company executed an investigator initiated Research Agreement with The Ohio State University, reflecting  the growing awareness of the Company’s expertise in SNP-based risk assessment.

 

During 2018, the Company executed a further collaborative research and services agreement with The University of Melbourne, with the research designed to broaden the applicability of BREVAGenplus, enabling its use by women with extended family history of breast cancer as well as increase the range of factors analyzed in assessing breast cancer.

 

In May 2019, we announced the development of two new cancer risk assessment tests branded as “GeneType for Colorectal Cancer” and “GeneType for Breast Cancer.” The new breast cancer test provides substantial improvement over our legacy breast cancer test BREVAGenplus, by incorporating multiple additional clinical risk factors. This test will provide healthcare providers and their patients with a 5-year and lifetime risk assessment of the patient developing breast cancer.  The colorectal cancer test will provide healthcare providers and their patients a 5-year, 10-year, and lifetime risk assessment of the patient developing colorectal cancer.

 

With the release of these two ground breaking predictive genetic tests, and a pipeline of new tests under development, we believe that we are poised to increase collaboration with world-leading genetics institutes and research facilities and to commence product distribution in multiple jurisdictions including the U.S. and China.

 

Further genetic risk assessment tests under development are as follows:

 

·                  Cardiovascular Disease — target launch late 2019

·                  Type 2 Diabetes — target launch late 2019

·                  Prostate Cancer - 2020

·                  Melanoma - 2020

 

On August 2, 2018, the Company entered into a Framework Agreement with Blockchain Global (BCG), providing for a strategic alliance under which the Company and BCG will explore potential medical and biotech blockchain applications to provide efficiencies and new opportunities leveraging the Company’s existing genomics business and BCG’s extensive blockchain application experience. To date, there has been limited activity under this arrangement, and the Company intends to remain focused on its core genetic testing business activities and is not currently considering any blockchain related projects.

 

We continue to explore Chinese regulatory approval for our genetic risk assessment tests. The Chinese market is now the second biggest single healthcare market outside the United States. Over 4 million new cases of cancer are diagnosed in China every year, with breast cancer increasing at a rate of over 3.5% each year. Our efforts to gain entry into the Chinese market aligns with the government’s Healthy China 2030 initiative that seeks to provide cost-effective healthcare to more than 1.5 billion people . Disease prevention is critical to cost control as treatments for early stage disease carry a lower cost and result in better health outcomes.  Our efforts to enter the Chinese markets include becoming more actively involved with Chinese healthcare providers and working with a significant U.S. based Asian medical distribution network expert.

 

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Corporate Information

 

Our registered office, headquarters and laboratory is located at 60-66 Hanover Street, Fitzroy, Victoria, 3065, Australia and our telephone number is +-61 3 8412 7000. The offices of our U.S. subsidiary, Phenogen Sciences Inc., are located at 1300 Baxter Street, Suite 157, Charlotte, North Carolina, 28269 U.S.A.  The telephone number for the Phenogen Sciences office is (877) 992 7382.  Our website address is www.gtglabs.com.  The information in our website is not incorporated by reference into this Annual Report and should not be considered as part of this Annual Report.

 

Our Australian Company Number (ACN) is 009 212 328.  Our Australian Business Number (ABN) is 17 009 212 328.  We operate pursuant to our constitution, the Australian Corporations Act 2001, the Listing Rules of the Australian Securities Exchange, the Marketplace Rules of The Nasdaq Stock Market, and where applicable, local, state and federal legislation in the countries in which we operate.

 

Item 4.B                 Business Overview

 

Description of our Business

 

Founded in 1989, Genetic Technologies listed its Ordinary Shares on the ASX (GTG) in 2000 and its ADSs on Nasdaq’s Capital Market (GENE) in 2005.  Genetic Technologies is a molecular diagnostics company that offers predictive testing and assessment tools to help physicians proactively manage women’s health.  The Company’s legacy product, BREVAGenplus, was a clinically validated risk assessment test for non-hereditary breast cancer and was first in its class. BREVAGenplus improved upon the predictive power of the first generation BREVAGen test and was designed to facilitate better informed decisions about breast cancer screening and preventive treatment plans. BREVAGenplus expanded the application of BREVAGen from Caucasian women to include African-Americans and Hispanics, and was directed towards women aged 35 years or above who have not had breast cancer and have one or more risk factors for developing breast cancer.

 

The Company successfully launched the first generation BREVAGen test across the U.S. via its U.S. subsidiary Phenogen Sciences Inc., and believes the addition of BREVAGenplus, launched in October 2014, significantly expanded the applicable market.  The Company marketed BREVAGenplus to healthcare professionals in comprehensive breast health care and imaging centers, as well as to obstetricians/gynecologists (OBGYNs) and breast cancer risk assessment specialists (such as breast surgeons).

 

In May 2019, the Company announced that it had developed two new cancer risk assessment tests branded as ‘GeneType for Colorectal Cancer’ and ‘GeneType for Breast Cancer’. The new breast cancer test provides substantial improvement over the Company’s legacy breast cancer test BREVAGenplus, by incorporating multiple additional clinical risk factors. This test will provide healthcare providers and their patients with a 5-year and lifetime risk assessment of the patient developing breast cancer.  The colorectal cancer test will provide healthcare providers and their patients a 5-year, 10-year, and lifetime risk assessment of the patient developing colorectal cancer.

 

With the release of these two ground breaking predictive genetic tests, and a pipeline of new tests under development, the Company is poised to increase collaboration with world-leading genetics institutes and research facilities and to commence product distribution in multiple jurisdictions including the U.S. and China.

 

The Company’s Genetic Testing Business

 

Following the acquisition of Genetype AG in 1999 and the subsequent renaming to Genetic Technologies Limited, the Company focused on establishing a genetic testing business, which over the following decade saw it become the largest provider of paternity and related testing services in Australia.  The Company’s service testing laboratory in Melbourne became the leading non-Government genetic testing service provider in Australia. The genetic testing services of the Company expanded to include at certain times:

 

·                  Medical testing

·                  Animal Testing

·                  Forensic Testing

·                  Plant Testing

 

The acquisition of GeneType AG also provided the Company with ownership rights to a potentially significant portfolio of issued patents.  During the intervening years, this portfolio has since been expanded by both

 

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organic growth and the acquisition of intellectual property assets from third parties. The patent portfolio is constantly reviewed to ensure that we maintain potentially important patents but at the same time keep costs to a minimum by no longer pursuing less commercially attractive and relevant intellectual property.

 

A strategic alliance with Myriad Genetics Inc. delivered to the Company exclusive rights in Australia and New Zealand to perform DNA testing for susceptibility to a range of cancers.  In April 2003, we established our cancer susceptibility testing facility within our Australian laboratory.  In June 2003, this facility was granted provisional accreditation by the National Association of Testing Authorities, Australia (“NATA”).

 

In November 2003, the Company joined the world-wide genetic testing network GENDIA as the sole reference laboratory for the network in Australia and New Zealand.  GENDIA consists of more than 50 laboratories from around the world, each contributing expertise in their respective disciplines to create a network capable of providing more than 2,000 different genetic tests.  This provided the Company with the ability to offer comprehensive testing services to its customer base in the Asia-Pacific region as well as increasing its exposure to other markets.

 

In April 2010 we purchased various assets from Perlegen Sciences, Inc. of Mountain View, California, which included a breast cancer non-familial risk assessment test, BREVAGen™.  We then began validating the test in our Australian laboratory and initiated the process for obtaining CLIA certification which would enable the Company to undertake the testing of samples received from the U.S. market. By July 2010, a new U.S. subsidiary named Phenogen Sciences Inc. had been incorporated by the Company in Delaware to market and distribute the BREVAGen™ test across the United States.

 

In October 2014, we announced the U.S. release of BREVAGenplus, an easy-to-use predictive risk test for the millions of women at risk of developing sporadic, or non-hereditary, breast cancer, representing a marked enhancement in accuracy and broader patient applicability, over our first generation BREVAGen product.  We also made a pivotal change of sales and marketing emphasis toward large comprehensive breast treatment and imaging centres, which are more complex entities with a longer sales cycle, but higher potential.

 

GeneType for Breast Cancer; a State-of-the-Art Breast Cancer Risk Assessment Test designed to enable a more personalized breast cancer risk assessment in a greater number of women

 

The identification, in 2007, of a number of single nucleotide polymorphisms (SNPs), each with an associated small relative risk of breast cancer, led to the development of the first commercially available genetic risk test for sporadic breast cancer, BREVAGenTM.  The Company launched the product in the U.S. in June 2011.  In October 2014, we released our next generation breast cancer risk assessment test, BREVAGenplus.  This new version of the test incorporated a 10-fold expanded panel of genetic markers (SNPs), known to be associated with the development of sporadic breast cancer, providing an increase in predictive power relative to its first-generation predecessor test.  In addition, the new test was clinically validated in a broader population of women including, African American and Hispanic women. This increased the applicable market beyond the Caucasian only indication of the first generation test, and simplified the marketing process in medical clinics and breast health centres in the U.S.

 

The expanded panel of SNPs incorporated into our breast cancer tests were identified from multiple large-scale genome-wide association studies and subsequently tested in case-control studies utilising specific Caucasian, African American and Hispanic patient samples.

 

BREVAGenplus was a first-in-class, clinically validated, predictive risk test for sporadic breast cancer which examined a woman’s clinical risk factors, combined with seventy seven scientifically validated genetic biomarkers (SNPs), to allow for more personalised breast cancer risk assessment and risk management.

 

In May 2019, we announced the development of our next generation breast cancer risk assessment test, ‘GeneType for Breast Cancer’. The new breast cancer test provides substantial improvement over our legacy breast cancer test BREVAGenplus by incorporating multiple additional clinical risk factors. This test will provide healthcare providers and their patients with a 5-year and lifetime risk assessment of the patient developing breast cancer.

 

Germline genetic testing for mutations in BRCA1 and BRCA2 allows for the identification of individuals at significantly increased risk for breast and other cancers. However, such mutations are relatively rare in the general population and account for less than 10% of all breast cancer cases.   The remaining 90% of non-familial or sporadic

 

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breast cancer have to be defined by other genetic/clinical markers common to the population at large and this is where we have focused our attention.

 

The newly developed ‘GeneType for Breast Cancer’ test is aimed at risk detection of non-BRCA related sporadic breast cancer (that is, for those women who do not have an identified family history of breast cancer). Importantly, this means that our new test covers 95% of women.

 

GeneType for Colorectal; a State-of-the-Art Risk Assessment Test for Colorectal Cancer.

 

Next generation risk assessments combine multiple clinical and genetic risk factors to better stratify individuals at increased risk of developing disease. ‘GeneType for Colorectal Cancer’ incorporates the most impactful risk factors in order to define an individual’s risk of developing colorectal cancer, so the healthcare provider can make screening and preventative care recommendations that are tailored to their patient’s personalised risk.

 

Colorectal cancer is the third most commonly diagnosed cancer in the U.S., yet 1 in 3 adults are not receiving the appropriate colorectal cancer screening for their age. In addition, rates of colorectal cancer among 20-49 year olds is steadily increasing. Identifying patients who are most at risk for colorectal cancer can lead to enhanced screening protocols and better outcomes. Most individuals diagnosed with colorectal cancer do not have a significant family history of the disease. ‘GeneType for Colorectal Cancer’ evaluates the genometric risk of developing colorectal cancer for men and women over age 30 who do not have a known pathogenic gene variant.

 

In sporadic colorectal cancer, no single gene mutation is causal of disease. Rather, common DNA variations or SNPs, each contribute a small but measurable risk of developing disease. ‘GeneType for Colorectal Cancer’ analyses a patient’s DNA for more than 40 SNPs that have been clinically validated in their association with colorectal cancer. By combining the effects of all of these SNPs into a single polygenic risk score (PRS), ‘GeneType for Colorectal Cancer’ will provide a superior risk stratification over standard risk assessments that incorporate only clinical factors.

 

‘GeneType for Colorectal Cancer’ is clinically validated for men and women 30 years of age or older and for individuals of Caucasian descent.  We intend to provide updates as we continuously improve our tests and add fully validated models for additional ethnicities.

 

Government Regulations

 

CLIA AND FDA Regulations

 

In April 2011, we obtained certification of our Australian laboratory under the U.S. Clinical Laboratories Improvements Amendments of 1988 (“CLIA”), as regulated by the Centers for Medicare and Medicaid in Baltimore, Maryland.  This certification enables the Company to accept and test samples from U.S. residents, and was the culmination of preparations required for the U.S. launch of the Company’s BREVAGen™  test which occurred in June 2011.

 

In July 2013, the Company was inspected by a representative of the New York State Department of Health, Clinical Laboratory Evaluation Program (“CLEP”).  The Company’s laboratory received an inspection result with no deficiencies reported and, on August 30, 2013, the Company announced that it had received its Clinical Laboratory Permit (CLEP) from the New York State Department of Health.  This permit, which allows the Company to offer its risk assessment tests to residents of New York State, completed the final out-of-state licensure allowing the Company to provide testing services to all 50 U.S. states.

 

From its headquarters in Melbourne, Victoria, the Company’s laboratory holds a number of accreditations including:

 

·                 The CLIA license required for all laboratories offering testing the U.S.;

·                 The CLEP license, an additional certification required to offer tests in New York State; and

·                 A Medical Device Establishment License (MDEL) required for Canada.

 

Physicians who order clinical tests for their patients have historically represented the primary source of our testing volume. Fees invoiced to patients and third parties are based on our fee schedule, which may be subject to limitations imposed by third-party payers. The clinical laboratory industry is highly regulated and subject to significant and changing Federal and state laws and regulations. These laws and regulations affect key aspects of

 

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our business, including licensure and operations, billing and payment for laboratory services, sales and marketing interactions with ordering physicians, security and confidentiality of health information, and environmental and occupational safety.  Oversight by government officials includes regular inspections and audits.  We seek to and believe that we do conduct our business in compliance with all applicable laws and regulations.

 

CLIA, extends Federal licensing requirements to all clinical laboratories (regardless of the location, size or type of laboratory), including those operated by physicians in their offices, based on the complexity of the tests they perform.  CLIA also establishes a stringent proficiency testing program for laboratories and includes substantial sanctions, such as suspension, revocation or limitation of a laboratory’s CLIA certificate (which is necessary to conduct business), and significant fines and/or criminal penalties.

 

The tests on samples provided through our products are processed at our laboratory in Melbourne, Australia.  Our laboratory completed its first CLIA inspection under CLIA guidelines and received its certificate of compliance effective November 17, 2011. A re-certification from CMS i.e. paper survey, was performed in November 2013 and another on-site re-certification followed up in February 2016. A paper survey was conducted in November 2017 and the company’s next scheduled re-certification survey is due in November 2019. Furthermore, our laboratory completed its first CLEP inspection under the NYS DOH CLEP guidelines and received its certificate of compliance effective August 30, 2013. Since the initial survey, the laboratory has been successful in submitting documents via the NYS eCLEP Health Commerce System for each subsequent year to date. Although no firm date has been provided, the laboratory is expecting an on-site visit in the near future.

 

We believe the Company is in compliance with all applicable federal and state laboratory requirements. Under CLIA, we remain subject to state and local laboratory regulations.   CLIA provides that a state may adopt laboratory regulations that are more stringent than those under federal law, and some states require additional personnel qualifications, quality control, record maintenance and other requirements.

 

Although the U.S. Food and Drug Administration (“FDA”) has consistently claimed that it has the authority to regulate laboratory-developed tests (“LDTs”) such as ours, that are developed, validated and performed only by a CLIA certified laboratory, it has historically exercised enforcement discretion in not otherwise regulating most LDTs and has not required laboratories that furnish LDTs to comply with the agency’s requirements for medical devices (e.g., establishment registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls).  More recently, the FDA has indicated that it will apply a risk-based approach to determine the regulatory pathway for all in-vitro diagnostics, which includes LDTs, as it does with all medical devices. Accordingly, the regulatory pathway for our LDTs will depend on the level of risk to patients, based on the intended use of the LDT and the controls necessary to provide a reasonable assurance of the LDTs safety and effectiveness. The two primary types of marketing pathways for medical devices are clearance of a premarket notification under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or 510(k), and approval of a premarket approval application, or PMA.

 

HIPAA and other privacy laws

 

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), established comprehensive federal standards for the privacy and security of health information. The HIPAA standards apply to three types of organizations: health plans, healthcare clearing houses, and healthcare providers that conduct certain healthcare transactions electronically (“Covered Entities”).  Title II of HIPAA, the Administrative Simplification Act, contains provisions that address the privacy of health data, the security of health data, the standardization of identifying numbers used in the healthcare system and the standardization of certain healthcare transactions.  The privacy regulations protect medical records and other protected health information by limiting their use and release, giving patients the right to access their medical records and limiting most disclosures of health information to the minimum amount necessary to accomplish an intended purpose.  The HIPAA security standards require the adoption of administrative, physical, and technical safeguards and the adoption of written security policies and procedures.

 

On February 17, 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical Health Act, or HITECH, provisions of the American Recovery and Reinvestment Act of 2009.  HITECH expanded and strengthened HIPAA, created new targets for enforcement, imposed new penalties for noncompliance and established new breach notification requirements for Covered Entities.  Regulations implementing major provisions of HITECH were finalized on January 25, 2013 through publication of the HIPAA Omnibus Rule (the “Omnibus Rule”).

 

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Under HITECH’s breach notification requirements, Covered Entities must report breaches of protected health information that has not been encrypted or otherwise secured in accordance with guidance from the Secretary of the U.S. Department of Health and Human Services (the “Secretary”).  Required breach notices must be made as soon as is reasonably practicable, but no later than 60 days following discovery of the breach.  Reports must be made to affected individuals and to the Secretary and, in some cases depending on the size of the breach; they must be reported through local and national media.  Breach reports can lead to investigation, enforcement and civil litigation, including class action lawsuits.

 

In addition to the federal privacy and security regulations, there are a number of state laws regarding the privacy and security of health information and personal data that are applicable to clinical laboratories.  Many states have also implemented genetic testing and privacy laws imposing specific patient consent requirements and protecting test results by strictly limiting the disclosure of those results.  State requirements are particularly stringent regarding predictive genetic tests, due to the risk of genetic discrimination against healthy patients identified through testing as being at a high risk for disease.  We believe that we have taken the steps required of us to comply with health information privacy and security statutes and regulations, including genetic testing and genetic information privacy laws in all jurisdictions, both state and federal.  However, these laws constantly change and we may not be able to maintain compliance in all jurisdictions where we do business.  Failure to maintain compliance, or changes in state or federal laws regarding privacy or security could result in civil and/or criminal penalties, significant reputational damage and could have a material adverse effect on our business.

 

Environmental and Safety Laws and Regulations

 

We are subject to laws and regulations related to the protection of the environment, the health and safety of employees and the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials.  For example, the U.S. Occupational Safety and Health Administration (“OSHA”) has established extensive requirements relating specifically to workplace safety for healthcare employers in the U.S.  This includes requirements to develop and implement multi-faceted programs to protect workers from exposure to blood-borne pathogens, including preventing or minimizing any exposure through needle stick injuries.  For purposes of transportation, some biological materials and laboratory supplies are classified as hazardous materials and are subject to regulation by one or more of the following agencies: the U.S. Department of Transportation, the U.S. Public Health Service, the United States Postal Service and the International Air Transport Association.  We generally use third-party vendors to dispose of regulated medical waste, hazardous waste and radioactive materials and contractually require them to comply with applicable laws and regulations.

 

Our operations are also subject to environmental regulations under Australian State legislation.  In particular, the Company is subject to the requirements of the Environment Protection Act 1993.  A license has been obtained under this Act to produce listed waste.

 

Transparency Laws and Regulations

 

A federal law known as the Physician Payments Sunshine Act (the “Sunshine Act”) requires medical device manufacturers to track and report to the federal government certain payments and other transfers of value made to physicians and teaching hospitals and ownership or investment interests held by physicians and their immediate family members.  There are also state “sunshine” laws that require manufacturers to provide reports to state governments on pricing and marketing information.  Several states have enacted legislation requiring medical device manufacturers to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales and marketing activities, and such laws may also prohibit or limit certain other sales and marketing practices.  These laws may adversely affect our sales, marketing, and other activities by imposing administrative and compliance burdens on us.  If we fail to track and report as required by these laws or to otherwise comply with these laws, we could be subject to the penalty provisions of the pertinent state and federal authorities.

 

Product Distribution

 

Despite significant resource allocation and efforts by a dedicated sales team, sales of BREVAGenplus were insufficient to defray the costs of the sales team.  By late 2017, management decided that its sales strategy was not working and disbanded much of the sales infrastructure in the U.S. and transitioned to an ecommerce based solution that allowed consumers to initiate testing online.  Management then designed a “pivot plan” in an effort to reposition the Company, refine and improve products and reload with a newly developed approach to market.  We intend to

 

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introduce the new ‘GeneType for Colorectal Cancer’ and ‘GeneType for Breast Cancer’ genetic tests to healthcare providers through a global network of distribution partners. To this end, we have entered into a distribution agreement with Translational Genomics Research Institute (“TGen”), an Arizona based world leading non-profit biomedical research institute dedicated to conducting ground-breaking genetic research and Hainan Resort Software Company to focus on the Asian market by identifying and introducing us to health distribution networks and genetic laboratory facilities in China.

 

Although we are currently not yet selling our new products, we have maintained a limited number of personnel in North Carolina and Texas. These employees have maintained their connections to health influencers and clinicians in the US. The Company intends to utilize these staff when it reloads its U.S. distribution strategy, now underway.

 

Reimbursement and Clinical Studies

 

Prior to April 2017, our payment model relied on a traditional reimbursement system by Preferred Provider Organizations (“PPOs”) and other third party payers, which required credentialing our products with those payers. With effect from April 1, 2017, the Company transitioned to a direct patient self-pay program. Converting to a direct pay relationship with patients was aimed at providing economic and process certainty to the transaction for the healthcare provider and the patient.  The change eliminated reimbursement issues from PPO and other third-party payors, including low levels of reimbursement, prolonged payment time, patient confusion around eligibility and financial responsibility and poor coverage.

 

This shift also has reduced our reliance on clinical utility studies that had been designed as a means to achieve reimbursement coverage through the private insurers.   We recognize however  that scientific papers are an essential marketing tool, and that scientific and clinical data are key drivers in to help strengthen our commercial position. We intend to  explore opportunities to engage in further research collaborations to support clinical utility.  Physicians and the major breast health centers seek multiple points of confirmation that the medical device works as intended and leads to a meaningful improvement in women’s health.  Therefore, the more papers that are published regarding our genetic tests, profiling product performance characteristics including clinical validity and utility, the more likely physicians will be to use the tests.

 

The Company had previously conducted multiple scientific studies to develop and validate the first generation BREVAGen test and also created two health economic models to demonstrate potential cost savings and health benefits associated with the BREVAGen test. Importantly, the research undertaken and published based on the original version of our test remains applicable to our new GeneType for Breast Cancer and GeneType for Colorectal Cancer tests.

 

Research & Development Projects

 

During the year ended June 30, 2019, we supported the following research and development programs, details of which are provided below:

 

·                  Breast Cancer Risk Assessment Test (GeneType for Breast Cancer)

·                  Colorectal Cancer Risk Assessment Test (GeneType for Colorectal Cancer)

·                  Research collaboration with Translational Genomics Research Institute (“TGen”)

·                  Research Agreement executed with Memorial Sloan Kettering New York Cambridge University

·                  Research collaboration with The Ohio State University

·                  Expanded range of other cancer and disease target predictive risk assessment tests

 

In previous years, other projects, which have since been terminated or otherwise commercialized, have also been supported by the Company. The Company is constantly seeking new opportunities and plans to focus more on research and development activities in the future. In addition, we plan on having our science and management team engage with the world’s leading scientific experts working on predictive genetic testing and its

 

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role within world health systems. Historically, some projects have arisen from new inventions made by the Company while some have been made by others who have approached the Company seeking collaboration and support for their activities.

 

Collaboration with the University of Melbourne

 

On November 29, 2016, we announced the signing of an exclusive worldwide license agreement with The University of Melbourne for the development and commercialization of a novel colorectal cancer (CRC) risk assessment test.  The core technology behind this test was developed by a research team at the University’s Centre for Epidemiology and Biostatistics, with results from preliminary modelling studies first published online in Future Oncology on 1 February 2016, in a Paper entitled “Quantifying the utility of single nucleotide polymorphisms to guide colorectal cancer screening,” 2016 Feb: 12(4), 503-13. This simulated case-control study of 1 million patients indicated that a panel of 45 known susceptibility SNPs can stratify the population into clinically useful CRC risk categories. In practice, the technology could be used to identify people at high risk for CRC who should be subjected to intensive screening, ultimately reducing the risk of occurrence and death from the disease. Those identified as low risk of CRC can be spared expensive and invasive screening, thereby preventing adverse events and unjustified expenses.

 

A scientific validation study supporting this work has been completed, and a report of the research program progress has been delivered to the Company. Whilst the terms of the Agreement are confidential, these events represent an important first milestone in the development of a new test as the Company seeks to diversify its product pipeline and become a key player in the SNP-based cancer risk assessment landscape.

 

TGen Collaboration

 

TGen is an Arizona-based, non-profit biomedical research institute dedicated to conducting ground-breaking research with life-changing results. TGen works to unravel the genetic components of common and complex diseases, including cancer, neurological disorders, infectious disease, and rare childhood disorders. TGen is affiliated with City of Hope in Duarte, California, a world-renowned independent research and treatment center for cancer, diabetes and other life-threatening diseases.  During 2019 we entered into agreements with TGen under which TGen will conduct a clinical study of GeneType Breast and Colorectal Cancer GRSs tests developed by Genetic Technologies Limited utilizing TGen’s extensive network of cancer centre clinicians.

 

We also intend to work with TGen in the development of a commercialisation strategy and infrastructure development for a suite of polygenic risk tests to be made available in the U.S.  The clinical trials to be conducted will require the Company to invest a modest amount of financial resource to demonstrate and document clinical utility and practitioner acceptance.

 

Research Collaboration Memorial Sloan Kettering New York Cambridge University

 

In early 2019, our U.S. subsidiary entered into a Research Agreement with Memorial Sloan Kettering Cancer Center of New York and the University of Cambridge. This collaborative research study is to be led by Mark Robson, MD, Chief of the Breast Medicine Service at Sloan Kettering. The study is intended to assess whether the provision of individual risk information informed by a polygenic risk score reduces decisional conflict among BRCA mutation carriers considering preventive surgery.

 

We believe this collaboration will benefit the Company by its engagement and collaboration with high profile cancer genetics researchers who are at the forefront of risk assessment research, and by providing us with data that may potentially be beneficial in developing additional risk assessment products.

 

Research Collaboration with The Ohio State University

 

On June 15, 2017 the Company executed a Clinical Study Agreement with The Ohio State University, Technology Commercialization Office and Division of Human Genetics. This is an

 

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“investigator-initiated” study in which the Company was approached to be the collaborating partner, reflecting the growing awareness of the Company’s expertise in SNP-based risk assessment.

 

Under this Agreement, we will supply novel SNP-based genotyping for a clinical research study, through our CLIA laboratory facility, on a fee for service basis. The Company will be responsible for the development and validation of the new assay, although the fundamental technology is similar to the BREVAGenplus test and will fit synergistically into the Company’s existing laboratory infrastructure and processes. Importantly, if the first phase of the study is successful, several other major genetics centers in the U.S. have expressed an interest in joining the study.

 

This collaborative study provides two tangible benefits for the Company:

 

(i)                               engagement and collaboration with high profile cancer genetics researchers in the U.S. who are at the forefront of risk assessment research; and

 

(ii)                            the resulting data can be used to inform the design of future pipeline products

 

Whilst sample collection by the University has been slower than expected during the current year, the Company remains committed to delivering a high standard of service as envisaged under the terms of the agreement.

 

Collaboration with Shivom

 

The Company entered into an agreement with Shivom in March 2018. Shivom is a biotechnology data and analysis company that optimizes the way DNA is shared, secured and analysed.  Under our agreement, Shivom would provide genetic population data for the development of an Indian market polygenic predictive diabetes test to be developed by us, as well as future genetic tests we develop, and our CLIA laboratory facilities would be used develop a regulatory approval strategy for the distribution of completed products. To date, the parties have not commenced development activities under this agreement.

 

Competition

 

The medical diagnostics and biotechnology industries are subject to intense competition.  As more information regarding cancer genomics and personalized medicine becomes available to the public, we anticipate that more products aimed at identifying cancer risk will be developed and that these products may compete with ours. However, the use of Single Nucleotide Polymorphisms (SNPs), for disease risk prediction is still a relatively new field of medicine.

 

Until recently, there have been no active direct competitors marketing an assay similar to that of our breast cancer risk assessment products in the sporadic breast cancer risk assessment space. However, in March 2019, Genomics PLC announced that it was developing polygenic risk tests for several common diseases including breast cancer. In addition, Myriad Genetic Laboratories Inc. announced in December 2017 that it will market a new breast cancer risk-prediction tool, which we believe will compete with our GeneType for Breast Cancer test. Similarly, Ambry Genetics Corporation sells a precision risk tool that provides lifetime breast cancer risk information. Other organizations such as 23andMe and Color Genomics in the U.S. have also over the past few years developed SNP based risk tests that whilst not currently direct competitors to our products, are attracting significant consumer interest.

 

In recent years, a number of other organizations, including deCODE (Iceland), 23andMe, Intergenetics, and Navigenics (subsequently acquired by Life Technologies — now ThermoFisher) have attempted to commercialize SNP-based genetic tests, to both physicians and consumers, to assess sporadic breast cancer risk in relevant patient populations.  But either due to a lack of adequate and compelling scientific validation, and/or sufficient commercial impetus and capability, these efforts have led to lackluster market adoption, resulting in either the dissolution of these businesses or a marked change in their strategy. New entrants that we are aware of that are in early stages of product development include Counsyl Inc. and Invitae Corporation in the U.S.

 

There are also a number of academic centers and affiliated research and development bodies, in the U.S. and in Europe, that are reportedly exploring the validity and clinical viability of SNP-based commercial tests in the clinical setting, but it is unclear to what extent these entities currently represent  a direct or indirect potential

 

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competitive liability to the Company.   A number of established, mature laboratory services companies, such as Ambry Genetics, and Laboratory Corporation of America, among others, have the demonstrable product development, marketing skill and resources to enter into this market for sporadic breast cancer risk assessment. Many of these larger potential competitors have already established name and brand recognition and more extensive collaborative relationships, but again, it is unclear to what extent these potential competitive threats could manifest in the near-to-long term.

 

Our competitive position in the genetic testing area is based upon, amongst other things, our ability to:

 

·             continue to strengthen and maintain scientific credibility through the process of obtaining scientific validation through clinical trials supported by peer-reviewed publication in medical journals;

 

·             create and maintain scientifically-advanced technology and offer proprietary products and services;

 

·             continue to strengthen and improve the messaging regarding the importance and value that our cancer risk assessment tests provides to patients and physicians;

 

·             diversify our product offerings in disease types other than breast cancer;

 

·             obtain and maintain patent or other protection for our products and services;

 

·             obtain and maintain required government approvals and other accreditations on a timely basis; and

 

·             successfully market our products and services.

 

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

 

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Item 4.C                        Organizational Structure

 

The diagram below shows our corporate structure of the as of the date of this Annual Report.  All of our subsidiaries in the chart below are wholly-owned.

 

 

Item 4.D                                                Property, Plant and Equipment

 

As at date of this Report, the Company has executed two leases in respect of premises occupied by the Company.

 

Fitzroy, Victoria

 

We rent offices and laboratory premises located at 60-66 Hanover Street, Fitzroy, Victoria, Australia (an inner suburb of Melbourne) from Crude Pty. Ltd.  The three year lease is due to expire on August 31, 2021.  The total rental charge in respect of the year ended June 30, 2019 was approximately $208,445.

 

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Charlotte, North Carolina

 

Phenogen Sciences Inc., our U.S. subsidiary, rents office premises which are located at 9115 Harris Corners Parkway, Suite 320, Charlotte, North Carolina, U.S. from New Boston Harris Corners LLC. This lease expired on October 31, 2017. It was then followed by a month to month lease, which was terminated during the 2019 fiscal year. The total rental charge in respect of the year ended June 30, 2019, based on the month to month lease, was approximately USD 20,154.  Phenogen Sciences Inc. entered into a two year lease agreement effective July 23, 2018 for premises situated at Suite 157, 1300 Baxter Street, Charlotte, North Carolina.

 

Item 5.                                 Operating and Financial Review and Prospects

 

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

 

Item 5.A                        Operating Results

 

Overview

 

Founded in 1989, Genetic Technologies is an established Australian-based molecular diagnostics company that offers predictive genetic testing and risk assessment tools, with a current focus on women’s health. During the year ended June 30, 2015 the Company divested its interest in other genetic testing services, which up until then, together with licensing of non-coding technology, had provided the main source of income to fund operations, to concentrate on the principal activity of the provision of molecular risk assessment tests for cancer.

 

The Company’s revenues during its years ended June 30, 2019, 2018 and 2017 were generated principally by sales of its BREVAGenplus  breast cancer risk assessment test.  However, during 2017, management determined that sales of this product were insufficient to defray the costs of the sales team.  By late 2017, management decided that its sales strategy was not working and disbanded much of the sales infrastructure in the U.S. and transitioned to an ecommerce based sales solution.  Management then designed a “pivot plan” in an effort to reposition the Company and refine and improve products and reload with a newly developed approach to market.  To that end, the Company intends to introduce its new ‘GeneType for Colorectal Cancer’ and ‘GeneType for Breast Cancer’ genetic tests to healthcare providers through a global network of distribution partners. The Company is currently not yet selling its new products, and as a result, sales currently and during its year ended June 30, 2019 were minimal.

 

The Company employs a limited number of personnel in North Carolina and Texas, which it intends to utilize when it is ready to distribute its new products in the U.S. In addition, the Company is in discussion with a U.S. firm specializing in connecting western medical firms with Asian distribution partners.

 

Since inception up to June 30, 2019, we have incurred $129,787,550 in accumulated losses.  Our losses have resulted principally from costs incurred in research and development, general and administrative and sales and marketing costs associated with our operations. Further losses are anticipated as the Company continues to invest in new genetic testing product research and development, and explore optimal distribution methodologies to commercialise its product offering.  Refer to the Consolidated Statements of Operations in Item 18.

 

Fiscal year

 

As an Australian company, our fiscal, or financial, year ends on June 30 each year.  We produce audited consolidated accounts at the end of June each year and furnish half-yearly accounts for the periods ending on December 31 each year, both of which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

 

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Recent Accounting Pronouncements

 

In respect of the year ended June 30, 2019, the Company has assessed all new accounting standards mandatory for adoption during the current year, noting no new standards which would have a material effect on the disclosure in these financial statements.  There has been no effect on the profit and loss or the financial position of the Company.  Certain new accounting standards and interpretations have been published that are not mandatory for June 30, 2019 reporting periods.  The Company’s assessment of the impact of these new standards and interpretations is set out in Note 2(b) of the attached financial statements.

 

Critical Accounting Policies

 

The accounting policies which are applicable to the Company are set out in Notes 2(c) to 2(w) of the attached financial statements.

 

Comparison of the year ended June 30, 2019 to the year ended June 30, 2018

 

Revenues from operations

 

During the 2019 financial year, the Company’s consolidated gross revenues from continuing operations, excluding other revenue, was $25,444 compared to $189,254 in the preceding year.   Revenues decreased as a result of management’s determination to discontinue sales of its legacy BREVAGenplus product and develop its new products. The Company expects sales to increase once distribution of its GeneType for Breast Cancer and GeneType for Colorectal Cancer commences later in the 2020 financial year.

 

Cost of sales

 

Our cost of sales from continuing operations decreased by 7.93% from $300,088 to $276,267. BREVAGenplus direct materials utilized decreased by 40% from $93,869 to $55,995 as a result of the reduced number of samples received. Depreciation expense attributable to the laboratory testing equipment decreased by $10,373 whilst direct labour costs increased by $14,911 as a result of a continued streamlining of the laboratory team to match the reduced samples received. There was a decrease in inventories written off of $9,515 in 2019.

 

Selling and marketing expenses

 

Selling and marketing expenses decreased by $490,327 (46%) to $576,077 during the 2019 financial year. Personnel related costs decreased by $185,807 (38%) following the wind-down of direct to customer sales activity in the U.S. associated with the legacy BREVAGenplus product. Other decreases relate to lower rental costs, airfares, conference costs during the year.

 

General and administrative expenses

 

General and administrative expenses (excluding net foreign currency losses) increased by $814,380 (27%) to $3,830,198 during the financial year.  The increase is mainly due to increase in spending on legal (73%) and compliance costs (32%), insurance (25%), printing (135%) and accounting, tax and audit related costs (21%) due to higher compliance and legal activities affecting the company in the current period.

 

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Laboratory, research and development costs

 

Laboratory, research and development costs increased by $150,264 (7%) to $2,360,762 during the 2019 financial year. Laboratory, research and development costs increased due to the intensive research and development effort to develop the GeneType for Breast Cancer and GeneType for Colorectal Cancer genetic tests, which concluded in May 2019. The Company is continuing research and development activities on the following genetic tests:

 

·                  Cardiovascular Disease — target launch late 2019

·                  Type 2 Diabetes — target launch late 2019

·                  Prostate Cancer - 2020

·                  Melanoma - 2020

 

Finance costs

 

Finance costs decreased by $8,812 (30%) to $20,031 during the 2019 year. Finance costs incurred in 2019 and 2018 were primarily bank charges.

 

Non-Operating income and expenses

 

Other income and expenses included the following movements:

 

Research and development tax credit of $856,706 in the current financial year increased by $557,356. The research tax credit is recognized on an accrual basis when realizable. The higher research and development tax credit is due to higher eligible research expenditure during the period ended June 30, 2019 as the Company has progressed development of its two new cancer risk assessment tests, and the proportion of costs associated with sales activities has declined.

 

Other gains/losses

 

·     A net foreign currency gain of $92,518 (2018; gain of $128,360) was recorded for the year. The profit is primarily driven by the translation of US dollar cash reserves to Australian dollars at June 30, 2019.

 

·     An impairment expense of $500,000 was recognized in the current year ending June 30, 2019 (2018: $ Nil) relating to the impairment of investments in Swisstec and Blockshine Health Pty Ltd.

 

Comparison of the year ended June 30, 2018 to the year ended June 30, 2017

 

Revenues from operations

 

During the 2018 financial year, the Company generated consolidated gross revenues from continuing operations, excluding other revenue, of $189,254 compared to $518,506 in the preceding year.  The overall decline of $329,252 is as a result of a $197,734 reduction in previously accrued BREVAGenplus revenues, driven by ongoing reduced test samples and collection rates, with the balance of $131,518 of the differential directly attributable to a decrease in the overall combined sales of BREVAGenplus tests. Samples received for BREVAGenplus tests during 2018 were 405 compared to 895 in the previous financial year.

 

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Overheads decreased by $1,603,539 compared with 2017.  The combined areas of selling/ marketing, administration, licensing and operations (excluding net foreign currency losses) totaled $6,449,923 for the year compared with $8,053,462 for 2017.  The overall decrease is reflective of the ongoing commitment to effectively manage overhead spending, and a transition from a direct salesforce to an ecommerce based solution in the U.S.

 

The loss for the 2017 year of $8,403,826 (2018: $5,463,872) includes a $544,694 (2018: Nil) expense for the impairment of intangible assets.

 

Cost of sales

 

Our cost of sales from continuing operations decreased by 39% from $492,417 to $300,088. BREVAGenplus direct materials utilized decreased by 45% from $172,070 to $93,869 as a result of the reduced number of samples received. Depreciation expense attributable to the laboratory testing equipment decreased by $5,286 whilst direct labour costs decreased by $64,077 as a result of a continued streamlining of the laboratory team to match the reduced samples received. There was a decrease in inventories written off of $44,765 in 2018, which included BREVAGenplus materials that had expired during the year of $24,506.

 

Selling and marketing expenses

 

Selling and marketing expenses decreased by $1,655,070 (61%) to $1,066,404 during the 2018 financial year. Personnel related costs decreased by $822,151 (54%) as a direct result of the transition from a direct sales force in the U.S. to an ecommerce web enabled sales platform to sell BREVAGenplus. Fees paid billing and collection services decreased by $208,974 to $49,086 as the Company terminated its agreement with a service provider in 2017 and introduced a patient self-pay pricing model for its tests. Marketing and promotion costs decreased by $242,058 (93%) as certain sponsorship agreements and other marketing activities were not pursued in light of the strategic review initiated by the Company in August 2017.

 

General and administrative expenses

 

General and administrative expenses (excluding net foreign currency losses) increased by $210,519 (7%) to $3,144,178 during the financial year.  Personnel related costs increased by $270,993 (18%) as a result of the payout to the previous CEO on his departure in February 2018, as well as 3 additional headcount engaged in February 2018 to oversee the blockchain opportunities being pursued by the Company. This was offset by a decrease in audit, accounting and tax fees of $129,736 in line with streamlined commercial operations.

 

Laboratory, research and development costs

 

Laboratory, research and development costs decreased by $155,836 (7%) to $2,210,498 during the 2018 financial year. As a result of lower test samples received, there was a reduction in 1 part time position, and 1 full time positions resigned during the year, which when combined with reductions in headcount in the previous year, resulted in a decrease in employee related costs of $216,041 (26%) to $611,888. Patent & legal costs increased by $95,320 (22%) to $534,235 as the Company continued to strengthen its patent portfolio around the BREVAGenplus technology and Colorectal Cancer research project. Laboratory materials related to in-house research and development work performed on the BREVAGenplus, CRC and other projects increased by $182,767 to $220,809. This was offset by a decrease of $100,000 (100%) in fees payable to the University of Melbourne as part of the Colorectal Cancer research project.

 

Finance costs

 

Finance costs decreased by $3,152 (10%) to $28,843 during the 2018 year. Finance costs incurred in 2018 and 2017 were primarily bank charges.

 

Non-Operating income and expenses

 

Other income and expenses included the following movements:

 

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·                  Research and development tax credit of $299,351 in the 2018 financial year increased by $46,192. The research tax credit is recognized on an accrual basis when realizable.  There was an increase in laboratory supplies used in research activities of $182,767 as the Company refocused on the BREVAGenplus and CRC projects in the second half of the year, whilst license fees payable to the University of Melbourne for the CRC project decreased by $100,000.

 

·                  Export Marketing And Development Grant of $126,907 for eligible expenditure related to 2016 and 2017 was received during 2018. The grant was not previously recognized by the Company as there was no reasonable assurance of receipt.

 

·                  A net foreign currency gain of $128,360 (2017; loss of $175,871) was recorded for the year. The profit is primarily driven by the translation of US dollar cash reserves to Australian dollars at June 30, 2018.

 

·                  An impairment expense of $544,694 was recognized in the prior year ending June 30, 2017 (2018: $ Nil) relating to the BREVAGen intangible assets was recognized. The assets have were impaired in line with IAS 36, Impairment of assets and the Company’s accounting policy.

 

Item 5.B                        Liquidity and Capital Resources

 

Summary

 

Since inception, our operations have been financed primarily from capital contributions by our stockholders, proceeds from our licensing activities and revenues from operations, grants, and interest earned on the Company’s cash and cash equivalents. Currently our overall cash position depends on completion of our research and development activities, overall market acceptance of and revenue generated by our new genetic testing products. The Company’s cash and cash equivalents were $2,131,741 as of June 30, 2019.

 

During the year ended June 30, 2019, we incurred comprehensive losses of $6,401,936.  During the year ended June 30, 2018, we incurred comprehensive losses of $5,986,838. During the year ended June 30, 2017, we incurred comprehensive losses of $8,534,481.

 

During the year ended June 30, 2019, the Company’s net cash flows used in continuing operations were $6,073,182. During the year ended June 30, 2018, the Company’s net cash flows used in continuing operations were $5,636,533. During the year ended June 30, 2017, the Company’s net cash flows used in continuing operations were $6,852,404.

 

Management expects increased cash outflows from operations during the 2020 financial year as the Company continues to invest resources in expanding research and development activities in its suite of genetic screening tests targeting both cancer and non-oncological diseases, and exploring distribution opportunities in the U.S. and Asia.   As a result of these expected cash outflows, the Company is seeking to raise equity financing in the second quarter of the current fiscal year, although there can be no assurance that the Company will be successful in this regard.

 

Going Concern. The longer-term viability of the Company and its ability to continue as a going concern and meet its debts and commitments as they fall due is dependent on the satisfactory completion of planned equity raisings which are not guaranteed.  Due to our history of losses and cash outflows, and the uncertainty surrounding the timing, quantum or the ability to raise additional equity, there is a material uncertainty that casts significant doubt on the Company’s ability to continue as a going concern and therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.  In addition, the Company’s auditors have indicated in their report on our consolidated financial statements for the fiscal year ended June 30, 2019, that conditions exist that raise substantial doubt about our ability to continue as a going concern. However, we believe that the Company will be successful in raising required capital when needed, and accordingly, have prepared our financial statements on a going concern basis. As such, no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or classification of liabilities that might be necessary should the Company not be able to continue as a going concern.

 

Operating Activities. Our net cash used in operating activities was $6,073,182, $5,636,533 and $6,852,404  for the years ended June 30, 2019, 2018 and 2017, respectively.  Cash used in operating activities for each period

 

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consisted primarily of losses incurred in operations reduced by impairment of intangible assets expenses, depreciation and amortization expenses, share based payments expenses, foreign exchange movements and unrealized profits and losses relating to investments.  In approximate order of magnitude, cash outflows typically consist of staff-related costs, marketing expenses, service testing expenses, general and administrative expenses, legal/patent fees and research and development costs.

 

Investing Activities. Our net cash  from/(used in) investing activities was $(524,460), $12,833 and $(143,384) for the years ended June 30, 2019, 2018 and 2017, respectively.  During the year ended June 30, 2019 the Company spent $50,309 towards purchase of computer equipment, furniture and leasehold improvements. During the year ended June 30, 2017, $52,650 was received from the sale of unutilized laboratory equipment that was superfluous to the requirements of the Company’s current operations following the 2015 divestment of the Heritage business. Apart from the purchase of plant and equipment of $50,309 in 2019, $2,385 in 2018 and  $234,799 in 2017, we had no other significant capital expenditures for the years ended June 30, 2019, 2018 and 2017.

 

Financing Activities. Our net cash from/(used in) financing activities was $3,126,162, $(9,963) and $7,110,049 for the years ended June 30, 2019, 2018 and 2017, respectively. During the year ended June 30, 2019, the Company generated cash flows of $3,557,509 from the issue Ordinary Shares less costs associated with the transactions of $431,347, and during 2018 no proceeds from share issues were received.

 

Operating leases

 

We are obligated under two operating leases that were in place at June 30, 2019.  These leases relate to the premises occupied by the Company in Fitzroy, Victoria, Australia and by its U.S. subsidiary, Phenogen Sciences Inc., in Charlotte, North Carolina, U.S.A.

 

The future minimum lease payments in respect of the two operating leases that were in place and had remaining non-cancellable lease terms as of June 30, 2019 were $516,628.

 

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

 

Our principal business is biotechnology, with a historical emphasis on genomics and genetics, the licensing of our non-coding patents, reduction to practice of our fetal cell patents and expansion of the related service testing business. Research and development expenditure as below is reflective of the intense focus by the scientific and laboratory team to develop and market a suite of world-leading predictive genetic tests.

 

The following table details historic R&D expenditure by project.

 

 

 

2019

 

2018

 

2017

 

 

 

$

 

$

 

$

 

 

 

(in A$)

 

RareCellect (1)

 

 

12,555

 

10,782

 

BREVAGenplus

 

228,643

 

266,723

 

216,121

 

Colorectal Cancer Risk Assessment Test

 

14,286

 

114,315

 

114,651

 

Ohio State University

 

 

48,377

 

 

 

Other general R&D

 

67,774

 

18,544

 

77,044

 

Total R&D expense

 

310,703

 

460,514

 

418,598

 

Other expenditure

 

7,160,114

 

5,634,088

 

8,847,846

 

Total expenditure

 

7,470,817

 

6,094,602

 

9,266,444

 

R&D as a % of total expenditure

 

4.17

%

8

%

5

%

 


(1) The RareCellect project ceased during 2014. The costs incurred since then relate to legal fees associated with the patent portfolio.

 

Item 5.D                            Trend Information

 

See Item 5.A. “Operating Results” and Item 5.B. “Liquidity and Capital Resources” above.

 

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Item 5E.                 Off-balance sheet arrangements

 

We are not a party to any material off-balance sheet arrangements.  In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create any material contingent obligations.

 

Item 5F.                  Information about contractual obligations

 

The table below shows the contractual obligations and commercial commitments as of June 30, 2019:

 

 

 

0-1 year

 

>1-<3 years

 

>3-<5 years

 

>5 years

 

Operating lease commitments

 

$

250,068

 

$

266,560

 

$

 

$

 

 

The above financial obligations are in respect of leases over office and laboratory premises.

 

On July 3, 2018 the lease agreement for the Fitzroy premises in Melbourne was extended for 3 years from September 1, 2018 to August 31, 2021. In addition, Phenogen Sciences Inc. vacated the Harris Corners Parkway office in Charlotte in July 2018, and entered into a two year lease agreement effective July 23, 2018 for premises at 1300 Baxter Street, Suite 157, Charlotte, North Carolina.

 

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Table of Contents

 

Item 6.           Directors, Senior Management and Employees

 

Item 6.A        Directors and Senior Management

 

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

 

Dr Jerzy (George) Muchnicki (Interim Chief Executive Officer)

 

Dr Muchnicki was appointed to the Board on 31 January 2018 and was appointed Interim Chief Executive Officer on September 24, 2019.  Prior to his appointment as Interim Chief Executive Officer, was a part time Business Development Director for the Company. Dr. Muchnicki graduated from Monash University having held positions in private practice for some 25 years to head of student health at Melbourne University.  For the past 14 years he has been mostly involved in commercialisation and funding R&D in the biotechnology sector from gene silencing to regenerative medicine.

 

Dr Muchnicki brings with him strong commercial and medical skills, including broad interests in software development, blockchain and sustainable building materials.  He is a co-founder and Non-Executive Director of Speed Panel Holdings a world leader in fire rated and acoustic wall solutions.  He is also the co-founder of Candlebets, a software development company that is creating blockchain enabled platforms for the gaming industry.

 

Dr Lindsay Wakefield, MBBS (Non-Executive)

 

Dr Wakefield was appointed to the Board on 24 September 2014.  He started Safetech in 1985 and over the next 25 years Safetech became a force in the Australian material handling and lifting equipment market, designing and manufacturing a wide range of industrial products.  In 1993, he left medicine to become the fulltime CEO of Safetech.  In 2006 Safetech was awarded the Telstra Australian National Business of the Year.  In 2013 Safetech merged and ultimately acquired Tieman Materials Handling. Dr. Wakefield continues as the CEO of Safetech.  It is Australia’s largest manufacturer and supplier of dock equipment, freight hoists and custom lifting solutions.  Safetech employs approximately 100 people. Dr. Wakefield has been a biotech investor for more than 20 years.

 

Mr Peter Rubinstein (Non-Executive)

 

Mr Peter Rubinstein was appointed to the Board on 31 January 2018.  He has over 20 years’ experience in early stage technology commercialisation through to public listings on the ASX.  He is a lawyer, having worked at one of the large national firms prior to moving in house at Montech, the commercial arm of Monash University. Mr Rubinstein has had significant exposure to the creation, launch and management of a diverse range of technology companies including in biotech, digital payments and renewable energy.  Peter is also Chairman of DigitalX Limited (DCC) and an advisor to Blockchain Global Limited.

 

Mr Nick Burrows (Non-Executive)

 

Mr Burrows was appointed to the Board on 1 September 2019. He is a contemporary independent Non-Executive Director across the listed, government and private sectors with significant expertise in corporate governance, and strategic, commercial, financial and risk management oversight.  His current diverse multi-sector portfolio includes Non-Executive Directorships of Clean Seas Seafood Limited, Metro Tasmania Pty Ltd, TasWater, and a number of private companies. Mr Burrows also provides board, governance, audit and risk advisory services to entities within the IT, tourism and hospitality, debt recovery, agribusiness, forestry, and Local/State Government sectors.  Mr Burrows  was Chief Financial Officer and Company Secretary of Tassal Group Limited for 21 years from 1988 to 2009 and accordingly brings to the Board strong independent c-suite commercial experience and the

 

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benefits of an extensive and contemporary senior executive ASX200 listed entity background.  Mr Burrows is a respective Fellow of the Australian Institute of Company Directors, Institute of Chartered Accountants Australia, Governance Institute of Australia Ltd and the Financial Services Institute of Australasia and is also a Chartered Accountant and Registered Company Auditor. Mr Burrows also served as National President of the Governance Institute of Australia in 2002 and served on their National Board for 6 years.

 

Senior Management

 

We have a professional team of qualified and experienced personnel, including a number of research and development scientists and technicians.  The Company currently has 15 full-time-equivalent employees in addition to the four part time executive Director and three Non-executive Directors listed above.

 

Mr. Phillip Hains, MBA, CA (Chief Financial Officer)

 

Phillip Hains was appointed as the Company’s Chief Financial Officer on  July 15, 2019. Mr. Hains is a Chartered Accountant and specialist in the public company environment. He has served the needs of a number of public company boards of directors and related committees. He has over 30 years’ experience in providing accounting, administration, compliance and general management services. He holds a Masters of Business Administration from RMIT and a Public Practice Certificate from the Institute of Chartered Accountants of Australia.

 

Mr. Justyn Stedwell (Company Secretary)

 

Justyn Stedwell was appointed as the Company Secretary on July 15, 2019. Mr. Stedwell is a professional Company Secretary consultant with over 10 years’ experience acting as a Company Secretary of ASX listed companies across a wide range of industries. He is currently the Company Secretary of several ASX listed companies.

 

Dr. Richard Allman, PhD (Scientific Director)

 

Dr. Allman joined the Company in 2004 and was appointed as Scientific Director in December 2012.  He has over 20 years of scientific and research experience in both the academic arena in the UK and the commercial sector in Australia. He has wide experience in research leadership, innovation management, and intellectual property strategy, covering oncology, diagnostics, and product development. Prior to entering the biotech sector, Dr. Allman’s academic career encompassed oncology research, drug development, and assay design.

 

Item 6.B      Compensation

 

Details of the nature and amount of each major element of the compensation of each director of the Company and each of the named officers of the Company and its subsidiaries, for services in all capacities during the financial year ended June 30, 2019 are listed below.  All figures are stated in Australian dollars (AUD).

 

 

 

 

 

Short-term

 

Post-employment

 

Other
long-term

 

Share-based

 

 

 

Name and title of

 

Year

 

Salary/fees

 

Other

 

Superannuation*

 

benefits

 

Options

 

Totals

 

Non-Executive Directors

 

 

 

A$

 

A$

 

A$

 

A$

 

A$

 

A$

 

Dr Lindsay Wakefield

 

2019

 

67,462

 

 

6,409

 

 

5,615

 

79,486

 

Mr Peter Rubinstein

 

2019

 

67,462

 

 

6,409

 

 

7,486

 

81,357

 

Mr Xue Lee (1)

 

2019

 

58,330

 

 

5,541

 

 

28,849

 

92,720

 

Totals

 

 

 

193,254

 

 

18,359

 

 

41,950

 

253,563

 

 


(1) Mr Lee resigned as a Non-executive Director on July 9, 2019.

 

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Table of Contents

 

 

 

 

 

Short-term

 

Post-employment

 

Other
long-term

 

Share-based

 

Termination

 

 

 

Name and title of

 

Year

 

Salary/fees

 

Other

 

Superannuation*

 

benefits**

 

Options ***

 

benefits

 

Totals

 

Executives Directors

 

 

 

A$

 

A$

 

A$

 

A$

 

A$

 

A$

 

$A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr Paul Kasian (1)

 

2019

 

192,410

 

8,745

 

18,279

 

 

76,368

 

 

295,802

 

Former Chairman and Interim CEO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr Jerzy Muchnicki (2)

 

2019

 

82,995

 

(1,200

)

7,884

 

 

9,358

 

 

99,037

 

Interim CEO;  Business Development Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr Richard Allman (3)

 

2019

 

168,600

 

72,865

 

20,319

 

4,124

 

36,486

 

 

302,394

 

Scientific Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kevin Fischer (4)

 

2019

 

101,644

 

48,364

 

12,785

 

(3,390

)

(6,276

)

 

153,127

 

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul Viney (5)

 

2019

 

89,519

 

6,965

 

8,504

 

 

 

 

104,989

 

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-totals for Executives

 

 

 

635,168

 

128,194

 

67,772

 

734

 

115,936

 

 

955,349

 

Total remuneration of Key management personnel

 

2019

 

828,422

 

135,739

 

86,131

 

734

 

157,886

 

 

1,208,912

 

 


Notes pertaining to changes during the year:

 

(1) Dr Kasian was appointed as the Chairman on January 31, 2018 and interim CEO on February 6, 2018, having previously served as a Non-Executive Director since his appointment in December 2013. Of the total remuneration, $94,536.78 relates to Director Fees. Dr Kasian resigned on September 24, 2019 from all of his positions with the Company.

 

(2) Dr Muchnicki was engaged to do business development work on January 31, 2018. During 2018/19, Dr Muchnicki performed these duties as Additional Director Duties, rather than as an Executive role. Dr Muchnicki was appointed Interim Chief Executive Officer on September 24, 2019.

 

(3)  “Other” includes a bonus paid or payable to Dr Allman in the amount of $45,286 under a retention bonus scheme awarded to key management personnel (“KMP”).

 

(4) “Other” includes a bonus paid or payable to Mr Fischer in the amount of $47,032 under a retention bonus scheme awarded to KMP. Mr. Kevin Fischer resigned on December 31, 2018.

 

(5) Mr Paul Viney was appointed as the Chief Financial Officer, Chief Operating Officer and Company Secretary on December 15, 2018 and subsequently resigned from the positions on July 15, 2019.

 

Referencing the previous two tables:

 

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*     Post-employment benefits as per Corporations Regulation 2M.3.03 (1) Item 7

**   Other long-term benefits as per Corporations Regulation 2M.3.03 (1) Item 8

*** Equity settled share-based payments as per Corporations Regulation 2M.3.03 (1) Item 11

 

The details of those Executives nominated as Key Management Personnel under section 300A of the Corporations Act 2001 have been disclosed in this Report.  No other employees of the Company meet the definition of “Key Management Personnel” as defined in IAS 24 Related Party Disclosures, or “senior manager” as defined in the Corporations Act

 

Executive officers are those officers who were involved during the year in the strategic direction, general management or control of the business at a company or operating division level.  The remuneration paid to Executives is set with reference to prevailing market levels and comprises a fixed salary, various short term incentives (which are linked to agreed key performance indicators), and an option component.  Options are granted to Executives in line with their respective levels of experience and responsibility.

 

Options exercised, granted, and forfeited as part of remuneration during the year ended 30 June 2019

 

Details of the options held by the Executives nominated as Key Management Personnel during the year ended 30 June 2019 are set out below. As at 30 June 2019, there were 2 executives and 12 employees who held options that had been granted under the Company’s respective option plans.

 

During the 2019 financial year no options granted as equity compensation benefits to Executives were exercised, and 5,000,000 new options were granted as equity compensation benefits to Executives. The following options previously granted as equity compensation benefits to Executives were forfeited during the year;

 

Name of
Executive

 

Options
Lapsed

 

Options
forfeited

 

Exercise price

 

Fair value per
option

 

Final vesting date

 

Mr Eutillio Buccilli(1)

 

8,328,125

 

 

$

0.020

 

$

0.0161

 

30 June 2018

 

Mr Eutillio Buccilli(1)

 

3,131,944

 

 

$

0.020

 

$

0.0139

 

30 June 2018

 

Mr Eutillio Buccilli(1)

 

2,776,042

 

 

$

0.020

 

$

0.0100

 

30 June 2018

 

Mr Kevin Fischer(2)

 

2,925,000

 

 

$

0.020

 

$

0.0161

 

30 June 2018

 

Mr Kevin Fischer(2)

 

1,100,000

 

 

$

0.020

 

$

0.0139

 

30 June 2018

 

Mr Kevin Fischer(2)

 

975,000

 

 

$

0.020

 

$

0.0100

 

30 June 2018

 

Mr Kevin Fischer(3)

 

 

5,000,000

 

$

0.020

 

$

0.0050

 

22 Nov 2019

 

TOTAL

 

19,236,111

 

5,000,000

 

 

 

 

 

 

 

 


(1) The Company agreed to vesting 7,118,056 options which were originally set to vest on 30 June 2018 — all to be subject to the Company’s option plan (including the exercise or lapsing of all of those 14,236,111 options within 60 days of 3 months from termination date through a termination deed. As at June 30, 2019 the options had not been exercised and were lapsed on 30 June 2019.

 

(2) 5,000,000 options held by Mr. Kevin Fischer also lapsed on 30 June 2019 through accelerated vesting due to his departure.

 

(3) The remaining 5,000,000 options held by Mr. Kevin Fischer were forfeited during the year. The reversal expense of forfeited options were valued at $ 6,276.43.

 

Fair values of options

 

Fair values at grant date are independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected divided yield and the risk-free interest rate for the term of the option.

 

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Table of Contents

 

Option holdings of Key Management Personnel 30 June 2019

 

Name of

 

 

 

Number of options

 

 

 

Vesting as at year end

 

Financial
year
in
which

 

Fair
Value
yet

 

option
holder

 

Opening
balance

 

Granted

 

Exercised

 

Lapsed/Forfeited

 

Closing
balance

 

Exercisable

 

Not
exercisable

 

options
vest

 

to vest
$

 

Executive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr Paul Kasian

 

 

 

 

 

 

 

 

 

 

Dr Jerzy Muchnicki*

 

6,666,667

 

 

 

 

 

 

 

6,666,667

 

6,666,667

 

 

 

2015

 

 

Mr Richard Allman

 

10,000,000

 

5,000,000

 

 

 

 

 

15,000,000

 

10,000,000

 

5,000,000

 

2021

 

2,550

 

Mr Kevin Fischer

 

10,000,000

 

 

 

 

 

(10,000,000

)

 

 

 

 

 

Mr Paul Viney

 

 

 

 

 

 

 

 

 

 

Totals

 

26,666,667

 

5,000,000

 

 

 

(10,000,000

)

21,666,667

 

16,666,667

 

5,000,000

 

 

 

2,550

 

 

Options

 

We introduced a Staff Share Plan on November 30, 2001.  On November 19, 2008, the shareholders of the Company approved the introduction of a new Employee Option Plan.  Collectively, these Plans establish the eligibility of our employees and those of any subsidiaries, and of consultants and independent contractors to a participating company who are declared by the Board to be eligible, to participate.  Broadly speaking, the respective Plans permits us, at the discretion of the Board, to issue traditional options (with an exercise price).  The Plans conform to the IFSA Executive Share and Option Scheme Guidelines and, where participation is to be made available to staff who reside outside Australia, there may have to be modifications to the terms of grant to meet or better comply with local laws or practice.

 

As of June 30, 2019, there was 1 executive and 12 employees who held options that had been granted under the Company’s respective option plans.  Options issued under the Plan carry no rights to dividends and no voting rights.

 

During the 2019 financial year, 16,000,000 options (expiring on December 11, 2021 with an exercise price of $0.01 vesting on 30 June 2019) over Ordinary Shares pursuant to the Employee Option Plan were granted and out of the 24,236,111 options that had previously been issued to employees were 19,236,111 lapsed and 5,000,000 were forfeited.  Option holders do not have any right, by virtue of their options, to participate in any share issue of the Company or any related body corporate.

 

As of the date of this Annual Report, there was a total of 26,000,000 unlisted employee options outstanding.

 

Options granted under the Employee Option Plan carry no rights to dividends and no voting rights and generally have an expiry date of nearly five years from the date of grant.

 

During the year ended June 30, 2019, the Company recorded a share-based payments expense in respect of the options granted of $341,201.

 

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Table of Contents

 

Unlisted Performance Rights:

 

During the year ended June 30, 2019, the Company also issued 76,250,000  long term unlisted performance right s as incentives to the Directors which were approved by the shareholders on November 29, 2018.

 

The following are the details of the unlisted performance rights:

 

·                  26,250,000 Class A Performance rights with an exercise price of $ nil each. Vesting per resolution passed at 2018 Annual General Meeting (AGM) and per the terms and conditions as set out below.

 

·                  25,000,000 Class B Performance rights with an exercise price of $ nil each. Vesting per resolution passed at 2018 Annual General Meeting (AGM) and per the terms and conditions as set below.

 

·                  25,000,000 Class C Performance rights with an exercise price of $ nil each. Vesting per resolution passed at 2018 Annual General Meeting (AGM) and per the terms and conditions as set out below.

 

Based on the independent valuation of the performance rights, the company agrees that the total value of the performance rights to be issued to each director (depending on the share price at issue) is as follows:

 

Valuation of Class A Performance Rights

 

 

 

Number of
Performance
Rights issued

 

Valuation per
Class A (cents)

 

Total fair value of Class
A Performance Rights

 

Expense accounted
for during the year

 

Dr Paul Kasian

 

7,500,000

 

0.77

 

$

57,750

 

$

11,229

 

Dr Lindsay Wakefield

 

3,750,000

 

0.77

 

$

28,875

 

$

5,614

 

Dr George Muchnicki

 

6,250,000

 

0.77

 

$

48,125

 

$

9,358

 

Mr Peter Rubinstein

 

5,000,000

 

0.77

 

$

38,500

 

$

7,486

 

Mr Xue  Lee

 

3,750,000

 

0.77

 

$

28,875

 

$

5,614

 

 

Valuation of Class B Performance Rights

 

 

 

Number of
Performance
Rights issued

 

Valuation per
Class B (cents)

 

Class B Performance
Rights

 

Expense accounted for
during the year

 

Dr Paul Kasian

 

25,000,000

 

0.77

 

$

192,500

 

$

37,431

 

 

Valuation of Class C Performance Rights

 

 

 

Number of
Performance
Rights issued

 

Valuation per
Class C (cents)

 

Class C Performance
Rights

 

Expense accounted for
during the year

 

Dr Paul Kasian

 

25,000,000

 

0.57

 

$

142,500

 

$

27,708

 

 

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The Performance Rights are not currently quoted on the ASX and as such have no ready market value. The Performance Rights each grant the holder a right of grant of one ordinary Share in the Company upon vesting of the Performance Rights for nil consideration. Accordingly, the Performance Rights may have a present value at the date of their grant. Various factors impact upon the value of Performance Rights including:

 

·               the period outstanding before the expiry date of the Performance Rights;

 

·               the underlying price or value of the securities into which they may be converted;

 

·               the proportion of the issued capital as expanded consequent upon conversion of the Performance Rights into Shares (i.e. whether or not the shares that might be acquired upon exercise of the options represent a controlling or other significant interest); and

 

·               the value of the shares into which the Performance Rights may be converted.

 

There are various formulae which can be applied to determining the theoretical value of options (including the formula known as the Black-Scholes Model valuation formula and the Monte Carlo simulation).

 

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Performance hurdles

 

The Class A Performance Rights vest and are exercisable upon the Share price reaching $0.02 or greater for more than 10 day consecutive ASX trading days.

 

The Class B Performance Rights vest and are exercisable upon the Share price reaching $0.02 or greater for more than 10 day consecutive ASX trading days and the Hainan Agreement being executed.

 

The Class C Performance Rights vest and are exercisable upon the Hainan Joint Venture being listed on a recognised stock exchange and the market capitalisation of GTG’s share of this listed Joint Venture reaching $100 million or above and being sustained for more than 10 consecutive ASX trading days.

 

The Directors, being the recipients of the Performance Rights, must remained engaged by the Company at the time of satisfaction of the performance hurdle in order for the relevant Performance Right to vest.

 

The unlisted performance rights granted under the Plans are as follows:

 

 

 

2019

 

Fair Value

 

Expiration
Date

 

Director

 

 

 

 

 

 

 

Dr Paul Kasian (Class A)(2)

 

7,500,000

 

$

57,750

 

11-Dec-2021

 

Dr Paul Kasian (Class B)(2)

 

25,000,000

 

$

192,500

 

11-Dec-2021

 

Dr Paul Kasian (Class C)(2)

 

25,000,000

 

$

142,500

 

11-Dec-2021

 

Mr Peter Rubinstein (Class A)

 

5,000,000

 

$

38,500

 

11-Dec-2021

 

Mr Xue Lee(1) (Class A)

 

3,750,000

 

$

28,875

 

11-Dec-2021

 

Dr Jerzy Muchnicki (Class A)

 

6,250,000

 

$

48,125

 

11-Dec-2021

 

Mr Lindsay Wakefield (Class A)

 

3,750,000

 

$

28,875

 

11-Dec-2021

 

Balance at the end of the financial year

 

76,250,000

 

$

537,125

 

 

 

 


(1) Mr Xue Lee resigned on July 9, 2019 as announced to the market

(2) Dr Kasian subsequently has resigned on September 24, 2019 from his position with the Company.

 

The expense during the financial year 2019 accounted for related to unlisted performance rights in the P&L was $ 104,441.

 

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This share based payment expense is included within selling and marketing costs, general and administrative costs, licensing, patent and legal costs, and laboratory research and development costs in the statement of comprehensive income/ (loss). The following is additional information relating to the options granted under the respective Plans as of June 30, 2019:

 

 

 

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

 

$0.01 - $0.10

 

26,000,000

 

$

0.010

 

2.36

 

19,000,000

 

$

0.015

 

$0.11 - $0.20

 

12,500,000

 

$

0.015

 

2.28

 

12,500,000

 

$

0.015

 

 

 

38,500,000

 

$

0.011

 

2.16

 

31,500,000

 

$

0.015

 

 

 

 

Performance rights outstanding

 

Performance rights
exercisable

 

Range of
exercise
prices

 

Number of
options

 

Weighted
average
exercise
price

 

Remaining
weighted
average
contractual
life (years)

 

Number of
Perf. rights

 

Weighted
average
exercise price

 

$0.00 - $0.00

 

76,250,000

 

$

0.00

 

2.45

 

76,250,000

 

$

0.00

 

 

 

76,250,000

 

$

0.000

 

2.45

 

76,250,000

 

$

0.00

 

 

The fair value for the options issued to employees during the year ended June 30, 2019 was estimated at the date of grant using either a Monte Carlo simulation analysis or Black-Scholes option pricing valuation model:

 

Risk Free Interest Rate

 

2.02

%

Expected Dividend Yield

 

 

Historic and Expected Volatility

 

80

%

Option Exercise Prices

 

$

0.010

 

Weighted Average Exercise Price

 

$

0.030

 

Expected Lives

 

2.8 years

 

 

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Indemnification and Insurance with respect to Directors

 

We are obligated pursuant to an indemnity agreement, to indemnify the current Directors and executive officers and former Directors against all liabilities to third parties that may arise from their position as Directors or officers of the Company and our controlled entities, except where to do so would be prohibited by law.  In addition, we currently carry insurance in respect of Directors’ and officers’ liabilities for current and former Directors, Company Secretary and executive officers or employees.

 

Item 6.C        Board Practices

 

The Board of Directors

 

Under our Constitution, our Board of Directors is required to comprise at least three Directors.  As of the date of this Annual Report, our Board comprised five Directors.

 

The role of the Board includes:

 

(a)                 Reviewing and making recommendations in remuneration packages and policies applicable to directors, senior executives and consultants.

 

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

 

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

 

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

 

(e)                  Identifying areas of significant business risk and implementing corrective action as soon as practicable after a risk is identified.

 

(f)                   Nominating audit and remuneration committee members.

 

The Board meets to discuss business regularly throughout the year, with additional meetings being held when circumstances warrant.  Included in the table below are details of the meetings of the Board and the sub-committees of the Board that were held during the 2019 financial year.

 

 

 

Directors’ meetings

 

Audit Committee meetings

 

Remuneration Committee
meetings

 

 

 

Attended

 

Eligible

 

Attended

 

Eligible

 

Attended

 

Eligible

 

Dr Paul Kasian(2)

 

15

 

15

 

4

 

4

 

1

 

1

 

Dr Lindsay Wakefield

 

15

 

15

 

4

 

4

 

1

 

1

 

Dr. Jerzy Muchnicki

 

14

 

15

 

2

 

2

 

 

 

Mr. Peter Rubinstein

 

15

 

15

 

4

 

4

 

1

 

1

 

Mr Xue Lee (1)

 

10

 

15

 

2

 

2

 

 

 

 


(1) Mr Xue Lee resigned on July 9 , 2019

(2) Dr. Paul Kasian resigned on September 24, 2019

 

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Committees of the Board

 

The Board has established an Audit Committee which operates under a specific Charter approved by the Board.  It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity.  This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators.

 

The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the Company to the Audit Committee.  The Audit Committee also provides the Board with assurance regarding the reliability of financial information for inclusion in the financial reports.  As at date of this report, one of the members of the Audit Committee is an independent Non-Executive Directors.

 

The Remuneration Committee is, amongst other things, responsible for determining and reviewing remuneration arrangements for the Directors, the Chief Executive Officer and the Senior Leadership Team.  The Chairman of the Committee is  an independent director.

 

The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration paid to Directors and Executives on a periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum shareholder benefit from the retention of a high quality Board and senior leadership team.

 

Committee membership

 

As at the date of this Report, the composition of these two Sub-Committees are:

 

Audit Committee:

Mr Peter Rubinstein — Chairman of the Committee

 

Dr Lindsay Wakefield

 

 

Remuneration Committee:

Dr Lindsay Wakefield — Chairman of the Committee

 

Mr Peter Rubinstein

 

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Compliance with Nasdaq Rules

 

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

 

Majority of Independent Directors:  We follow home country practice rather than Nasdaq’s requirement in Marketplace Rule 4350(c) (1) that the majority of the Board of each issuer be comprised of independent directors as defined in Marketplace Rule 4200.  As of the date of this Annual Report, with there were three independent Directors namely Mr. Nick Burrows, Mr. Peter Rubinstein and Dr. Lindsay Wakefield which led to our Board of Directors being comprised of a majority of independent directors.

 

Compensation of Officers:  We follow home country practice rather than Nasdaq’s requirement in Marketplace Rule 4350(c)(3) that chief executive compensation be determined or recommended to the Board by the majority of independent directors or a compensation committee of independent directors.  Similarly, compensation of other officers is not determined or recommended to the Board by a majority of the independent directors or a compensation committee comprised solely of independent directors.  These decisions are made by our remuneration committee which at June 30, 2019 is not comprised of a majority of independent directors. The members are however considered by the Board to currently be the “best fit” for the committee taking into account the current Board composition. As the operations of the Company develop, the Board will reassess the composition of the Remuneration Committee.

 

Nomination:  We follow home country practice rather than Nasdaq’s requirement in Marketplace Rule 4350(c)(4) that director nominees be selected or recommended by a majority of the independent directors or by a nominations committee comprised of independent directors.  These decisions are made by our full Board which is comprised of a majority of independent directors which constitute Mr. Nick Burrows and Dr. Lindsay Wakefield.

 

The ASX does not have a requirement that each listed issuer have a nominations committee or otherwise follow the procedures embodied in Nasdaq’s Marketplace Rule.  Furthermore, no law, rule or regulation of the ASIC has such a requirement nor does the applicable corporate law legislation.  Accordingly, selections or recommendations of director nominees by a committee that is not comprised of a majority of directors that are not independent is not prohibited by the laws of Australia.

 

Quorum:  We follow home country practice rather than Nasdaq’s requirement in Marketplace Rule 4350(f) that each issuer provide for a quorum of at least 33 1/3 percent of the outstanding shares of the issuer’s ordinary stock (voting stock).  Pursuant to our Constitution we are currently required to have a quorum for a general meeting of three persons.  The practice followed by us is not prohibited by Australian law.

 

Shareholder Approval for Capital Issuance: We have elected to follow certain home country practices in lieu of Nasdaq Marketplace Rule 5635.  For example, the Company is entitled to an annual 15% of capital placement capacity under ASX Listing Rule 7.1 without shareholder approval.  If this amount of annual entitlement is aggregated with an additional placement of Ordinary Shares, including through the grant of options over Ordinary Shares, that exceeds 20% of the outstanding share capital, only the excess over the 15% annual allowance requires shareholder approval under Australian law. Such home country practice is not prohibited by the laws of Australia.

 

Item 6.D                Employees

 

As of the date of this Annual Report, the Company comprising the Company and its subsidiaries, employed 16 full-time equivalent employees.  The number of full-time equivalent employees as of the end of each respective financial year ended June 30 are as follows:

 

2019

 

13

 

2018

 

15

 

2017

 

20

 

 

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Item 6.E        Share Ownership

 

The relevant interest of the directors in the share capital of the Company as notified by them to the Australian Securities Exchange in accordance with section 205G(1) of the Corporations Act 2001 as of the date of this Annual Report is as follows:

 

Director

 

Ordinary shares

 

Percentage of Capital held

 

Dr. Paul Kasian

 

256,410

 

0.008

%

Dr. Lindsay Wakefield

 

8,325,263

 

0.283

%

Dr. Jerzy Muchnicki

 

20,903,244

 

0.711

%

Mr. Peter Rubinstein

 

47,282,700

 

1.609

%

Mr. Nick Burrows

 

-0-

 

-0-

 

 

Item 7.            Major Shareholders and Related Party Transactions

 

Item 7.A        Major Shareholders

 

As at the date of this Annual Report, there is one shareholder who is the beneficial owner of 5% or more of our voting securities. The following shareholders who have substantial shareholdings as at September 30, 2019:

 

Shareholders:

 

Number held

 

Percentage

 

MR JIMMY THOMAS + MS IVY RUTH PONNIAH <THOMAS SUPER FUND A/C>

 

177,774,013

 

6.05

%

 

The following are the significant changes to the holdings in the last three financial years:

 

Shareholder:

 

Holdings% in 2019

 

Holdings% in 2018

 

Holdings% in 2017

 

MR JIMMY THOMAS + MS IVY RUTH PONNIAH <THOMAS SUPER FUND A/C>

 

6.06

%

0.51

%

0.75

%

 

The number of Ordinary Shares on issue in Genetic Technologies as of the date of this Annual Report was 2,938,134,143.  The number of holders of Ordinary Shares in Genetic Technologies as of the date of this Annual Report was approximately 4,555.

 

The Company is not aware of any direct or indirect ownership or control of it by another corporation(s), by any foreign government or by any other natural or legal person(s) severally or jointly.  Principal shareholders do not enjoy any special or different voting rights from those to which other holders of Ordinary Shares are entitled.  The Company does not know of any arrangements, the operation of which may at a subsequent date result in a change in control of the Company.

 

Record Holders

 

As of September 30, 2019, there were 4,342 holders of record of our ordinary shares, of which 34 record holders, holding approximately 0.067% of our ordinary shares, had registered addresses in the United States. These numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial holders reside, since many of these ordinary shares were held of record by brokers or other nominees. The majority of trading by our U.S. investors is done by means of ADSs that are held of record by HSBC Custody Nominees Ltd., which held 56.77% of our ordinary shares as of such date.

 

Item 7.B        Related Party Transactions

 

During the year ended June 30, 2019, the only transactions between entities within the Company and other related parties occurred, are as listed below.  Except where noted, all amounts were charged on similar to market terms and at commercial rates.

 

Transactions within the Group and with other related parties

 

During the year ended 30 June 2019, the only transactions between entities within the Group and other related parties occurred, are as listed below. Except where noted, all amounts were charged on similar to market terms and at commercial rates.

 

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Blockchain Global Limited

 

As announced by the Company on 15 February 2018, a non-binding terms sheet with Blockchain Global Limited(BCG) was entered to provide a framework for continuing discussions between the two companies, with the proposed transaction being subject to shareholder approval (by non-associated Shareholders); and as announced by the Company on 2 August 2018, a framework agreement with BCG was entered formalizing the non-binding terms sheet and providing a framework for a strategic alliance between the Company and BCG, with the agreement became binding on 29 November 2018 upon receiving the requisite shareholder approval. To date no shares have been issued under the framework agreements and no milestones have been achieved. Any rights to the 486 million milestone shares lapse beginning 27 December 2019 through 27 June 2020.

 

The company has accounted for these share issuances in accordance with its accounting policy for share-based payment transactions and has not recorded any associated expense in the current half-year given performance conditions have not been met and are not currently considering any Blockchain related projects.

 

A number of Directors of the Company presently or previously have had involvement with BCG. Mr Sam Lee has a direct and indirect share interest in BCG of 21% and is a director of BCG. Mr Peter Rubinstein has a direct and indirect share interest in BCG of 8% and is a consultant to BCG. Dr George Muchnicki has a direct and indirect share interest in BCG of 3.4%. Dr Paul Kasian was previously a director of BCG until July 2018.

 

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Performance Rights Issuance

 

After receiving requisite shareholder approval on 29 November 2018, the Company has issued 76,250,000 performance rights to Directors of the Company as follows:

 

· 7,500,000 Class A Performance Rights, 25,000,000 Class B Performance Rights and 25,000,000 Class C performance Rights to Dr Paul Kasian

· 3,750,000 Class A Performance Rights to Dr Lindsay Wakefield

· 6,250,000 Class A Performance Rights to Dr George Muchnicki

· 5,000,000 Class A Performance Rights to Mr Peter Rubinstein

· 3,750,000 Class A Performance Rights to Mr Xue Lee

 

Further detail around each tranche of performance rights has been detailed within the explanatory memorandum accompanying the Notice of Meeting lodged with the ASX on 30 October 2018. The Company has accounted for these performance rights in accordance with its accounting policy for share-based payment transactions and has recorded $104,441 of associated expense in the current year-end.

 

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Blockshine Health Joint Venture

 

The Company, via its subsidiary Gene Ventures Pty Ltd, entered into a joint venture with Blockshine Technology Corporation (BTC). The joint venture company, called Blockshine Health, will pursue and develop blockchain opportunities in the biomedical sector. Blockshine Health will have full access to BTC’s technology (royalty free) as well as all of its opportunities in the biomedical sector. The Company invested $250,000 into the joint venture for a 49% equity stake. During the year the Company determined that the $250,000 investment in the Joint Venture agreement fully impaired. Subsequent to year end (August 6, 2019) the Company announced the Joint Venture agreement was cancelled.

 

Dr George Muchnicki (GTG’s nominee for directorship) is currently the director of both the Company and Blockshine Health. At this time, no Directors fees are payable to Dr Muchnicki by the joint venture company Blockshine Health.

 

Genetic Technologies HK Limited and Aocheng Genetic Technologies Co. Ltd - Joint Venture

 

In August 2018, the Company entered into a Heads of Agreement with Representatives of the Hainan Government - Hainan Ecological Smart City Group (“HESCG”), a Chinese industrial park development and operations company. The Heads of Agreement provides for the formation of a joint venture vehicle that would sell the Company’s genetic risk assessment tests into China through the Hainan Medical Pilot Zone.

 

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Participants in the Hainan Medical Pilot Zone gain access to the Chinese healthcare market with an estimated value in excess of US$800B. Discussions with HESCG form part of an official review process to evaluate the feasibility of offering GTG’s suite of genetic risk assessment tests into China through the Hainan Medical Pilot Zone.

 

Subsequently, the Company announced the official formation of Genetic Technologies HK Limited and Aocheng Genetic Technologies Co. Ltd in Hong Kong to the market on March 27, 2019,

 

Dr Paul Kasian was named in the formation Heads of Agreement document to be the Chairman of the Joint Venture entity. At this time, no Directors fees or emoluments have been paid to Dr Kasian, nor have agreements regarding fees been reached.

 

Lodge Corporate

 

Dr. Kasian was a director of corporate finance and corporate advisor from December 2017 to February 2019 with Lodge Corporate. During the year, the company engaged in corporate advisory services with Lodge Corporate and had transactions worth $67,000 during the financial year end 2019.

 

There were no transactions with parties related to Key Management Personnel during the year other than that disclosed above.

 

Item 7.C        Interests of Experts and Counsel

 

Not applicable.

 

Item 8.           Financial Information

 

Item 8.A        Consolidated Statements and Other Financial Information

 

The information included in Item 18 of this Annual Report is referred to and referenced into this Item 8.A.

 

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Legal Proceedings

 

We are not currently a party to any material legal proceedings. From time to time, we may be a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a significant effect on our financial position or profitability. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

Dividends

 

Until our businesses are profitable beyond our expected research and development needs, our Directors are unlikely to be able to recommend that any dividend be paid to our shareholders.  Our Directors will not resolve a formal dividend policy until we generate profits.  Our current intention is to reinvest our income in the continued development and expansion of our businesses.

 

Item 8.B                Significant Changes

 

There have been no significant changes in the operation or financial condition of the Company since June 30, 2019.

 

Item 9.                                     The Offer and Listing

 

Item 9.A                        Offer and Listing Details

 

The Company’s Ordinary Shares have been listed on the Australian Securities Exchange (the “ASX”) since July 1987 and trade there under the symbol GTG.  The Company’s securities are also listed on Nasdaq’s Capital Market (under the ticker GENE) in the form of American Depositary Shares, each of which represents 600 Ordinary Shares.

 

Item 9.B        Plan of Distribution

 

Not applicable.

 

Item 9.C        Markets

 

See “Item 9.A Offer and Listing Details.”

 

Item 9.D        Selling Shareholders

 

Not applicable.

 

Item 9.E      Dilution

 

Not applicable.

 

Item 9.F        Expenses of the Issue

 

Not applicable.

 

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Item 10.           Additional Information

 

Item 10.A      Share Capital

 

Not applicable.

 

Item 10.B      Our Constitution

 

Our registration number is 009 212 328. Our Constitution has been posted on the Company’s website and has been filed with the SEC.

 

Purposes and Objects

 

As a public company we have all the rights, powers and privileges of a natural person. Our Constitution does not specify any purposes or objects.

 

The Powers of the Directors

 

Under the provisions of our Constitution our directors may exercise all of the powers of our company, other than those that are required by our Constitution or the Corporations Act of Australia to be exercised at a general meeting of shareholders. A director may participate in a meeting and vote on a proposal, arrangement or contract in which he or she is materially interested, so long as the director’s interest is declared in accordance with the Corporations Act. The authority of our directors to enter into borrowing arrangements on our behalf is not limited, except in the same manner as any other transaction by us.

 

Rights Attached to Our Ordinary Shares

 

The concept of authorized share capital no longer exists in Australia and as a result, our authorized share capital is unlimited. All our outstanding Ordinary Shares are validly issued, fully paid and non-assessable. The rights attached to our Ordinary Shares are as follows:

 

Dividend rights. If our board of directors recommends a dividend, registered holders of our Ordinary Shares may declare a dividend by ordinary resolution in a general meeting. The dividend, however, cannot exceed the amount recommended by our board of directors. Our board of directors may declare an interim dividend.

 

Voting rights. Holders of Ordinary Shares have one vote for each Ordinary Share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.

 

The quorum required for an ordinary meeting of shareholders consists of at least two shareholders represented in person or by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of any two members present in person or by proxy.

 

An ordinary resolution, such as a resolution for the declaration of dividends, requires approval by the holders of a majority of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting thereon. Under our Constitution, a special resolution, such as amending our Constitution, approving any change in capitalization, winding-up, authorization of a class of shares with special rights, or other changes as specified in our Constitution, requires approval of a special majority, representing the holders of no less than 75% of the voting rights represented at the meeting in person, by proxy or by written ballot, and voting thereon.

 

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Pursuant to our Constitution, our directors are elected at our annual general meeting of shareholders by a vote of the holders of a majority of the voting power represented and voting at such meeting.

 

Rights in our profits. Our shareholders have the right to share in our profits distributed as a dividend and any other permitted distribution.

 

Rights in the event of liquidation. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of Ordinary Shares in proportion to the nominal value of their holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.

 

Changing Rights Attached to Shares

 

According to our Constitution, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of the class, such change must be adopted by a general meeting of the shareholders and by a separate general meeting of the holders of the affected class with a majority of 75% of the voting power participating in such meeting.

 

Annual and Extraordinary Meetings

 

Our Board of Directors must convene an annual meeting of shareholders at least once every calendar year, within five months of our last fiscal year-end balance sheet date. Notice of at least 28 days prior to the date of the meeting is required. An extraordinary meeting may be convened by the board of directors, it decides or upon a demand of any directors, or of one or more shareholders holding in the aggregate at least five percent of our issued capital. An extraordinary meeting must be called not more than 21 days after the request is made. The meeting must be held not later than two months after the request is given.

 

Limitations on the Rights to Own Securities in Our Company

 

Neither our Constitution nor the laws of the Commonwealth of Australia restrict in any way the ownership or voting of our shares. However, acquisitions and proposed acquisitions of securities in Australian companies may be subject to review and approval by the Australian Federal Treasurer under the Takeovers Act as described under Item 10.D below.

 

Changes in Our Capital

 

Pursuant to the Listing Rules of the ASX, without shareholder approval, we may not issue more than 25% of our outstanding Ordinary Shares in any twelve month period other than by a pro rata rights offering or a share purchase plan offer (of shares with a value at the issue price of up to A$15,000 per shareholder to a maximum of 30% of our outstanding shares) in each case to the then existing shareholders.

 

Item 10.C       Material Contracts

 

On August 8, 2018, the Company executed an Equity Placement Facility with Kentgrove Capital Pty Ltd. Under the Facility, Kentgrove Capital may provide the Company with up to A$20.0 million of equity capital in a series of individual placements of up to $1 million (or a higher amount by mutual agreement) until April 7, 2020.  The Company raised AU$1.6 million during 2018 and 2019 and has approximately AU$400,000 of remaining availability thereunder.

 

There were no other material contracts entered into during the two years preceding the date of this Annual Report which were outside the ordinary course of business.

 

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Item 10.D                 Exchange Controls

 

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

 

Accordingly, at the present time, remittances of any dividends, interest or other payment by the Company to non-resident holders of our securities in the U.S. are not, subject to the above, restricted by exchange controls or other limitations.

 

Takeovers Act

 

There are no limitations, either under the laws of Australia or under the Company’s Constitution, to the right of non-residents to hold or vote our  Technologies Ordinary Shares other than the Commonwealth Foreign Acquisitions and Takeovers Act 1975 (the “Takeovers Act”).  The Takeovers Act may affect the right of non-Australian residents, including U.S. residents, to hold Ordinary Shares but does not affect the right to vote, or any other rights associated with, any Ordinary Shares held in compliance with its provisions.  Acquisitions of shares in Australian companies by foreign interests are subject to review and approval by the Treasurer of the Commonwealth of Australia under the Takeovers Act.  The Takeovers Act applies to any acquisition of outstanding shares of an Australian company that exceeds, or results in a foreign person or persons controlling the voting power of more than a certain percentage of those shares.  The thresholds are 15% where the shares are acquired by a foreign person, or Company of associated foreign persons, or 40% in aggregate in the case of foreign persons who are not associated.  Any proposed acquisition that would result in an individual foreign person (with associates) holding more than 15% must be notified to the Treasurer in advance of the acquisition.  There are statutory limitations in Australia on foreign ownership of certain businesses, such as banks and airlines, not relevant to the Company.  However, there are no other statutory or regulatory provisions of Australian law or Australian Securities Exchange requirements that restrict foreign ownership or control of the Company.

 

Corporations Act 2001

 

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

 

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

 

In general terms, a person is considered to have a “relevant interest” in a share in the Company if that person is the holder of that share, has the power to exercise, or control the exercise of, a right to vote attached to that share, or has the power to dispose of, or to control the exercise of a power to dispose of that share.

 

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

 

A person’s voting power in the Company is that percentage of the total votes attached to Ordinary Shares in which that person and its associates (as defined in the Corporations Act 2001) holds a relevant interest.

 

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Item 10.E       Taxation

 

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

 

The discussion does not address any aspects of U.S. taxation other than federal income taxation or any aspects of Australian taxation other than federal income taxation, stamp duty and goods and services tax.  This discussion does not necessarily address all aspects of U.S. or Australian federal tax considerations that may be important to particular investors in light of their individual investment circumstances or investors subject to special tax regimes, like broker-dealers, insurance companies, banks or other financial institutions, tax-exempt organizations, regulated investment companies, real estate investment trusts or financial asset securitization investment trusts, persons who actually or constructively own 10% or more of our ADRs or Ordinary Shares, persons who hold ADRs or Ordinary Shares as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction, persons who have elected mark-to-market accounting, U.S. holders whose functional currency is not the U.S. dollar, U.S. expatriates, investors liable for the alternative minimum tax, partnerships and other pass-through entities, or persons who acquired their ADRs or Ordinary Shares through the exercise of options or similar derivative securities or otherwise as compensation.  Prospective investors are urged to consult their tax advisers regarding the U.S. and Australian federal, state and local tax consequences and any other tax consequences of owning and disposing of ADRs and shares.

 

Australian Tax Consequences

 

In this section, we discuss Australian tax considerations that apply to non-Australian tax residents who are residents of the United States with respect to the ownership and disposal by the absolute beneficial owners of ADRs.  This summary does not discuss any foreign or state tax considerations, other than stamp duty.

 

Nature of ADRs for Australian Taxation Purposes

 

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

 

Taxation of Dividends

 

Australia operates a dividend imputation system under which dividends may be declared to be “franked” to the extent of tax paid on company profits.  Fully franked dividends are not subject to dividend withholding tax.  Dividends payable by our company to non-Australian resident stockholders will be subject to dividend withholding tax, to the extent the dividends are unfranked.  Dividend withholding tax will be imposed at 30%, unless a stockholder is a resident of a country with which Australia has a double taxation agreement.  Under the provisions of the Treaty, the Australian tax withheld on unfranked dividends paid by us to which a resident of the United States is beneficially entitled is generally limited to 15% if the U.S. resident holds less than 10% of the voting rights of our company, unless the shares are effectively connected to a permanent establishment or fixed base in Australia through which the stockholder carries on business or provides independent personal services, respectively.  Where a U.S. corporate resident holds 10% or more of the voting rights of our company, the withholding tax rate is reduced to 5%.

 

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Tax on Sales or other Dispositions of Shares - Capital Gains Tax

 

Non-Australian resident stockholders who hold their shares in us on capital account will not be subject to Australian capital gains tax on any gain made on a sale or other disposal of our shares, unless they hold 10% or more of our issued capital and the Company holds real property situated in Australia, the market value of which is 50% or more of the market value of the Company.  The Australian Taxation Office maintains the view that the Treaty does not limit Australian capital gains tax.  Australian capital gains tax applies to net capital gains charged at a taxpayer’s marginal tax rate but, for certain stockholders, a discount of the capital gain may apply if the shares have been held for 12 months or more.  For individuals, this discount is 50%.  For superannuation funds, the discount is 33%.  There is no discount for a company that derives a net capital gain.  Net capital gains are calculated after deducting capital losses, which may only be offset against such gains.

 

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

 

Some non-Australian resident stockholders may hold shares on revenue rather than on capital account, for example, share traders.  These stockholders may have the gains made on the sale or other disposal of the shares included in their assessable 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 ordinary income provisions in respect of gains made on shares held on revenue account would be assessed for those gains at the Australian tax rates for non-Australian residents, which start at a marginal rate of 32.5%.  Some relief from the Australian income tax may be available to non-Australian resident stockholders under the Treaty, for example, because the stockholder derives business profits not through a permanent establishment in Australia.  To the extent an amount would be included in a non-Australian resident stockholder’s assessable income under both the capital gains tax provisions and the ordinary income provisions, the capital gain amount would generally be reduced, so that the stockholder would not be subject to double tax on any part of the income gain or capital gain.

 

Dual Residency

 

If a stockholder were a resident of both Australia and the United States under the respective domestic taxation laws of those countries, that stockholder may be subject to tax as an Australian resident.  If, however, the stockholder is determined to be a U.S. resident for the purposes of the Treaty, the Australian tax would be subject to limitation by the Treaty.  Stockholders should obtain specialist taxation advice in these circumstances.

 

Stamp Duty

 

Any transfer of shares through trading on the Australian Securities Exchange, whether by Australian residents or foreign residents, is not subject to stamp duty within Australia.

 

Australian Death Duty

 

Australia does not have estate or death duties.  Further, no capital gains tax liability is realized upon the inheritance of a deceased person’s shares.  However, the subsequent disposal of the shares by beneficiaries may give rise to a capital gains tax liability.

 

Goods and Services Tax

 

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

 

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United States Federal Income Taxation

 

As used below, a “U.S. holder” is a beneficial owner of an ADR that is, for U.S. federal income tax purposes, (i) a citizen or resident alien individual of the United States, (ii) a corporation (or an entity treated as a corporation) created or organized under the law of the United States, any State thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source or (iv) a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person.  For purposes of this discussion, a “non-U.S. holder” is a beneficial owner of an ADR that is (i) a nonresident alien individual, (ii) a corporation (or an entity treated as a corporation) created or organized in or under the law of a country other than the United States or a political subdivision thereof or (iii) an estate or trust that is not a U.S. Holder.  If a partnership (including for this purpose any entity treated as a partnership for U.S. federal tax purposes) is a beneficial owner of an ADR, the U.S. federal tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership.  A holder of an ADR that is a partnership and partners in that partnership should consult their own tax advisers regarding the U.S. federal income tax consequences of holding and disposing of ADRs.  We have not sought a ruling from the Internal Revenue Service (“IRS”) or an opinion of counsel as to any U.S. federal income tax consequence described herein.  The IRS may disagree with the description herein, and its determination may be upheld by a court.

 

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

 

Nature of ADRs for U.S. Federal Income Tax Purposes

 

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

 

Taxation of Dividends

 

U.S. Holders.  In general, subject to the passive foreign investment company rules discussed below, a distribution on an ADR will constitute a dividend for U.S. federal income tax purposes to the extent that it is made from our current or accumulated earnings and profits as determined under U.S. federal income tax principles.  If a distribution exceeds our current and accumulated earnings and profits, it is generally treated as a non-taxable reduction of basis to the extent of the U.S. holder’s tax basis in the ADR on which it is paid, and to the extent it exceeds that basis it will be treated as capital gain.  For purposes of this discussion, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes. The Company has not maintained and does not plan to maintain calculations of earnings and profits under U.S. federal income tax principles. Accordingly, it is unlikely that U.S. Holders will be able to establish that a distribution by the Company is in excess of its current and accumulated earnings and profits (as computed under U.S. federal income tax principles). Therefore, a U.S. Holder should expect that a distribution by the Company will generally be treated as taxable in its entirety as a dividend to U.S. Holders for U.S. federal income tax purposes even though the distribution may be treated in whole or in part as a non-taxable distribution for Australian tax purposes.

 

The gross amount of any dividend on an ADR (which will include the amount of any Australian taxes withheld) generally will be subject to U.S. federal income tax as foreign source dividend income, and will not be eligible for the corporate dividends received deduction.  The amount of a dividend paid in Australian dollars will be its value in U.S. dollars based on the prevailing spot market exchange rate in effect on the day the U.S. holder receives the dividend or, in the case of a dividend received in respect of an ADR, on the date the Depositary receives it, whether or not the dividend is converted into U.S. dollars.  A U.S. holder will have a tax basis in any distributed Australian dollars equal to its U.S. dollar amount on the date of receipt, and any gain or loss realized on a subsequent conversion or other disposition of Australian dollars generally will be treated as U.S. source

 

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ordinary income or loss.  If dividends paid in Australian dollars are converted into U.S. dollars on the date they are received by a U.S. holder, the U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.

 

Subject to certain exceptions for short-term and hedged positions, a dividend that a non-corporate holder receives on an ADR will be subject to a maximum federal income tax rate of 20% if the dividend is a “qualified dividend”.  A dividend on an ADR will be a qualified dividend if (i) either (a) the ADRs are readily tradable on an established market in the United States or (b) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Secretary of the Treasury determines is satisfactory for purposes of these rules and that includes an exchange of information program, and (ii) we were not, in the year prior to the year the dividend was paid, and are not, in the year the dividend is paid, a passive foreign investment company (“PFIC”).  The ADRs are listed on the Nasdaq Capital Market, which should qualify them as readily tradable on an established securities market in the United States.  In any event, the Treaty satisfies the requirements of clause (i) (b), and we are a resident of Australia entitled to the benefits of the Treaty.  However, based on our audited financial statements and relevant market and shareholder data, we believe we were a PFIC for U.S. federal income tax purposes for our taxable years ended June 30, 2018 and June 30, 2019, and expect to be classified as a PFIC in the current taxable year.  Given that the determination of PFIC status involves the application of complex tax rules, and that it is based on the nature of our income and assets from time to time, no assurances can be provided that we will or will not be considered a PFIC for any past or future taxable years.  In addition, as described in the section below entitled “Passive Foreign Investment Company Rules,” if we were a PFIC in a year while a U.S. holder held an ADR, and if the U.S. holder has not made a qualified electing fund election effective for the first year the U.S. holder held the ADR, the Ordinary Share underlying the ADR remains an interest in a PFIC for all future years or until such an election is made. The IRS takes the position that such rule will apply for purposes of determining whether an ADR is an interest in a PFIC in the year a dividend is paid or in the prior year, even if we do not satisfy the tests to be a PFIC in either of those years.  Even if dividends on the ADRs would otherwise be eligible for qualified dividend treatment, in order to qualify for the reduced qualified dividend tax rates, a non-corporate holder must hold the Ordinary Share on which a dividend is paid for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date, disregarding for this purpose any period during which the non-corporate holder has an option to sell, is under a contractual obligation to sell or has made (and not closed) a short sale of substantially identical stock or securities, is the grantor of an option to buy substantially identical stock or securities or, pursuant to Treasury regulations, has diminished such holder’s risk of loss by holding one or more other positions with respect to substantially similar or related property.  In addition, to qualify for the reduced qualified dividend tax rates, the non-corporate holder must not be obligated to make related payments with respect to positions in substantially similar or related property.  Payments in lieu of dividends from short sales or other similar transactions will not qualify for the reduced qualified dividend tax rates.

 

A non-corporate holder that receives an extraordinary dividend eligible for the reduced qualified dividend rates must treat any loss on the sale of the stock as a long-term capital loss to the extent of the dividend.  For purposes of determining the amount of a non-corporate holder’s deductible investment interest expense, a dividend is treated as investment income only if the non-corporate holder elects to treat the dividend as not eligible for the reduced qualified dividend tax rates.  Special limitations on foreign tax credits with respect to dividends subject to the reduced qualified dividend tax rates apply to reflect the reduced rates of tax.

 

The U.S. Treasury has announced its intention to promulgate rules pursuant to which non-corporate holders of stock of non-U.S. corporations, and intermediaries through whom the stock is held, will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends.  Because those procedures have not yet been issued, it is not clear whether we will be able to comply with them.

 

Non-corporate holders of Ordinary Shares are urged to consult their own tax advisers regarding the availability of the reduced qualified dividend tax rates with respect to dividends received on the ADRs in the light of their own particular circumstances.

 

Any Australian withholding tax imposed on dividends received with respect to the ADRs will be treated as a foreign income tax eligible for credit against a U.S. holder’s U.S. federal income tax liability, subject to generally applicable limitations under U.S. federal income tax law.  For purposes of computing those limitations separately under current law for specific

 

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categories of income, a dividend generally will constitute foreign source “passive category income” or, in the case of certain holders, “general category income.”  A U.S. holder will be denied a foreign tax credit with respect to Australian income tax withheld from dividends received with respect to the ADRs to the extent the U.S. holder has not held the ADRs for at least 16 days of the 30-day period beginning on the date which is 15 days before the ex-dividend date or to the extent the U.S. holder is under an obligation to make related payments with respect to substantially similar or related property.  Any days during which a U.S. holder has substantially diminished its risk of loss on the ADRs are not counted toward meeting the 16-day holding period required by the statute. The rules relating to the determination of the foreign tax credit are complex, and U.S. holders are urged to consult with their own tax advisers to determine whether and to what extent they will be entitled to foreign tax credits as well as with respect to the determination of the foreign tax credit limitation.  Alternatively, any Australian withholding tax may be taken as a deduction against taxable income, provided the U.S. holder takes a deduction and not a credit for all foreign income taxes paid or accrued in the same taxable year.  In general, special rules will apply to the calculation of foreign tax credits in respect of dividend income that is subject to preferential rates of U.S. federal income tax.

 

Non-U.S. holders.  A dividend paid to a non-U.S. holder of an ADR will not be subject to U.S. federal income tax unless the dividend is effectively connected with the conduct of trade or business by the non-U.S. holder within the United States (and is attributable to a permanent establishment or fixed base the non-U.S. holder maintains in the United States if an applicable income tax treaty 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 the ADR).  A non-U.S. holder generally will be subject to tax on an effectively connected dividend in the same manner as a U.S. holder.  A corporate non-U.S. holder under certain circumstances may also be subject to an additional “branch profits tax,” the rate of which may be reduced pursuant to an applicable income tax treaty.

 

Taxation of Capital Gains

 

U.S. Holders.  Subject to the passive foreign investment company rules discussed below, on a sale or other taxable disposition of an ADR, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the U.S. holder’s adjusted basis in the ADR and the amount realized on the sale or other disposition, each determined in U.S. dollars.  Such capital gain or loss will be long-term capital gain or loss if at the time of the sale or other taxable disposition the ADR has been held for more than one year.  In general, any adjusted net capital gain of an individual is subject to a maximum federal income tax rate of 20%.  Capital gains recognized by corporate U.S. holders generally are subject to U.S. federal income tax at the same rate as ordinary income.  The deductibility of capital losses is subject to limitations.

 

Any gain a U.S. holder recognizes generally will be U.S. source income for U.S. foreign tax credit purposes, and, subject to certain exceptions, any loss will generally be a U.S. source loss.  If an Australian tax is paid on a sale or other disposition of an ADR, the amount realized will include the gross amount of the proceeds of that sale or disposition before deduction of the Australian tax.  The generally applicable limitations under U.S. federal income tax law on crediting foreign income taxes may preclude a U.S. holder from obtaining a foreign tax credit for any Australian tax paid on a sale or other disposition of an ADR.  The rules relating to the determination of the foreign tax credit are complex, and U.S. holders are urged to consult with their own tax advisers regarding the application of such rules.  Alternatively, any Australian tax paid on the sale or other disposition of an ADR may be taken as a deduction against taxable income, provided the U.S. holder takes a deduction and not a credit for all foreign income taxes paid or accrued in the same taxable year.

 

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 ADR unless (i) the gain is effectively connected with the conduct of trade or business by the non-U.S. holder within the United States (and is attributable to a permanent establishment or fixed base the non-U.S. holder maintains in the United States if an applicable income tax treaty 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 the ADR), or (ii) in the case of a non-U.S. holder who is an individual, the holder is present in the United States for 183 or more days in the taxable year of the sale or other disposition and certain other conditions apply.  Any effectively connected gain of a corporate non-U.S. holder may also be subject under certain circumstances to an additional “branch profits tax,” the rate of which may be reduced pursuant to an applicable income tax treaty.

 

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Passive Foreign Investment Company Rules

 

A special set of U.S. federal income tax rules applies to a foreign corporation that is a PFIC for U.S. federal income tax purposes.  As noted above, based on our audited financial statements and relevant market and shareholder data, we believe that we were a PFIC for U.S. federal income tax purposes for our taxable years ended June 30, 2018 and June 30, 2019, and expect to be classified as a PFIC in our current taxable year.  In addition, given that the determination of PFIC status involves the application of complex tax rules, and that it is based on the nature of our income and assets from time to time, no assurances can be provided that we will or will not be considered a PFIC for any past or future taxable years.

 

In general, a foreign corporation is a PFIC if at least 75% of its gross income for the taxable year is passive income or if at least 50% of its assets for the taxable year produce passive income or are held for the production of passive income.  In general, passive income for this purpose means, with certain designated exceptions, dividends, interest, rents, royalties (other than certain rents and royalties derived in the active conduct of trade or business), annuities, net gains from dispositions of certain assets, net foreign currency gains, income equivalent to interest, income from notional principal contracts and payments in lieu of dividends. Passive assets are those assets that are held for production of passive income or do not produce income at all. Thus cash will be a passive asset. Interest, including interest on working capital, is treated as passive income for purposes of the income test.  The determination of whether a foreign corporation is a PFIC is a factual determination made annually and is therefore subject to change.  Subject to exceptions pursuant to certain elections that generally require the payment of tax, once stock in a foreign corporation is stock in a PFIC in the hands of a particular shareholder that is a United States person, it remains stock in a PFIC in the hands of that shareholder.

 

If we are treated as a PFIC, contrary to the tax consequences described in “U.S. Federal Income Tax Considerations—Taxation of Dividends” and “U.S. Federal Income Tax Considerations—Taxation of Capital Gains” above, a U.S. holder that does not make an election described in the succeeding two paragraphs would be subject to special rules with respect to (i) any gain realized on a sale or other disposition of an ADR (for purposes of these rules, a disposition of an ADR includes many transactions on which gain or loss is not realized under general U.S. federal income tax rules) and (ii) any “excess distribution” by the Company to the U.S. holder (generally, any distribution during a taxable year in which distributions to the U.S. holder on the ADR exceed 125% of the average annual taxable distributions (whether actual or constructive and whether or not out of earnings and profits) the U.S. holder received on the ADR during the preceding three taxable years or, if shorter, the U.S. holder’s holding period for the ADR).  Under those rules, (i) the gain or excess distribution would be allocated ratably over the U.S. holder’s holding period for the ADR, (ii) the amount allocated to the taxable year in which the gain or excess distribution is realized would be taxable as ordinary income in its entirety and not as capital gain, would be ineligible for the reduced qualified dividend rates, and could not be offset by any deductions or losses, and (iii) the amount allocated to each prior year, with certain exceptions, would be subject to tax at the highest tax rate in effect for that year, and the interest charge generally applicable to underpayments of tax would be imposed in respect of the tax attributable to each of those years.  A U.S. holder who owns an ADR during any year we are a PFIC will generally have to file IRS Form 8621. A failure to file this return will suspend the statute of limitations with respect to any tax return, event, or period to which such report relates (potentially including with respect to items that do not relate to a U.S. Holder’s investment in the ADRs).

 

The special PFIC rules described above will not apply to a U.S. holder if the U.S. holder makes a timely election, which remains in effect, to treat the Company as a “qualified electing fund” (“QEF”) in the first taxable year in which the U.S. holder owns an ADR and the Company is a PFIC and if the Company complies with certain reporting requirements.  Instead, a shareholder of a QEF generally is currently taxable on a pro rata share of the Company’s ordinary earnings and net capital gain as ordinary income and long-term capital gain, respectively.  Neither that ordinary income nor any actual dividend from the Company would qualify for the 20% maximum tax rate on dividends described above if the Company is a PFIC in the taxable year the ordinary income is realized or the dividend is paid or in the preceding taxable year.  We have not yet determined whether we would make the computations necessary to supply U.S. holders with the information needed to report income and gain pursuant to a QEF election.  It is, therefore, possible that U.S. holders would not be able to make or retain a QEF election in any year we are a PFIC.  Although a QEF election generally cannot be revoked, if a U.S. holder made a timely QEF election 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 QEF election will not apply during any later taxable year in which the Company does not satisfy the tests to be a PFIC.  If a QEF election is not made in that first taxable year, an election in a later year generally will require the payment of tax and interest.

 

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In lieu of a QEF election, a U.S. holder of stock in a PFIC that is considered marketable stock could elect to mark the stock to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the stock and the U.S. holder’s adjusted basis in the stock.  Losses would be allowed only to the 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 ADRs will be adjusted to reflect the amounts included or deducted with respect to the mark-to-market election.  If the mark-to-market election were made, the rules set forth in the second preceding paragraph would not apply for periods covered by the election.  A mark-to-market election will not apply during any later taxable year in which the Company does not satisfy the tests to be a PFIC.  In general, the ADRs will be marketable stock if the ADRs are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter on a national securities exchange that is registered with the SEC or on a designated national market system or on any exchange or market that the Treasury Department determines to have rules sufficient to ensure that the market price accurately represents the fair market value of the stock.  Under current law, the mark-to-market election may be available to U.S. holders of ADRs because the ADRs are listed on the Nasdaq Capital Market, which constitutes a qualified exchange, although there can be no assurance that the ADRs will be “regularly traded” for purposes of the mark-to-market election or that the ADRs will continue to be listed on the Nasdaq Capital Market.

 

Given the complexities of the PFIC rules and their potentially adverse tax consequences, U.S. holders of ADRs are urged to consult their tax advisers about the PFIC rules, including the availability of, and consequences to them of making a QEF election or a mark-to-market election with respect to the Ordinary Shares in the event that the Company is classified as a PFIC for any taxable year.

 

Medicare Surtax on Net Investment Income

 

Non-corporate US Holders whose income exceeds certain thresholds generally will be subject to 3.8% surtax on their “Net Investment Income” (which generally includes, among other things, dividends on, and capital gain from the sale or other taxable disposition of, the ADRs). Absent an election to the contrary, if a QEF election is available and made, QEF inclusions will not be included in net investment income at the time a US Holder includes such amounts in income, but rather will be included at the time distributions are received or gains are recognized. Non-corporate US Holders should consult their own tax advisors regarding the possible effect of such tax on their ownership and disposition of the Common Shares, in particular the applicability of this surtax with respect to a non-corporate US Holder that makes a QEF or mark-to-market election in respect of their Common Shares.

 

Information Reporting and Backup Withholding

 

Dividends paid 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 may be subject to backup withholding unless the U.S. holder provides an accurate taxpayer identification number or otherwise establishes an exemption.  The amount of any backup withholding collected from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided certain required information is furnished to the Internal Revenue Service.  A non-U.S. holder generally will be exempt from these information reporting requirements and backup withholding tax but may be required to comply with certain certification and identification procedures in order to establish its eligibility for exemption.

 

Under U.S. federal income tax law and U.S. Treasury Regulations, certain categories of U.S. holders must file information returns with respect to their investment in, or involvement in, a foreign corporation.  For example, all U.S. holders of PFIC stock are generally required to make annual return filings reporting their PFIC ownership and certain other information that the IRS may require.  U.S. holders are urged to consult with their own tax advisors concerning such reporting requirements.

 

Reporting Obligations of Individual Owners of Foreign Financial Assets

 

Section 6038D of the Code generally requires U.S. individuals (and possibly certain entities that have U.S. individual owners) to file IRS Form 8938 if they hold certain “specified foreign financial assets,” the aggregate value of which exceeds $50,000.  The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial

 

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institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-US. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity.

 

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

 

Item 10.F       Dividends and Paying Agents

 

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

 

Item 10.G       Statement by Experts

 

Not applicable.

 

Item 10.H       Documents on Display

 

The documents concerning the Company which are referred to in this Annual Report may be inspected at the offices of the Company at 60-66 Hanover Street, Fitzroy, Victoria 3065 Australia.  As a “foreign private issuer” we are subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended, and, in accordance therewith, we are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission in electronic form.    Any filings we make electronically are available to the public over the Internet at the Commission’s website at http://www.sec.gov.  We also maintain a website at www.gtglabs.com.  Information on our website and websites linked to it do not constitute a part of this Annual Report.

 

Item 10.I       Subsidiary Information

 

Not applicable.

 

Item 11.                          Quantitative and Qualitative Disclosures about Market Risk

 

Our market risk relates primarily to exposure to changes in foreign currency exchange rates and interest rates.  Refer Note 28 of the attached financial statements for further analysis surrounding market risk.

 

Interest Rate Risk. As of June 30, 2019 we had $2,131,741 in cash and cash equivalents of which $1,739,815 was subject to interest rate risk. Interest income earned on the cash balances is affected by changes in the levels of market interest rates. We invest excess cash in interest-bearing, investment-grade securities and time deposits in high-quality institutions.  We do not utilize derivative financial instruments, derivative commodity instruments, positions or transactions in any material matter.

 

Accordingly, we believe that, while the investment-grade securities and time-deposits we hold are subject to changes in financial standing of the issuer of such securities, the principal is not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk

 

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sensitive instruments.  Since we hold cash and cash equivalents in Banks which are located outside Australia, we are subject to certain cross-border risks, though due to the size of the holdings these risks are not generally significant.

 

Foreign Currency Exchange Rate Risk. We operate in Australia with active operations in the U.S.A., and are accordingly subject to certain foreign currency exposure.  This includes foreign-currency denominated receivables, payables, debt, and other balance sheet positions as well as future cash flows resulting from anticipated transactions including intra-company transactions.  Historically, currency translation gains and losses have been reflected as adjustments to stockholders’ equity, while transaction gains and losses have been reflected as components of income and loss.  Transaction gains and losses could be material depending upon changes in the exchange rates between the Australian dollar and the U.S. dollar.  A significant amount of our current revenue is denominated in U.S. dollars which provides us with a limited natural hedge against exchange rate movements.

 

Item 12.         Description of Securities Other Than Equity Securities

 

Item 12.A      Debt Securities

 

Not applicable.

 

Item 12.B      Warrants and Rights

 

Not applicable.

 

Item 12.C      Other Securities

 

Not applicable

 

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Item 12.D      American Depositary Shares

 

Fees and Charges Payable by ADS Holders

 

The table below summarizes the fees and charges that a holder of our ADSs may have to pay, directly or indirectly, to our depositary, The Bank of New York Mellon, or BNYM, pursuant to the Deposit Agreement, which was filed as Exhibit 2.1 to our Registration Statement on Form F-6 filed with the SEC on January 14, 2002, and the types of services and the amount of the fees or charges paid for such services. The disclosure under this heading “Fees and Charges Payable by ADS Holders” is subject to and qualified in its entirety by reference to the full text of the Deposit Agreement. The holder of an ADS may have to pay the following fees and charges to BNYM in connection with ownership of the ADS:

 

Persons Depositing or Withdrawing Shares Must

 

 

Pay:

 

For:

 

 

 

·  US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)

 

·Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

 

 

·Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

 

 

 

·  US$0.02 (or less) per ADS

 

·Any cash distribution to you

 

 

 

·A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs

 

·Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders

 

 

 

·US$1.50 (or less) per ADR

 

·Transfers, combination and split-up of ADRs

 

 

 

·Expenses of the depositary

 

·Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)

 

 

·Converting foreign currency to U.S. dollars

 

 

 

·Taxes and other governmental charges the depository or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes

 

·As necessary

 

 

 

·Any charges incurred by the depositary or its agents for servicing the deposited securities

 

·As necessary

 

The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

 

PART II

 

Item 13.         Defaults, Dividend Arrearages and Delinquencies

 

Not applicable.

 

Item 14.         Material Modifications to the Rights of Security Holders and Use of Proceeds

 

Not applicable.

 

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Item 15.          Controls and Procedures

 

Item 15.A       Disclosure controls and procedures

 

We maintain disclosure controls and procedures as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Our Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will provide absolute assurance that all appropriate information will, in fact, be communicated to Management to allow timely decisions to be made or prevent all error and fraud.  A control system, no matter how well 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 system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected or that our control system will operate effectively under all circumstances.  Moreover, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Our Management has carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2019.  Based on that evaluation, including the material weakness noted below in Item 15.B, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of June 30, 2019.

 

Item 15.B       Management’s annual report on internal control over financial reporting

 

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting.  The Securities Exchange Act of 1934 defines internal control over financial reporting in Rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer effected by the Company’s Board of Directors, Management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

·                  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

·                  Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and directors of the Company; and

 

·                  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

 

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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual financial statements will not be prevented or detected on a timely basis.

 

Our Management, under the supervision and with participation of our Chief Executive Officer and Chief Financial Officer, have assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2019.  In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control-Integrated Framework (2013).  As a result of that assessment, Management identified the following material weakness as of June 30, 2019.

 

The Company did not maintain an adequate segregation of duties with respect to internal control over financial reporting, specifically including the following:

 

·                  We have limited accounting personnel to enable and sufficiently evidence an independent review of complex financial reporting matters.

 

These control deficiencies are pervasive in nature and impacts all significant accounts and critical accounting estimates. These control deficiencies resulted in audit adjustments to the Company's consolidated financial statements for the period ended June 30, 2019. Consequently, there is a reasonable possibility that a material misstatement of the annual consolidated financial statements would not have been prevented or detected on a timely basis due to the failure to design and implement appropriate segregation of duty controls. Accordingly, our management has determined that these control deficiencies constitute a material weakness.

 

Based upon its assessment, because of the material weakness described above our Management has concluded that, as of June 30, 2019, our internal control over financial reporting is not effective based upon the abovementioned criteria.

 

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this Annual Report.

 

Item 15.C       Attestation report of the registered public accounting firm

 

Not applicable.

 

Item 15.D       Changes in Internal Control over Financial Reporting

 

The remediation activities described below are changes in internal control over financial reporting during the year ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Remediation efforts

 

Segregation of duties.  We are committed to remediating the material weakness over the segregation of duties by implementing changes to our internal control over financial reporting. We have taken certain steps in an effort to correct certain control deficiencies that were identified for the year ended June 30, 2019, including:

 

·                  Change in accounting system to a cloud based system (XERO) which grants the ability to the accounting team and the CFO a systematic process for preparing and reviewing the underlying journal entries, invoices, payments and reconciliations.

 

·                  We were assisted by a professional service firm called CFO Solution who have standard internal review procedures to ensure quality of accounting data and review over complex financial reporting matters.

 

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·                  A internal control of a preparer of the accounting data and reviewer has been established through implementation of workpapers where in the accounting data is prepared and reviewed by segregated staff and signed off by the CFO internally.

 

Although these changes are an important step towards improving the segregation of duties, additional time is still required to fully re-assess the design of the controls and implement additional internal controls procedures over financial reporting and test their operating effectiveness.

 

Item 16.A       Audit Committee Financial Expert

 

The chairman of the Audit Committee since January 31, 2018 has been Mr. Peter Rubinstein. We do not believe that Mr. Rubinstein would meet the criteria of a financial expert. Subsequent to 30 June 2019, the Company has appointed Mr Nick Burrows to the Board. Mr Burrows is a financial expert and the Company may request Mr Burrows to become an active member of the Audit Committee.

 

Item 16.B       Code of Ethics

 

We have adopted a Code of Ethics (styled “Code of Conduct”) that applies to all of our Directors and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller.  The Code can be downloaded at our website (www.gtglabs.com).  Additionally, any person, upon request, can ask for a hard copy or electronic file of the Code.  If we make any substantive amendment to the Code or grant any waivers, including any implicit waiver, from a provision of the Code, we will disclose the nature of such amendment or waiver on our website.  During the year ended June 30, 2019, no such amendment was made or waiver granted.

 

Item 16.C       Principal Accountant Fees and Services

 

The following table sets forth the fees billed to us by our Independent Registered Public Accounting Firm, PricewaterhouseCoopers, during the financial years ended June 30, 2019 and 2018, respectively:

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

$

 

$

 

Services rendered

 

 

 

 

 

PricewaterhouseCoopers in respect of:

 

 

 

 

 

Audit fees (1)

 

288,000

 

288,200

 

 


(1)  Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally only the independent accountant can reasonably provide such as comfort letters.

 

Audit Committee Pre-Approval Policies and Procedures

 

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Our Board of Directors has established pre-approval and procedures for the engagement of its Independent Registered Public Accounting Firm for audit and non-audit services.  The Board of Directors reviews the scope of the services to be provided, before their commencement, in order to ensure that there are no independence issues and the services are not prohibited services, as defined by the Sarbanes-Oxley Act of 2002.

 

Item 16.D      Exemptions from the Listing Standards for Audit Committees

 

Not applicable.

 

Item 16.E      Purchases Of Equity Securities by the Issuer and Affiliated Purchasers

 

Not applicable.

 

Item 16.F      Change in Registrant’s Certifying Accountant

 

Not applicable.

 

Item 16.G     Corporate Governance

 

Refer to Item 6C regarding the Company’s Corporate Governance practices and the key differences between the Listing Rules of the Australian Securities Exchange and Nasdaq’s Marketplace Rules as they apply to us.

 

Item 16.H     Mine Safety Disclosure

 

Not applicable.

 

PART III

 

Item 17.         Financial Statements

 

The Company has responded to Item 18 in lieu of responding to this Item.

 

Item 18.         Financial Statements

 

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Table of Contents

 

GENETIC TECHNOLOGIES LIMITED

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page

 

 

Genetic Technologies Limited - Report of Independent Registered Public Accounting Firm.

F-1

 

 

Genetic Technologies Limited - Consolidated Statements of Comprehensive Income/ (Loss) for the years ended June 30, 2019, 2018 and 2017.

F-2

 

 

Genetic Technologies Limited - Consolidated Balance Sheets as of June 30, 2019 and 2018.

F-3

 

 

Genetic Technologies Limited - Consolidated Statements of Changes in Equity for the years ended June 30, 2019, 2018 and 2017.

F-5

 

 

Genetic Technologies Limited - Consolidated Statements of Cash Flows for the years ended June 30, 2019, 2018 and 2017.

F-4

 

 

Genetic Technologies Limited - Notes to Consolidated Financial Statements.

F-6

 

Item 19.         Exhibits

 

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

 

1.1Constitution of the Registrant.++

 

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

 

4(A).1Staff Share Plan 2001 dated November 30, 2001. +

 

4(B).1Lease over premises in Fitzroy, Victoria, Australia with an effective date of September 1, 2015+++

 

4(B) 1.2 Renewal of Lease over premises in Fitzroy, Victoria, Australia with an effective date of September 1, 2018

 

4(B).2Amendment to lease over premises in Charlotte, North Carolina, U.S. with an effective date of November 1, 2016++++

 

4(B) 2.2 Lease over premises over premises in Charlotte, North Carolina, U.S. with an effective date of July 23, 2018

 

12.01Section 302 Certification

 

12.02Section 906 Certification

 

13.01Section 1350 Certification

 

13.02Section 1350 Certification

 

101.INS

XBRL Instance Document

 

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101.SCH

XBRL Schema Document

 

 

101.CAL

XBRL Calculation Linkbase Document

 

 

101.DEF

XBRL Definition Linkbase Document

 

 

101.LAB

XBRL Labels Linkbase Document

 

 

101.PRE

XBRL Presentation Linkbase Document

 


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

 

++  Previously filed with the Company’s Registration Statement on Form 20-F (File No. 0-51504), filed with the Commission on December 21, 2010 and incorporated herein by reference.

+++ Previously filed with the Company’s Registration Statement on Form 20-F (File No. 0-51504), filed with the Commission on November 13, 2015 and incorporated herein by reference.

++++  Previously filed with the Company’s Registration Statement on Form 20-F (File No. 0-51504), filed with the Commission on October 28, 2016 and incorporated herein by reference.

 

SIGNATURES

 

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

 

 

GENETIC TECHNOLOGIES LIMITED

 

 

 

 

 

 

 

 

Dated: October 03, 2019

By:

/s/ Dr Jerzy Muchnicki

 

 

Name:

Dr Jerzy Muchnicki

 

 

Title:

Interim Chief Executive Officer

 

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2019 Financial Report

 

GENETIC TECHNOLOGIES LIMITED

 


Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Genetic Technologies Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Genetic Technologies Limited and its subsidiaries (the “Company”) as of June 30, 2019 and 2018, and the related consolidated statements of comprehensive income/(loss), consolidated statements of cash flows and consolidated statements of changes in equity for each of the three years in the period ended June 30, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).  In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2(a) to the consolidated financial statements, the Company has suffered recurring losses and cash outflows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2(a). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that our audits provide a reasonable basis for our opinion.

 

/s/ PricewaterhouseCoopers

Melbourne, Australia

October 3, 2019

 

We have served as the Company’s auditor since 2009.

 

F-1


Table of Contents

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/ (LOSS)

FOR 2019, 2018 and 2017

(in Australian dollars, except number of shares)

 

 

 

Note

 

Year
ended
June 30,
2019

 

Year ended
June 30, 2018

 

Year ended
June 30, 2017

 

 

 

 

 

$

 

$

 

$

 

Revenue from operations

 

 

 

 

 

 

 

 

 

Genetic testing services

 

 

 

25,444

 

189,254

 

518,506

 

Less: cost of sales

 

4

 

(276,267

)

(300,088

)

(492,417

)

Gross profit from operations

 

 

 

(250,823

)

(110,834

)

26,089

 

Selling and marketing expenses

 

 

 

(576,077

)

(1,066,404

)

(2,721,474

)

General and administrative expenses

 

 

 

(3,830,198

)

(3,015,818

)

(3,109,530

)

Laboratory, research and development costs

 

 

 

(2,360,762

)

(2,210,498

)

(2,366,334

)

Finance costs

 

 

 

(20,031

)

(28,843

)

(31,995

)

Foreign exchange gains reclassified on liquidation of subsidiary

 

 

 

 

527,049

 

 

Other gains/(losses)

 

7

 

(407,482

)

 

 

Impairment of intangible assets expenses

 

 

 

 

 

(544,694

)

Non-operating income and expenses

 

5

 

1,019,769

 

441,476

 

344,112

 

Loss from operations before income tax

 

 

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

Income tax expense

 

9

 

 

 

 

Loss for the year

 

 

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

Exchange gains/(losses) on translation of controlled foreign operations

 

 

 

23,668

 

(522,966

)

(130,655

)

Other comprehensive income/(loss) for the year, net of tax

 

 

 

23,668

 

(522,966

)

(130,655

)

Total comprehensive loss for the year

 

 

 

(6,401,936

)

(5,986,838

)

(8,534,481

)

Total loss for the year is attributable to:

 

 

 

 

 

 

 

 

 

Owners of Genetic Technologies Limited

 

 

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

Non-controlling interests

 

 

 

 

 

 

Total loss for the year

 

 

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

Total comprehensive loss for the year is attributable to:

 

 

 

 

 

 

 

 

 

Owners of Genetic Technologies Limited

 

 

 

(6,401,936

)

(5,986,838

)

(8,534,481

)

Non-controlling interests

 

 

 

 

 

 

Total comprehensive loss for the year

 

 

 

(6,401,936

)

(5,986,838

)

(8,534,481

)

 

 

 

 

 

 

 

 

 

 

Loss per share (cents per share)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per ordinary share

 

10

 

(0.24

)

(0.22

)

(0.40

)

Weighted-average shares outstanding

 

10

 

2,635,454,870

 

2,435,282,724

 

2,121,638,888

 

 

The above consolidated statement of comprehensive income/(loss) should be read in conjunction with the accompanying notes.

 

F-2


Table of Contents

 

CONSOLIDATED BALANCE SHEETS

As at June 30, 2019

 

(in Australian dollars, except number of shares)

 

 

 

 

 

Consolidated

 

 

 

 

 

2019

 

2018

 

 

 

Notes

 

$

 

$

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

11

 

2,131,741

 

5,487,035

 

Trade and other receivables

 

12

 

818,766

 

301,383

 

Prepayments and other assets

 

13

 

245,165

 

202,279

 

Total current assets

 

 

 

3,195,672

 

5,990,697

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

14

 

69,333

 

175,284

 

Total non-current assets

 

 

 

69,333

 

175,284

 

Total assets

 

 

 

3,265,005

 

6,165,981

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

15

 

1,005,308

 

945,130

 

Provisions

 

16

 

487,682

 

505,583

 

Total current liabilities

 

 

 

1,492,990

 

1,450,713

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Provisions

 

16

 

809

 

3,390

 

Total non-current liabilities

 

 

 

809

 

3,390

 

Total liabilities

 

 

 

1,493,799

 

1,454,103

 

Net assets

 

 

 

1,771,206

 

4,711,878

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Contributed equity

 

17

 

125,498,824

 

122,372,662

 

Reserves

 

19

 

6,009,932

 

5,651,162

 

Accumulated losses

 

20

 

(129,737,550

)

(123,311,946

)

Total equity

 

 

 

1,771,206

 

4,711,878

 

 

The above consolidated balance sheets should be read in conjunction with the accompanying notes.

 

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Table of Contents

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the year ended June 30, 2019

 

(in Australian dollars, except number of shares)

 

 

 

 

 

Consolidated

 

 

 

 

 

2019

 

2018

 

2017

 

 

 

Notes

 

$

 

$

 

$

 

Cash flows from/(used in) operating activities

 

 

 

 

 

 

 

 

 

Receipts from customers

 

 

 

204,768

 

758,452

 

964,520

 

Payments to suppliers and employees

 

 

 

(6,575,163

)

(6,757,243

)

(8,077,083

)

R&D tax incentive and other grants received

 

 

 

297,213

 

362,258

 

260,159

 

Net cash flows from/(used in) operating activities

 

11

 

(6,073,182

)

(5,636,533

)

(6,852,404

)

 

 

 

 

 

 

 

 

 

 

Cash flows (used in)/ from investing activities

 

 

 

 

 

 

 

 

 

Proceeds from the sale of plant and equipment

 

 

 

 

 

52,650

 

Purchases of plant and equipment

 

 

 

(50,309

)

(2,385

)

(234,799

)

Interest received

 

 

 

25,849

 

15,218

 

38,765

 

Payments for investments in related parties

 

 

 

(500,000

)

 

 

Net cash flows (used in)/ from investing activities

 

 

 

(524,460

)

12,833

 

(143,384

)

Cash flows (used in)/ from financing activities

 

 

 

 

 

 

 

 

 

Proceeds from the issue of shares

 

 

 

3,557,509

 

 

8,049,369

 

Equity transaction costs

 

 

 

(431,347

)

(9,963

)

(1,234,430

)

Facility fee rebate

 

 

 

 

 

295,110

 

Net cash flows (used in)/ from financing activities

 

 

 

3,126,162

 

(9,963

)

7,110,049

 

 

 

 

 

 

 

 

 

 

 

Net (decrease)/ increase in cash and cash equivalents

 

 

 

(3,471,480

)

(5,633,663

)

114,261

 

Cash and cash equivalents at beginning of year

 

 

 

5,487,035

 

10,988,255

 

11,179,687

 

Net foreign exchange difference

 

 

 

116,186

 

132,443

 

(305,693

)

Cash and cash equivalents at end of year

 

11

 

2,131,741

 

5,487,035

 

10,988,255

 

 

The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.

 

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the year ended June 30, 2019

 

(in Australian dollars, except number of shares)

 

 

 

Attributable to Members of Genetic Technologies Limited

 

Non-

 

 

 

 

 

Contributed
equity

 

Reserves

 

Accumulated
losses

 

Parent
interests

 

controlling
interests

 

Total
equity

 

Consolidated

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2016

 

115,272,576

 

6,054,861

 

(109,444,248

)

11,883,189

 

 

11,883,189

 

Loss for the year

 

 

 

(8,403,826

)

(8,403,826

)

 

(8,403,826

)

Other comprehensive loss

 

 

(130,655

)

 

(130,655

)

 

(130,655

)

Total comprehensive loss

 

 

(130,655

)

(8,403,826

)

(8,534,481

)

 

(8,534,481

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners in their capacity as owners

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions of equity (net of transaction costs)

 

6,814,939

 

 

 

6,814,939

 

 

6,814,939

 

Share-based payments

 

 

120,287

 

 

120,287

 

 

120,287

 

Share facility fee rebate

 

295,110

 

 

 

295,110

 

 

295,110

 

 

 

7,110,049

 

120,287

 

 

7,230,336

 

 

7,230,336

 

Balance at June 30, 2017

 

122,382,625

 

6,044,493

 

(117,848,074

)

10,579,044

 

 

10,579,044

 

Loss for the year

 

 

 

(5,463,872

)

(5,463,872

)

 

(5,463,872

)

Other comprehensive loss

 

 

(522,966

)

 

(522,966

)

 

(522,966

)

Total comprehensive loss

 

 

(522,966

)

(5,463,872

)

(5,986,838

)

 

(5,986,838

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners in their capacity as owners

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions of equity (net of transaction costs)

 

(9,963

)

 

 

(9,963

)

 

(9,963

)

Share-based payments

 

 

129,635

 

 

129,635

 

 

129,635

 

Share facility fee rebate

 

 

 

 

 

 

 

 

 

(9,963

)

129,635

 

 

119,672

 

 

119,672

 

Balance at June 30, 2018

 

122,372,662

 

5,651,162

 

(123,311,946

)

4,711,878

 

 

4,711,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

 

 

 

(6,425,604

)

 

 

 

 

(6,425,604

)

Other comprehensive income

 

 

 

23,668

 

 

 

 

 

 

 

23,668

 

Total comprehensive loss

 

 

 

23,668

 

(6,425,604

)

 

 

 

 

(6,401,936

)

Transactions with owners in their capacity as owners

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions of equity, net of transaction costs and tax

 

3,126,162

 

 

 

 

 

 

3,126,162

 

Share-based payments

 

 

341,201

 

 

 

 

 

341,201

 

Reversal of forfeited options

 

 

(6,099

)

 

 

 

 

(6,099

)

 

 

3,126,162

 

335,102

 

 

 

 

 

3,461,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

125,498,824

 

6,009,932

 

(129,737,550

)

 

 

 

1,771,206

 

 

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

 

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NOTES TO THE FINANCIAL STATEMENTS

For the year ended June 30, 2019

 

1.                  CORPORATE INFORMATION

 

The Financial Report of Genetic Technologies Limited (the “Company”) for the year ended June 30, 2019 was authorized for issue in accordance with a resolution of the Directors dated September 30, 2019.  Genetic Technologies Limited is incorporated in Australia and is a company limited by shares.  The Directors have the power to amend and reissue the financial statements.

 

The Company’s Ordinary Shares are publicly traded on the Australian Securities Exchange under the symbol GTG and, via Level II American Depositary Receipts, on the Nasdaq Capital Market under the ticker GENE.

 

2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)             Basis of preparation

 

Compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board

 

The Financial Report complies with the International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Historical cost convention

 

These financial statements have been prepared under the historical cost convention except for financial assets and liabilities (including derivative instruments) which are measured at fair value.

 

Critical accounting estimates

 

The preparation of financial statements requires the use of certain critical accounting estimates.  It also requires Management to exercise its judgement in the process of applying the Company’s accounting policies.  The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are critical to the financial statements, are disclosed in Note 3.

 

Going concern

 

For the year ending 30 June 2019, the Group incurred a total comprehensive loss of $6,401,936 (2018: $5,986,838) and net cash outflow from operations of $6,073,182 (2018: $5,636,533). As at 30 June 2019 the Group held total cash and cash equivalents of $2,131,741.

 

During the 2020 financial year, the Directors expect stable cash outflows from operations as the Company continues to invest resources in expanding the research & development activities in support of the distribution of existing and new products.

 

As a result of these expected cash outflows to support the announcement of the launch of further new genetic testing products, the Directors intend to raise further new equity funding in order to ensure the Company continues to hold adequate levels of available cash resources to meet creditors and other commitments and to deliver on partner expectations in China and the USA.

 

The Company intends to raise further equity financing in October 2019, but there can be no assurance that we will be successful in this regard. The Company does not currently have binding commitments from any party to subscribe for shares and any raise will be subject to maintaining active listing on the NASDAQ exchange as well as compliance with the Group’s obligations under ASX Listing Rule 7.1.

 

In addition to the plans to raise capital in the US, the Group has recorded a receivable at 30 June 2019 from the Australian Taxation Office in respect of the 2019 research and development tax incentive claim which the Group expects to receive this in October 2019. The group also has access to equity placement facility with Kentgrove Capital Pty Ltd whereby it has an opportunity to raise equity funding of up to $20 million in a series of individual placements of up to $1 million (or a higher amount by mutual agreement), expiring 7 April 2020. The Group currently does not have any binding commitments under this facility and the quantum and timing of capital raised will be subject to the market price and trading volumes of our ordinary shares.

 

The continuing viability of the Company and its ability to continue as a going concern and meet its debts and commitments as they fall due is dependent on the satisfactory completion of planned equity raisings in October of 2019.

 

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Table of Contents

 

2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Going concern (cont.)

 

Due to the uncertainty surrounding the timing, quantum or the ability to raise additional equity, there is a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern and therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. However, the Directors believe that the Group will be successful in the above matters and accordingly, have prepared the financial report on a going concern basis. As such no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or classification of liabilities that might be necessary should the Group not be able to continue as a going concern.

 

As a U.S. SEC registrant, the Company is required to have its financial statements audited in accordance with Public Company Oversight Board (“PCAOB”) standards.  References in these IFRS financial statements to matters that may cast significant doubt about the Company’s ability to continue as a going concern also raise substantial doubt as contemplated by the PCAOB standards.

 

(b)             New accounting standards and interpretations

 

Standards and Interpretations affecting amounts reported in the current period (and/or prior period)

 

The Company has applied the following standards and amendments for the first time for their annual reporting period commencing July 1, 2018:

 

IFRS 9 Financial Instruments

 

IFRS 9 Financial Instruments has replaced IAS 39 and addresses and classification, measurement and derecognition of financial assets and liabilities. It also addresses the new hedge accounting requirements, including changes to hedge effectiveness, treatment of hedging costs and risk components that can be hedged.

 

IFRS 9 introduced a new expected loss impairment model that requires entities to account for expected credit losses at the time of recognizing the asset. The adoption of the new standard did not have a material impact on its classification and measurement of the financial assets and liabilities or its results on adoption of the new impairment model.

 

IFRS 15 Revenue from Contracts with Customers

 

IFRS 15 provides a single, principles based five-step model to be applied to all contracts with customers. Guidance is provided on topics such as the point in which revenue is recognized, accounting for variable consideration, costs of fulfilling and obtaining a contract and various related matters. The adoption of this standard applies to the recognition of the sales related to the BREVAGENplus product as the Company’s current sole revenue stream. The Company has adopted the standard using the modified retrospective approach. There was no material impact on adoption of the new standard.

 

Other new standards affecting the current reporting period

 

The company also adopted the following standards during the period.

 

·             Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)

 

·             Interpretation 22 Foreign Currency Transactions and Advance Consideration.

 

The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods.

 

Certain new accounting standards and interpretations have been published that are not mandatory for June 30, 2019 reporting periods and have not been early adopted by the group. The group’s assessment of the impact of these new standards and interpretations is set out below.

 

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Table of Contents

 

Standards and interpretations in issue but not yet adopted

 

Title of
standard

 

IFRS 16 Leases

 

 

 

Nature of change

 

IFRS 16 was issued in February 2016. It will result in almost all leases being recognised on the consolidated balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.

 

 

 

Impact

 

The group has reviewed all leasing arrangements in light of the new lease accounting rules in IFRS 16. The standard will affect the accounting for the group’s operating leases.

 

As at the reporting date, the group has non-cancellable operating lease commitments of $487,849.

 

The group expects to recognise at 1 July 2019 right-of-use assets of an amount approximating the nominal value of these non-cancellable operating lease commitments, discounted at the group’s incremental borrowing rate. A corresponding lease liability will offset the amount recognised as a right-of-use asset at 1 July 2019. Overall net current assets will be $14,712 lower due to the presentation of a portion of the liability as a current liability.

 

In financial year 2020, the operating cash flows will increase and financing cash flows decrease by approximately $221,281 as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.

 

 

 

Mandatory application date/Date of adoption by group

 

The group will apply the standard from its mandatory adoption date of July 1, 2019.

 

The group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases will be measured on transition as if the new rules had always been applied. All other right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses).

 

There are no other new standards and interpretations that are not yet effective and that would be expected to have a material impact on the group in the current or future reporting periods and on foreseeable future transactions.

 

(c)              Principles of consolidation

 

Subsidiaries

 

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Genetic Technologies Limited (the “Company” or “Parent Entity”) as at June 30, 2019 and the results of all subsidiaries for the year then ended.  Genetic Technologies Limited and its subsidiaries together are referred to in this Financial Report as the “Company” or the “Consolidated Entity”.

 

Subsidiaries are all entities (including structured entities) over which the Company has control.  The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement within the entity and has the ability to affect those returns through its power to direct the activities of the entity.  Subsidiaries are fully consolidated from the date on which control is transferred to the Company.  They are de-consolidated from the date that control ceases.

 

Intercompany transactions, balances and unrealized gains / losses on transactions between Company companies are eliminated.  Unrealized losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.  Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the Company’s policies.

 

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Table of Contents

 

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, consolidated balance sheet and consolidated statements of changes in equity, respectively.

 

(d)             Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.  The chief operating decision maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the Chief Executive Officer.

 

(e)              Parent entity financial information

 

The financial information for the parent entity, Genetic Technologies Limited has been prepared on the same basis as the consolidated financial statements, except that investments in subsidiaries are accounted for at cost in the financial statements of Genetic Technologies Limited.  Loans to subsidiaries are written down to their recoverable value as at balance date.

 

(f)               Foreign currency translation

 

The functional and presentation currency of Genetic Technologies Limited and its Australian subsidiaries is the Australian dollar (AUD).  Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction.  Monetary assets and liabilities which are denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.  All differences are taken to the statement of comprehensive income.

 

F-9


Table of Contents

 

2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

(f)               Foreign currency translation (cont.)

 

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate ruling at the date of the initial transaction.  Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates ruling at the date when the fair value was determined.  The functional currencies of the Company’s two overseas subsidiaries are as follows:

 

GeneType Corporation — United States dollars (USD)

Phenogen Sciences Inc. — United States dollars (USD)

 

As at the reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of Genetic Technologies Limited at the rate of exchange ruling at the balance sheet date and the statement of comprehensive income is translated at the weighted average exchange rates for the period unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions.  The exchange differences arising on the retranslation are recognized in other comprehensive income and taken directly to a separate component of equity.  On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the statement of comprehensive income.

 

(g)             Earnings per share (“EPS”)

 

Basic EPS is calculated by dividing the profit attributable to owners of the Company, excluding any costs of servicing equity other than Ordinary Shares, by the weighted average number of Ordinary Shares outstanding during the financial year.  Diluted EPS adjusts the figures used in the determination of basic EPS to take into account the after income tax effect of interest and other financing costs associated with dilutive potential Ordinary Shares and the weighted average number of Ordinary Shares that would have been outstanding assuming the conversion of all dilutive potential Ordinary Shares.

 

(h)             Revenue recognition

 

IFRS 15 supersedes IAS 11 Construction Contracts, IAS18 Revenue and related interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard has been applied as at 1 July 2018 using the modified retrospective approach and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. The adoption of IFRS 15 has not impacted the amounts disclosed within the financial statements. The following recognition criteria must also be met before revenue is recognized:

 

Genetic testing revenues

 

The Company operates facilities which provide genetic testing services.  The Company recognises revenue from the provision of these services when the services have been completed.

 

Interest received

 

Income is recognized as the interest accrues using the effective interest method.

 

Government Grants

 

Research and development tax incentive

 

The Australian government replaced the research and development tax concession with research and development (R&D) tax incentive from July 1, 2011. The R&D tax incentive applies to expenditure incurred and the use of depreciating assets in an income year commencing on or after July 1, 2011. A refundable tax offset is available to eligible companies with an annual aggregate turnover of less than $20 million. Management has assessed the Company’s activities and expenditure to determine which are likely to be eligible under the incentive scheme. The Company accounts for the R&D tax incentive as a government grant. The grant is recognized as other income over the period in which the R&D expense is recognized.

 

F-10


Table of Contents

 

2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Other

 

Other Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the company will comply with all attached conditions.

 

(i)                Share-based payment and performance rights transactions

 

The fair value of options granted under an Employee Option Plan is recognized as an employee benefit expense with a corresponding increase in equity.  The fair value is measured at grant date and recognized over the vesting period over which all of the specified vesting conditions are to be satisfied. The fair value at grant date is determined by management with the assistance of an independent valuer, using a Black-Scholes option pricing model or a Monte Carlo simulation analysis.   The total amount to be expensed is determined by reference to the fair value of the options granted.

 

·                  including any market performance conditions (e.g. the entity’s share price)

·                  excluding the impact of any service and non-market performance vesting conditions (e.g. remaining an employee over a specified time period)

 

The cumulative employee benefits expense recognized at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired; and (ii) the number of awards that, in the opinion of the Directors of the Company, will ultimately vest.  This opinion is formed based on the best information available at balance date.

 

Where the terms of an equity-settled award are modified, as a minimum an expense is recognized as if the terms had not been modified.  In addition, an expense is recognized for any increase in the value of the transaction as a result of the modification, as at the date of modification.  Where appropriate, the dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.  The Company’s policy is to treat the options of terminated employees as forfeitures.

 

The Performance Rights are not currently quoted on the ASX and as such have no ready market value. The Performance Rights each grant the holder a right of grant of one ordinary Share in the Company upon vesting of the Performance Rights for nil consideration. Accordingly, the Performance Rights may have a present value at the date of their grant. Various factors impact upon the value of Performance Rights including:

 

·              the period outstanding before the expiry date of the Performance Rights;

 

·              the underlying price or value of the securities into which they may be converted;

 

·              the proportion of the issued capital as expanded consequent upon conversion of the Performance Rights into Shares (i.e. whether or not the shares that might be acquired upon exercise of the options represent a controlling or other significant interest); and

 

·              the value of the shares into which the Performance Rights may be converted.

 

There are various formulae which can be applied to determining the theoretical value of options (including the formula known as the Black-Scholes Model valuation formula and the Monte Carlo simulation).

 

With the assistance of an independent valuer, the Company performed a valuation of the Performance Rights. The independent valuer has applied the Monte Carlo simulation in providing the valuation of the Performance Rights.

 

As the Performance Rights have market event hurdles for vesting, the valuation has been provided with a range of underlying share prices.

 

Inherent in the application of the Monte Carlo simulation are a number of inputs, some of which must be assumed. The data relied upon in applying the Monte Carlo simulation was:

 

a)         a range of prices analysed from 0.5 cents per share to 1.5 cents per share (being an approximate 50% discount to a 50%premium) from GTG’s current share price of 1.1 cents per share as at 5 October 2018 for all classes of Performance Rights;

 

b)         exercise price being 0.0 cents per Performance Right for all classes;

 

c)          VWAP hurdle (10 days consecutive share price hurdle) equaling 2.0 cents for Class A and Class B and 3.3 cents for Class C Performance Rights;

 

d)         the continuously compounded risk free rate being 2.02% for all classes of Performance Rights (calculated with reference to the RBA quoted Commonwealth Government bonds as at 8 October 2018 of similar duration to that of the expected life of each class of Performance Right);

 

F-11


Table of Contents

 

2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

(i)                Share-based payment and performance rights transactions (cont.)

 

Performance Rights. As the Performance Rights have market event hurdles for vesting, the valuation has been provided with a range of underlying share prices.

 

Inherent in the application of the Monte Carlo simulation are a number of inputs, some of which must be assumed. The data relied upon in applying the Monte Carlo simulation was:

 

e)        a range of prices analysed from 0.5 cents per share to 1.5 cents per share (being an approximate 50% discount to a 50%premium) from GTG’s current share price of 1.1 cents per share as at 5 October 2018 for all classes of Performance Rights;

 

f)         exercise price being 0.0 cents per Performance Right for all classes;

 

g)       VWAP hurdle (10 days consecutive share price hurdle) equaling 2.0 cents for Class A and Class B and 3.3 cents for Class C Performance Rights;

 

h)       the continuously compounded risk free rate being 2.02% for all classes of Performance Rights (calculated with reference to the RBA quoted Commonwealth Government bonds as at 8 October 2018 of similar duration to that of the expected life of each class of Performance Right);

 

i)           the expected option life of 2.8 years for all classes of Performance Rights; and

 

j)       a volatility measure of 80%.

 

(j)                Income tax

 

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses.

 

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company’s subsidiaries and associates operate and generate taxable income.

 

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.  However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss.  Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.  Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

 

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.  Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.  Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.  Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.  Current and deferred tax balances attributable to amounts

 

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2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

recognised directly in equity are also recognised directly in equity.  Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.  In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

 

Tax consolidation legislation

 

Genetic Technologies Limited (“GTG”) and its wholly-owned Australian-resident subsidiaries have implemented the tax consolidation legislation.  The head entity, GTG, and the subsidiaries in the tax consolidated Company account for their own current and deferred tax amounts.  These tax amounts are measured as if each entity in the tax consolidated Company continues to be a stand-alone taxpayer in its own right.

 

In addition to its own current and deferred tax amounts, GTG also recognizes the current tax assets / liabilities and the deferred tax assets arising from unused tax losses and tax credits assumed from subsidiaries in the tax consolidated Company.  Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognized as amounts receivable from or payable to other entities in the Company.  Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreements are recognized as a contribution to (or distribution from) wholly-owned tax subsidiaries.

 

(k)             Other taxes

 

Revenues, expenses and assets are recognized net of the amount of Goods and Services Tax (GST) except where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included.  The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.  Cash flows are included in the cash flow statement on a gross basis and the GST component arising from investing and financing activities, which is recoverable from / payable to the taxation authority, are classified as operating cash flows.

 

(l)                Withholding tax

 

The Company generates revenues from the granting of licenses to parties resident in overseas countries.  Such revenues may, in certain circumstances, be subject to the deduction of local withholding tax.  In such cases, revenues are recorded net of any withholding tax deducted.

 

(m)         Finance costs

 

Finance costs are recognized using the effective interest rate method.

 

(n)             Cash and cash equivalents

 

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of 3 months or less.  For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above.  Cash at bank earns interest at floating rates based on daily bank deposit rates.  Short-term deposits are made for varying periods, depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.

 

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2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

(o)             Trade and other receivables

 

Trade receivables, which are non-interest bearing and generally have terms of between 30 to 90 days, are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. For the comparative periods prior to July 1, 2018, an allowance for doubtful debts is made when there is objective evidence that a receivable is impaired.  Such evidence includes an assessment of the debtor’s ability and willingness to pay the amount due.  The amount of the allowance/impairment loss is measured as the difference between the carrying amount of the trade receivables and the estimated future cash flows expected to be received from the relevant debtors.

 

The Company has applied IFRS 9 from July 1, 2018. To measure the loss allowance on trade receivables, the Company uses the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

 

To measure the expected credit losses, trade receivables assets would be grouped based on shared credit risk characteristics and the days past due.

 

(p)             Inventories

 

Inventories principally comprise laboratory and other supplies and are valued at the lower of cost and net realizable value.  Inventory costs are recognized as the purchase price of items from suppliers plus freight inwards and any applicable landing charges.  Costs are assigned on the basis of weighted average cost.

 

(q)             Property, plant and equipment

 

Plant and equipment is stated at cost less accumulated depreciation and any impairment in value.  Depreciation is calculated on a straight-line basis over the estimated useful life of the respective asset as follows:

 

Laboratory equipment — 3 to 5 years

Computer equipment — 3 years

Office equipment — 3 to 5 years

Leasehold improvements — lease term, being between 1 and 3 years

 

Costs relating to day-to-day servicing of any item of property, plant and equipment are recognized in profit or loss as incurred.  The cost of replacing larger parts of some items of property, plant and equipment are capitalized when incurred and depreciated over the period until their next scheduled replacement, with the replacement parts being subsequently written off.

 

(r)              Intangible assets

 

Patents

 

Patents held by the Company are used in the licensing, testing and research areas and are carried at cost and amortized on a straight-line basis over their useful lives, being 10 years.  External costs incurred in filing and protecting patent applications, for which no future benefit is reasonably assured, are expensed as incurred.

 

Research and development costs

 

Costs relating to research activities are expensed as incurred.  An intangible asset arising from development expenditure on an internal project is recognized only when the Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development.  To date, all development costs have been expensed as incurred as their recoverability cannot be regarded as assured.

 

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2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

(s)               Impairment of assets

 

The Company assesses at each reporting date whether there is an indication that an asset may be impaired.  If any such indication exists, the Company makes an estimate of the asset’s recoverable amount.  An asset’s recoverable amount is the higher of its fair value less costs of disposal or its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset’s value-in-use cannot be estimated to be close to its fair value.  In such cases, the asset is tested for impairment as part of the cash-generating unit to which it belongs.  When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.

 

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.  Impairment losses relating to operations are recognized in those expense categories consistent with the function of the impaired asset unless the asset is carried at its revalued amount, in which case the impairment loss is treated as a revaluation decrease.

 

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased.  If such indication exists, the recoverable amount is estimated.  A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized.  If so, the carrying amount of the asset is increased to its recoverable amount.  The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.  Such reversal is recognized in profit or loss unless it reverses a decrement previously charged to equity, in which case the reversal is treated as a revaluation increase.  After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

 

(t)                Employee benefits

 

(i) Short-term obligations

 

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date.  These benefits include wages and salaries, annual leave and long service leave.  Liabilities arising in respect of wages and salaries, expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled.  Expenses for non-accumulating sick leave are recognized when the leave is taken during the year and are measured at rates paid or payable.

 

ii) Other long-term employee benefit obligations

 

The liabilities for long service leave and annual leave are not expected to be settled wholly within 12 months after the end of the reporting period in which the employee renders the related service.  They are therefore recognized in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method.  Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.  Expected future payments are discounted using market yields at the end of the reporting period of corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows.

 

(t)                Employee benefits (cont.)

 

The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur.

 

(iii) Retirement benefit obligations

 

The Company does not have any defined benefit funds.  Statutory contributions to defined contribution superannuation funds are recognized as an expense as they become payable. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.  Statutory contributions are legally enforceable in Australia.

 

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2.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

(u)             Provisions

 

Provisions for legal claims, service claims and make good obligations are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.  Where the Company expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.  The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.

 

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects market assessments of the time value of money and, where appropriate, the risks specific to the liability.  Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

 

(v)             Trade and other payables

 

Trade payables and other payables are carried at amortized cost and represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services.  Trade payables and other payables generally have terms of between 30 and 60 days.

 

(w)           Contributed equity

 

Issued and paid up capital is recognized at the fair value of the consideration received by the Company.  Transaction costs arising on the issue of Ordinary Shares are recognized directly in equity as a deduction, net of tax, of the proceeds received.  The Company has a share-based payment option plan under which options to subscribe for the Company’s shares have been granted to certain executives and other employees.

 

3.                  CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

 

Estimates and judgements are evaluated and based on historical experience and other factors, including expectations of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.

 

Critical accounting estimates and assumptions

 

The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events.  The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of certain assets and liabilities within the next annual reporting period are set out below.

 

Share-based payments transactions

 

The Company measures the cost of equity-settled transactions with employees by reference to the value of the equity instruments at the date on which they are granted.  Management determined the fair value with the assistance of an independent valuer using a Black-Scholes and Monte Carlo simulation options pricing model.

 

4.                  COST OF SALES

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Inventories used

 

55,995

 

93,869

 

172,070

 

Direct labour costs

 

103,601

 

88,690

 

152,767

 

Depreciation expense

 

55,480

 

65,853

 

71,139

 

Inventories written off (1)

 

61,191

 

51,676

 

96,441

 

Total cost of sales

 

276,267

 

300,088

 

492,417

 

 


(1)                                           Inventories written off include $Nil (2018: $24,506 and 2017: $53,856) of items that expired during the year.

 

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5.                  NON OPERATING INCOME AND EXPENDITURE

 

 

 

2019
A$

 

2018
A$

 

2017
A$

 

Net profit on disposal of plant and equipment

 

 

 

52,188

 

Research and development tax incentive

 

856,707

 

299,351

 

253,159

 

Export Marketing & Development Grant

 

 

126,907

 

 

Interest income

 

25,794

 

15,218

 

38,765

 

Rental income

 

 

 

 

Other income

 

137,268

 

 

 

Total non operating income and expenditure

 

1,019,769

 

441,476

 

344,112

 

 

6.                  FOREIGN EXCHANGE GAIN RECLASSIFIED ON LIQUIDATION OF SUBSIDIARY

 

Reclassification of net foreign exchange gains previously recognised in other comprehensive income, reclassified to profit or loss

 

Nil

 

Total gain on liquidation of subsidiary

 

Nil

 

 

Total gain is attributable to the liquidation of GeneType AG, a dormant subsidiary, that was completed on 13 December 2017

 

7.                   OTHER GAINS / (LOSSES)

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Net foreign exchange gains/(losses)

 

92,518

 

 

 

Net impairment losses(1)

 

(500,000

)

 

 

Total other gains / (losses)

 

(407,482

)

 

 

 


(1) In August 2018, the Company invested $250,000 into Swisstec towards the proposed joint venture to enable the Company and Swisstec to collaborate to develop a medical and health service platform using blockchain technology. The Company has recorded an impairment against the investment during the financial year ended June 30, 2019, due to cessation of activities in relation to the joint venture.

 

(1) In December 2018, Genetic Technologies Limited entered and invested $250,000 into a Joint Venture agreement with Blockshine Health Pty Ltd. with an ownership of 49%. The Company has recorded an impairment against the investment during the financial year ended June 30, 2019, due to the cancellation of the project.

 

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8.                   EXPENSES

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Amortization of intangible assets

 

 

 

63,783

 

Depreciation of fixed assets

 

156,248

 

303,749

 

307,828

 

Employee benefits expenses

 

2,414,408

 

2,657,232

 

3,594,936

 

Operating lease expenses

 

312,956

 

326,192

 

310,413

 

Research and development expenses

 

310,703

 

459,026

 

418,598

 

 

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9.                  INCOME TAX

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Reconciliation of income tax expense to prima facie tax payable

 

 

 

 

 

 

 

Loss before income tax expense

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

Tax at the Australian tax rate of 27.50% (2018: 27.50% and 2017: 28.50%)

 

(1,767,041

)

(1,502,565

)

(2,311,052

)

Tax effect amounts which are not deductible/(taxable) in calculating taxable income

 

 

 

 

 

 

 

Share-based payments expense

 

92,153

 

35,650

 

33,079

 

Research and development tax incentive

 

541,596

 

148,346

 

108,163

 

Other non-deductible items

 

590

 

1,509

 

1,257

 

Other assessable items

 

 

 

81,155

 

 

 

(1,132,702

)

(1,317,060

)

(2,087,398

)

 

 

 

 

 

 

 

 

Difference in overseas tax rates

 

41,009

 

67,557

 

(96,775

)

Under /(over) provision

 

1,126,722

 

(268,092

)

(75,054

)

Temporary differences not recognized

 

(121,965

)

 

 

Research and development tax credit

 

(238,084

)

(82,322

)

(69,619

)

Tax losses not recognized

 

325,020

 

1,599,917

 

2,328,846

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Net deferred tax assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets not recognized

 

 

 

 

 

 

 

Property, plant and equipment

 

863

 

1,381

 

2,802

 

Capital raising costs

 

232,328

 

347,370

 

320,417

 

Applera settlement

 

 

 

 

Intangible assets

 

1,893,220

 

1,949,601

 

2,003,505

 

Provisions

 

187,958

 

201,492

 

333,103

 

Other

 

 

 

 

Total deferred tax assets

 

2,314,369

 

2,499,844

 

2,659,827

 

Deferred tax liabilities not recognized

 

 

 

 

 

 

 

Prepayments

 

 

 

 

Total deferred tax liabilities

 

 

 

 

Net deferred tax assets on temporary differences not brought to account

 

(2,314,369

)

(2,499,844

)

(2,659,827

)

Total net deferred tax assets

 

 

 

 

 

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9.                  INCOME TAX (cont.)

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Tax losses

 

 

 

 

 

 

 

Unused tax losses for which no deferred tax asset has been recognized

 

90,254,547

 

87,970,140

 

80,706,629

 

Potential tax benefit @ 27.50% (2016: 28.50%)

 

23,104,882

 

22,596,182

 

22,194,323

 

 

Subject to the Company continuing to meet the relevant statutory tests, the tax losses are available for offset against future taxable income.

 

At June 30, 2019, the Company had a potential tax benefit related to tax losses carried forward of $23,104,882 (2018:22,596,182). Such amount includes net losses of $5,541,152 (2018:$5,155,038) related to subsidiaries in the United States (U.S.). The Tax Cuts and Jobs Act (TCJA) enacted by Congress in the U.S. on December 22, 2017 cut the top corporate income tax rate from 35% to 21%. For tax years beginning after December 31, 2017, the graduated corporate tax rate structure is eliminated and corporate taxable income will be taxed at 21-percent flat rate. Additionally, the previous 20-year limitation on carry forward net operating losses (NOL’s) has been removed, allowing the NOL’s to be carried forward indefinitely. The remaining tax losses carried forward of $ 17,563,730 (2018:17,441,144) are indefinite and are attributable to the Company’s operations in Australia. As such the total unused tax losses available to the Company, equal $23,104,882 (2018:$22,596,182).

 

As at balance date, there are unrecognized tax losses with a benefit of approximately $23,104,882 (2018: $22,596,182 and 2017: $22,194,323) that have not been recognized as a deferred tax asset to the Company.  These unrecognized deferred tax assets will only be obtained if:

 

(a)         The Company companies derive future assessable income of a nature and amount sufficient to enable the benefits to be realized;

 

(b)         The Company companies continue to comply with the conditions for deductibility imposed by the law; and

 

(c)          No changes in tax legislation adversely affect the Company companies from realizing the benefit.

 

Tax consolidation legislation

 

Genetic Technologies Limited and its wholly-owned Australian subsidiaries implemented the tax consolidation legislation as from July 1, 2003.  The accounting policy in relation to this legislation is set out in Note 2(j).

 

The entities in the tax consolidated Company have entered into a Tax Sharing Agreement which, in the opinion of the Directors, limits the joint and several liabilities of the wholly-owned entities in the case of a default by the head entity, Genetic Technologies Limited.

 

The entities have also entered into a Tax Funding Agreement under which the wholly-owned entities fully compensate Genetic Technologies Limited for any current tax payable assumed and are compensated by Genetic Technologies Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Genetic Technologies Limited under the tax consolidation legislation.  The funding amounts are determined by reference to the amounts recognized in the respective subsidiaries’ financial statements.

 

The amounts receivable or payable under the Tax Funding Agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year.

 

As at June 30, 2019, there are no unrecognised temporary differences associated with the Company’s investments in subsidiaries, as the Company has no liability for additional taxation should unremitted earnings be remitted (2017: $nil).

 

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10.           LOSS PER SHARE

 

The following reflects the income and share data used in the calculations of basic and diluted loss per share:

 

 

 

2019
A$

 

2018
A$

 

2017
A$

 

Loss for the year attributable to the owners of Genetic Technologies Limited

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

Weighted average number of Ordinary Shares used in calculating loss per share

 

2,635,454,870

 

2,435,282,724

 

2,121,638,888

 

 

Note:        None of the 114,250,000 (2018: 55,102,778 and 2017: 75,102,778) options/performance rights over the Company’s Ordinary Shares that were outstanding as at the reporting date are considered to be dilutive for the purposes of calculating diluted earnings per share.

 

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11.           CASH AND CASH EQUIVALENTS

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Reconciliation of cash and cash equivalents

 

 

 

 

 

 

 

Cash at bank and on hand

 

2,131,741

 

5,487,035

 

10,988,255

 

Total cash and cash equivalents

 

2,131,741

 

5,487,035

 

10,988,255

 

 

 

 

 

 

 

 

 

Reconciliation of loss for the year

 

 

 

 

 

 

 

Reconciliation of loss for the year after income tax to net cash flows used in operating activities is as follows:

 

 

 

 

 

 

 

Loss for the year after income tax

 

(6,425,604

)

(5,463,872

)

(8,403,826

)

 

 

 

 

 

 

 

 

Adjust for non-cash items

 

 

 

 

 

 

 

Amortization and depreciation expenses

 

156,260

 

303,749

 

371,611

 

Impairment of intangible assets

 

 

 

 

544,694

 

Impairment of investments

 

500,000

 

 

 

 

 

Share-based payments expense

 

335,102

 

129,635

 

120,287

 

interest classified as investing cash flows

 

(25,850

)

15,219

 

 

Net (profit) / loss on disposal of plant and equipment

 

 

 

(52,188

)

Net (gains) / losses on liquidation of subsidiary

 

 

(527,049

)

 

Net foreign exchange (gains) / losses

 

(92,518

)

(128,360

)

175,038

 

 

 

 

 

 

 

 

 

Adjust for changes in assets and liabilities

 

 

 

 

 

 

 

(Increase) / decrease in trade and other receivables

 

(517,383

)

124,889

 

204,501

 

(Increase) / decrease in prepayments and other assets

 

(42,885

)

14,843

 

103,488

 

Increase / (decrease) in trade and other payables

 

60,178

 

47,027

 

60,120

 

Increase / (decrease) in provisions

 

(20,482

)

(122,176

)

62,636

 

Net cash flows from / (used in) operating activities

 

(6,073,182

)

(5,636,533

)

(6,813,639

)

Financing facilities available

 

 

 

 

 

 

 

As at June 30, 2019, the following financing facilities had been negotiated and were available:

 

 

 

 

 

 

 

Total facilities

 

 

 

 

 

 

 

Credit cards

 

95,714

 

183,770

 

306,128

 

Facilities used as at reporting date

 

 

 

 

 

 

 

Credit cards

 

(6,516

)

(12,031

)

(12,428

)

Facilities unused as at reporting date

 

 

 

 

 

 

 

Credit cards

 

89,198

 

171,739

 

293,700

 

 

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12.           TRADE AND OTHER RECEIVABLES (CURRENT)

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Trade receivables

 

16,529

 

10,503

 

Less: 2019: Impairment allowance / 2018: provision for doubtful debts

 

 

 

Net trade receivables

 

16,529

 

10,503

 

Other receivables*

 

802,237

 

290,880

 

Total net current trade and other receivables

 

818,766

 

301,383

 

 

·                 Other receivables majorly consists of R&D income grant receivable.

 

Note: Trade and other receivables for the Company include amounts due in US dollars of USD Nil (2018: USD 7,114).

 

Refer Note 28 for details of aging, interest rate and credit risks applicable to trade and other receivables for which, due to their short-term nature, their carrying value approximates their fair value.

 

13.           PREPAYMENTS AND OTHER ASSETS (CURRENT)

 

 

 

2019
A$

 

2018
A$

 

Prepayments

 

159,844

 

139,767

 

Inventories at the lower of cost and net realizable value

 

31,865

 

59,007

 

Performance bond and deposits

 

53,456

 

3,505

 

Total current prepayments and other assets

 

245,165

 

202,279

 

 

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14.           PROPERTY, PLANT AND EQUIPMENT

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Laboratory equipment, at cost

 

1,451,389

 

1,451,389

 

Less: accumulated depreciation

 

(1,410,877

)

(1,355,397

)

Net laboratory equipment

 

40,512

 

95,992

 

Computer equipment, at cost

 

609,550

 

609,550

 

Add: additions during the year

 

47,715

 

 

Less: accumulated depreciation

 

(628,868

)

(563,208

)

Net computer equipment

 

28,397

 

46,342

 

Office equipment, at cost

 

167,564

 

167,564

 

Less: accumulated depreciation

 

(167,564

)

(166,807

)

Net office equipment

 

 

757

 

Equipment under hire purchase, at cost

 

594,626

 

594,626

 

Less: accumulated depreciation

 

(594,626

)

(594,626

)

Net equipment under hire purchase

 

 

 

Leasehold improvements, at cost

 

462,797

 

462,797

 

Add: additions during the year

 

2,583

 

 

 

Less: accumulated depreciation

 

(464,956

)

(430,604

)

Net leasehold improvements

 

424

 

32,193

 

Total net property, plant and equipment

 

69,333

 

175,284

 

Reconciliation of property, plant and equipment

 

 

 

 

 

Opening gross carrying amount

 

3,285,926

 

3,283,541

 

Add: additions purchased during the year

 

50,297

 

2,385

 

Less: disposals made during the year

 

 

 

Closing gross carrying amount

 

3,336,223

 

3,285,926

 

Opening accumulated depreciation and impairment losses

 

(3,110,642

)

(2,806,893

)

Add: disposals made during the year

 

 

 

Less: depreciation expense charged

 

(156,248

)

(303,749

)

Closing accumulated depreciation and impairment losses

 

(3,266,890

)

(3,110,642

)

Total net property, plant and equipment

 

69,333

 

175,284

 

 

Reconciliation of movements in property, plant and equipment by asset category

 

 

 

Opening

 

 

 

 

 

 

 

Closing

 

 

 

net carrying

 

Additions

 

Disposals

 

Depreciation

 

net
carrying

 

 

 

amount

 

during year

 

during year

 

expense

 

amount

 

Asset category

 

A$

 

A$

 

A$

 

A$

 

A$

 

Laboratory equipment

 

95,992

 

 

 

(55,480

)

40,512

 

Computer equipment

 

46,342

 

47,714

 

 

(66,416

)

28,397

 

Leasehold improvements

 

32,193

 

2,583

 

 

(34,352

)

424

 

Totals

 

175,284

 

50,297

 

 

(156,248

)

69,333

 

 

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Table of Contents

 

15.           TRADE AND OTHER PAYABLES (CURRENT)

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Trade payables

 

590,231

 

535,924

 

Other payables

 

68,423

 

222,502

 

Accrued expenses

 

346,654

 

186,704

 

Total current trade and other payables

 

1,005,308

 

945,130

 

 

Note: Trade payables for the Company include amounts due in US dollars of USD 126,829 (2018: USD 116,063) and Swiss francs of CHF 0 (2017: CHF 380).

 

Refer Note 28 for details of management of interest rate, foreign exchange and liquidity risks applicable to trade and other payables for which, due to their short-term nature, their carrying value approximates their fair value.

 

16.           PROVISIONS (CURRENT AND NON-CURRENT)

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Current provisions

 

 

 

 

 

Annual leave

 

152,352

 

145,449

 

Long service leave

 

243,740

 

268,544

 

Make good *

 

91,590

 

91,590

 

Total current provisions

 

487,682

 

505,583

 

Non-current provisions

 

 

 

 

 

Long service leave

 

809

 

3,390

 

Make good *

 

 

 

Total non-current provisions

 

809

 

3,390

 

Total provisions

 

488,491

 

508,973

 

 


* Make good provision

 

Genetic Technologies Limited is required to restore the leased premises situated in Fitzroy, Melbourne to their original condition at the end of the lease terms. A provision has been recognized for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalized as part of the cost of leasehold improvements and are amortized over the shorter of the term of the lease or the useful life of the assets. See Note 2 (u) for the Company’s other accounting policies relevant to provisions.

 

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Table of Contents

 

16.           PROVISIONS (CURRENT AND NON-CURRENT) (cont.)

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Reconciliation of annual leave provision

 

 

 

 

 

Balance at the beginning of the financial year

 

145,499

 

239,821

 

Add: obligation accrued during the year

 

91,106

 

155,967

 

Less: utilized during the year

 

(84,253

)

(250,289

)

Balance at the end of the financial year

 

152,352

 

145,499

 

Reconciliation of long service leave provision

 

 

 

 

 

Balance at the beginning of the financial year

 

271,933

 

299,739

 

(Less)/ Add: obligation accrued during the year

 

10,226

 

(27,806

)

Less: utilized during the year

 

(37,610

)

 

Balance at the end of the financial year

 

244,549

 

271,933

 

 

Note: The current provisions for annual leave and long service leave include a total amount of $335,655 (2018: $325,421) in respect of obligations which, based on historical evidence, the Company estimates will be settled more than 12 months from balance date.

 

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Table of Contents

 

17.           CONTRIBUTED EQUITY

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Issued and paid-up capital

 

 

 

 

 

Fully paid Ordinary Shares

 

125,498,824

 

122,372,662

 

Total contributed equity

 

125,498,824

 

122,372,662

 

Movements in shares on issue

 

 

 

 

 

 

 

 

 

 

 

Year ended June 30, 2018

 

Shares

 

$

 

Balance at the beginning of the financial year

 

2,435,282,724

 

122,382,625

 

Less: transaction costs arising on share issue

 

 

(9,963

)

Balance at the end of the financial year

 

2,435,282,724

 

122,372,662

 

 

 

 

 

 

 

Year ended June 30, 2019

 

Shares

 

$

 

Balance at the beginning of the financial year

 

2,435,282,724

 

122,372,662

 

Shares issued during the year

 

502,851,419

 

3,557,509

 

Less: transaction costs arising on share issue

 

 

 

(431,347

)

Balance at the end of the financial year

 

2,938,134,143

 

125,498,824

 

 

Terms and conditions of contributed equity

 

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.  Ordinary shares, which have no par value, entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

 

Capital management

 

When managing capital, Management’s objective is to ensure that the Company continues as a going concern as well as to provide returns for shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure to reduce the entity’s cost of capital.

 

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Table of Contents

 

18.           RESERVES

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Foreign currency translation

 

789,598

 

765,930

 

Share-based payments

 

5,220,334

 

4,885,232

 

Total reserves

 

6,009,932

 

5,651,162

 

Reconciliation of foreign currency translation reserve

 

 

 

 

 

Balance at the beginning of the financial year

 

765,930

 

1,288,896

 

Add: net currency translation gain / (loss)

 

23,668

 

(522,966

)

Balance at the end of the financial year

 

789,598

 

765,930

 

Reconciliation of share-based payments reserve

 

 

 

 

 

Balance at the beginning of the financial year

 

4,885,232

 

4,755,597

 

Add: share-based payments expense

 

341,201

 

129,635

 

Less: Reversal of forfeited/lapsed options

 

(6,099

)

 

 

Balance at the end of the financial year

 

5,220,334

 

4,885,232

 

 

Nature and purpose of reserves

 

Foreign currency translation reserve

 

This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

 

Share-based payments reserve

 

This reserve is used to record the value of share-based payments provided to employees and others providing similar services as part of their remuneration.

 

19.           ACCUMULATED LOSSES

 

Balance at the beginning of the financial year

 

(123,311,946

)

(117,848,074

)

Add: net loss attributable to owners of Genetic Technologies Limited

 

(6,425,604

)

(5,463,872

)

Balance at the end of the financial year

 

(129,737,550

)

(123,311,946

)

 

20.    OPTIONS

 

The fair value of options granted under an Employee Option Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognized over the vesting period over which all of the specified vesting conditions are to be satisfied. The fair value at grant date is determined by management with the assistance of an independent valuer, using a Black-Scholes option pricing model or a Monte Carlo simulation analysis. The total amount to be expensed is determined by reference to the fair value of the options granted;

 

·    including any market performance conditions (e.g. the entities share price)

·    excluding the impact of any service and non-market performance vesting conditions (e.g. remaining an employee over a specified time period)

 

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The cumulative employee benefits expense recognised at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired; and (ii) the number of awards that, in the opinion of the Directors of the Group, will ultimately vest. This opinion is formed based on the best information available at balance date.

 

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as at the date of modification. Where appropriate, the dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. The Company’s policy is to treat the options of terminated employees as forfeitures.

 

On November 30, 2001, the Directors of the Company established a Staff Share Plan. On November 19, 2008, the shareholders of the Company approved the introduction of a new Employee Option Plan. Under the terms of the respective Plans, the Directors may, at their discretion, grant options over the ordinary shares in the Genetic Technologies Limited to executives, consultants, employees, and former Non-Executive Directors, of the Company.

 

During the year 16,000,000 options over ordinary shares were granted pursuant the Employee Option Plan. The following information relates to ordinary shares granted pursuant to the Employee Option Plan at no cost for year ended 30 June 2019;

 

Set out below are summaries of all listed and unlisted options, including ESOP:

 

 

 

Ave. exercise
price per option

 

Number of
options and
performance
rights

 

As at 1 July

 

$

0.017

 

55,102,778

 

Granted to KentGrove Capital

 

$

0.015

 

12,500,000

 

Granted to employees during the year

 

$

0.010

 

16,000,000

 

Lapsed during the year

 

$

0.020

 

(19,236,111

)

Forfeited during the year

 

$

0.001

 

(6,000,000

)

Lapse of unlisted options attached to convertible notes

 

$

0.015

 

(20,366,667

)

As at 30 June

 

$

0.015

 

38,000,000

 

 

Note:

 

On August 8, 2018, the Company announced that it issued the following securities to Kentgrove Capital Pty Ltd:

 

·                  8,833,100 Shares in lieu of payment of the Establishment Fee (Establishment Shares);

·                  12,500,000 Options exercisable at $0.0153 each and expiring 3 years after issue (Establishment Options); and

·                  100,000,000 Shares as security for the Company’s obligations under the Kentgrove Facility (Collateral Shares).

 

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Table of Contents

 

Fair value of options granted

 

The options granted to Kentgrove Capital Pty Ltd were valued based on the following:

 

 

 

2019

 

Grant Date

 

08 Aug 2018

 

Options issued

 

12,500,000

 

Dividend yield

 

 

Historic volatility and expected volatility

 

80%

 

Option exercise price

 

$0.0153

 

Weighted average exercise price

 

$0.0153

 

Risk-free interest rate

 

2.02%

 

Expected life of an option

 

3 years

 

Model used

 

Black-Scholes

 

Fair value of options at grant date

 

$0.0040

 

 

As at June 30, 2019, the following options over Ordinary Shares in the Company were outstanding.

 

 

 

2019

 

Weighted ave.
exercise price

 

2018

 

Weighted ave.
exercise price

 

Unlisted employee options (refer below)

 

25,500,000

 

$

0.015

 

34,736,111

 

$

0.017

 

Unlisted options attached to convertible notes

 

 

 

20,366,667

 

$

0.015

 

Unlisted options granted to KentGrove Capital

 

12,500,000

 

$

0.015

 

 

 

 

 

38,000,000

 

$

0.015

 

55,102,778

 

$

0.016

 

 

On November 30, 2001, the Directors of the Company established a Staff Share Plan.  On November 19, 2008, the shareholders of the Company approved the introduction of a new Employee Option Plan.  Under the terms of the respective Plans, the Directors of the Company may grant options over Ordinary Shares in Genetic Technologies Limited to executives, consultants and employees of the Company.  The options, which are granted at nil cost, are not transferable and are not quoted on the ASX.  As at June 30, 2019, there was 1 executive and 12 employees who held options that had been granted under the Plans.  Options granted under the Plans carry no rights to dividends and no voting rights.

 

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Table of Contents

 

20.    OPTIONS (cont.)

 

The movements in the number of options granted under the Plans are as follows:

 

 

 

2019

 

Weighted ave.
exercise price

 

2018

 

Weighted ave.
exercise price

 

Unlisted employee options

 

 

 

 

 

 

 

 

 

Balance at the beginning of the financial year

 

34,736,111

 

$

0.017

 

54,736,111

 

$

0.016

 

Add: options granted during the year

 

16,000,000

 

$

0.010

 

 

 

Less: options lapsed during the year

 

(19,236,111

)

$

0.020

 

 

 

Less: options forfeited during the year

 

(6,000,000

)

$

0.010

 

(20,000,000

)

$

0.014

 

Balance at the end of the financial year

 

25,500,000

 

$

0.015

 

34,736,111

 

$

0.017

 

 

There were no options exercised under the Employee Option Plan during the year ended June 30, 2019 (2018: Nil).

 

The numbers of options outstanding as at June 30, 2019 by ASX code, including the respective dates of expiry and exercise prices, are tabled below (refer Note 23 for further information).  The options tabled below are not listed on ASX.

 

Option description

 

2019

 

Weighted ave.
exercise price

 

2018

 

Weighted ave.
exercise price

 

Unlisted employee options

 

 

 

 

 

 

 

 

 

Options to Kentgrove (expiring August 8, 2021)

 

12,500,000

 

$

0.015

 

 

 

GTGAD (expiring September 14, 2020)

 

 

 

 

 

GTGAD (expiring November 24, 2020)

 

 

 

19,236,111

 

$

0.020

 

GTGAD (expiring March 31, 2021)

 

5,000,000

 

$

0.020

 

5,000,000

 

$

0.020

 

GTGAD (expiring February 16, 2022)

 

5,500,000

 

$

0.010

 

10,500,000

 

$

0.010

 

ESOP options (expiring December 11, 2021)

 

15,000,000

 

$

0.010

 

 

 

Balance at the end of financial year

 

38,000,000

 

$

0.015

 

34,736,111

 

$

0.017

 

 

 

 

 

 

 

 

 

 

 

Unlisted options attached to convertible notes

 

 

 

 

 

 

 

 

 

GTGAC (expiring December 2, 2018)

 

 

 

20,366,667

 

$

0.015

 

Balance at the end of the financial year

 

38,000,000

 

$

0.015

 

55,102,778

 

$

0.016

 

Exercisable at the end of the financial year

 

38,000,000

 

$

0.015

 

48,102,778

 

$

0.017

 

 

The weighted average remaining contractual life of options outstanding as at June 30, 2019 was 2.16 years (2018: 1.94 years).

 

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21.           SEGMENT INFORMATION

 

Identification of reportable segments

 

The Company has identified a sole operating segment as reported that is consistent with the internal reporting provided to the chief operating decision maker and is aligned to the one major revenue stream.

 

The Company’s operating segment is summarized as follows:

 

Business segments

 

 

 

 

 

Revenues and income

 

Segment

 

 

 

Sales

 

Other

 

Totals

 

Profit / (loss)

 

 

 

 

 

A$

 

A$

 

A$

 

A$

 

Operations

 

2019

 

25,444

 

1,019,769

 

1,045,213

 

(6,425,604

)

 

 

2018

 

189,254

 

441,476

 

630,730

 

(5,463,872

)

 

 

2017

 

518,506

 

344,112

 

862,618

 

(8,403,826

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

Purchases of

 

Segment

 

 

 

Assets

 

Liabilities

 

/depreciation

 

equipment

 

 

 

 

 

A$

 

A$

 

A$

 

A$

 

Operations

 

2019

 

3,265,005

 

(1,493,799

)

(156,248

)

5,353

 

 

 

2018

 

6,165,981

 

(1,454,103

)

(303,749

)

2,385

 

 

 

2017

 

12,108,297

 

(1,529,253

)

(371,611

)

234,799

 

 

Geographic information

 

Australia — is the home country of the parent entity and the location of the Company’s genetic testing and licensing operations.

 

U.S. — is the home of Phenogen Sciences Inc. and GeneType Corporation.

 

Switzerland — is the home of GeneType AG (Liquidated December 2017).

 

Geographic information

 

 

 

 

 

Revenues and income

 

 

 

 

 

Sales

 

Other

 

Totals

 

Profit/(Loss)

 

 

 

 

 

A$

 

A$

 

A$

 

A$

 

Australia

 

2019

 

5,247

 

1,019,769

 

1,025,016

 

(5,791,950

)

 

 

2018

 

 

441,476

 

441,476

 

(3,504,098

)

 

 

2017

 

18,215

 

344,112

 

362,327

 

(7,000,994

)

U.S.

 

2019

 

20,197

 

 

20,197

 

(633,654

)

 

 

2018

 

189,254

 

 

189,254

 

(1,959,774

)

 

 

2017

 

500,291

 

 

500,291

 

(1,371,001

)

Other

 

2019

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

2017

 

 

 

 

(31,831

)

Totals

 

2019

 

25,444

 

1,019,769

 

1,045,213

 

(6,425,604

)

 

 

2018

 

189,254

 

441,476

 

630,730

 

(5,463,872

)

 

 

2017

 

518,506

 

344,112

 

862,618

 

(8,403,826

)

 

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21.          SEGMENT INFORMATION (cont.)

 

Segment assets:

 

The internal management reporting presented to key business decision makers report total assets on the basis consistent with that if the consolidated financial statements. These reports do not allocate assets based on the operations of each segment or by geographical location.

 

Under the current management reporting framework, total assets are not reviewed to a specific reporting segment or geographical location.

 

Segment Liabilities:

 

The internal management reporting presented to key business decision makers report total liabilities on the basis consistent with that if the consolidated financial statements. Under the current management reporting framework, total liabilities are not reviewed to a specific reporting segment or geographical location.

 

Other revenues and income includes interest received of $25,790 (2018: $15,218  and 2017: $38,765).

 

Expenses includes employee benefits expenses of $2,414,408 (2018: $2,657,232 and 2017: $3,594,936).

 

Included in the above figures are the following intersegment balances and transactions:

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Foreign exchange gain (U.S.) and foreign exchange loss (Australia)

 

291,542

 

981,141

 

776,295

 

Cost of sales (U.S.) and sales (Australia)

 

9,708

 

38,352

 

74,762

 

 

Segment products and locations

 

The principal geographic segment is Australia, with the Company’s headquarters being located in Melbourne in the State of Victoria however the key sales activities take place in the U.S..

 

Major customers

 

During the years ended June 30, 2019 and June 30, 2018 there was no customer from whom the Company generated revenues representing more than 10% of the total consolidated revenue from operations or outstanding receivables.

 

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22.          SHARE BASED PAYMENTS

 

(a) Employee option plan

 

On November 30, 2001, the Directors of the Company established a Staff Share Plan.  On November 19, 2008, the shareholders of the Company approved the introduction of a new Employee Option Plan.  Under the terms of the respective Plans, the Directors may, at their discretion, grant options over the Ordinary Shares in the Genetic Technologies Limited to executives, consultants, employees, and former Non-Executive Directors, of the Company.

 

During the year 16,000,000 options over Ordinary Shares were granted pursuant the Employee Option Plan. The following information relates to Ordinary Shares granted pursuant to the Employee Option Plan at no cost for year ended 30 June 2019;

 

i.                                          16,000,000 unlisted options (Expiring on December 11, 2021 with an exercise price of $0.01 vesting on 30 June 2019) over Ordinary Shares pursuant to the Employee Option Plan were granted. The fair value of each option granted is estimated by an external valuer using a Black-Scholes option-pricing model, with assumptions as follows:

 

 

 

2019

Grant Date

 

12 Dec 2018

Options issued

 

16,000,000

Dividend yield

 

Historic volatility and expected volatility

 

80%

Option exercise price

 

$0.010

Weighted average exercise price

 

$0.030

Risk-free interest rate

 

2.02%

Expected life of an option

 

2.8 years

Model used

 

Black-Scholes

Fair value of options at grant date

 

$0.0051

 

As at 30 June 2019, there were 14 employee who held options that had been granted under the Plan.

 

During the financial year 2018 no options over ordinary shares were granted pursuant the Employee Option Plan. The following information relates to ordinary shares granted pursuant to the Employee Option Plan at no cost for year ended 30 June 2017;

 

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The following information relates to Ordinary Shares granted pursuant to the Employee Option Plan at no cost for year ended 30 June 2017;

 

i.                  1,250,000 options to a number of employees of the Company’s US Subsidiary, Phenogen Sciences Inc. The options vest based on non-market performance conditions (requirement to remain employed by the Company) in three tranches commencing on the date of the 2017 Annual General Meeting (AGM) of the Company and then at each of the 12 and 24 month anniversaries thereafter. The fair value of each option granted is estimated by an external valuer using a Black-Scholes option-pricing model, with assumptions as follows

 

 

 

2017

Grant Date

 

17 Feb 2017

Options issued

 

1,250,000

Dividend yield

 

Historic volatility and expected volatility

 

60%

Option exercise price

 

$0.010

Weighted average exercise price

 

$0.010

Risk-free interest rate

 

2.19%

Expected life of an option

 

4.5 years

Model used

 

Black-Scholes

Fair value of options at grant date

 

$0.0050

 

As at 30 June 2019, there was 1 employee (2018: 1) who held options that had been granted under the Plan.

 

ii.               21,500,000 options to a number of KMP. The options vest based on non-market performance conditions (requirement to remain employed by the Company) in three tranches commencing on the date of the 2017 Annual General Meeting (AGM) of the Company and then at each of the 12 and 24 month anniversaries thereafter. The fair value of each option granted is estimated by an external valuer using a Black-Scholes option-pricing model, with assumptions as follows

 

 

 

2017

Grant Date

 

17 Feb 2017

Options issued

 

21,500,000

Dividend yield

 

Historic volatility and expected volatility

 

60%

Option exercise price

 

$0.010

Weighted average exercise price

 

$0.010

Risk-free interest rate

 

2.19%

Expected life of an option

 

4.5 years

Model used

 

Black-Scholes

Fair value of options at grant date

 

$0.0050

 

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iii.            1,250,000 options (2016: 2,000,000 options) to a number of employees of the Company’s US Subsidiary, Phenogen Sciences Inc. The options vest based on non-market performance conditions (requirement to remain employed by the Company) in three tranches commencing on the date of the 2017 Annual General Meeting (AGM) of the Company and then at each of the 12 and 24 month anniversaries thereafter (2016:  three equal tranches after 12 months, 24 months, and 36 months from date of grant, respectively). The fair value of each option granted is estimated by an external valuer using a Black-Scholes option-pricing model, with assumptions as follows

 

 

 

2017

 

2016

Grant Date

 

17 Feb 2017

 

1 April 2016

 

25 Nov 2015

Options issued

 

1,250,000

 

500,000

 

1,500,000

Dividend yield

 

 

 

Historic volatility and expected volatility

 

60%

 

80%

 

80%

Option exercise price

 

$0.010

 

$0.039

 

$0.058

Fair value of options at grant date

 

$0.0050

 

$0.0065

 

$0.0139

Weighted average exercise price

 

$0.010

 

$0.039

 

$0.058

Risk-free interest rate

 

2.19%

 

1.93%

 

2.22%

Expected life of an option

 

4.5 years

 

4.3 years

 

4.5 years

Model used

 

Black-Scholes

 

Black-Scholes

 

Black-Scholes

 

(b) Performance Rights Issuance

 

After receiving requisite shareholder approval on November 29, 2018, the Company has issued 76,250,000 performance rights to Directors of the Company as follows:

 

7,500,000 Class A Performance Rights, 25,000,000 Class B Performance Rights and 25,000,000 Class C performance Rights to Dr Paul Kasian

 

3,750,000 Class A Performance Rights to Dr Lindsay Wakefield

 

6,250,000 Class A Performance Rights to Dr George Muchnicki

 

5,000,000 Class A Performance Rights to Mr Peter Rubinstein

 

3,750,000 Class A Performance Rights to Mr Xue Lee

 

Further detail around each tranche of performance rights has been detailed within the explanatory memorandum accompanying the Notice of Meeting lodged with the ASX on October 30, 2018. The Company has accounted for these performance rights in accordance with its accounting policy for share-based payment transactions and has recorded $104,441 of associated expense in the current year-end.

 

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Valuation of Performance Rights

 

The Performance Rights are not currently quoted on the ASX and as such have no ready market value. The Performance Rights each grant the holder a right of grant of one ordinary Share in the Company upon vesting of the Performance Rights for nil consideration. Accordingly, the Performance Rights may have a present value at the date of their grant. Various factors impact upon the value of Performance Rights including:

 

·               the period outstanding before the expiry date of the Performance Rights;

 

·               the underlying price or value of the securities into which they may be converted;

 

·               the proportion of the issued capital as expanded consequent upon conversion of the Performance Rights into Shares (i.e. whether or not the shares that might be acquired upon exercise of the options represent a controlling or other significant interest); and

 

·               the value of the shares into which the Performance Rights may be converted.

 

There are various formulae which can be applied to determining the theoretical value of options (including the formula known as the Black-Scholes Model valuation formula and the Monte Carlo simulation).

 

The Company has commissioned an independent valuation of the Performance Rights. The independent valuer has applied the Monte Carlo simulation in providing the valuation of the Performance Rights.

 

Inherent in the application of the Monte Carlo simulation are a number of inputs, some of which must be assumed. The data relied upon in applying the Monte Carlo simulation was:

 

a)             exercise price being 0.0 cents per Performance Right for all classes;

 

b)             VWAP hurdle (10 days consecutive share price hurdle) equaling 2.0 cents for Class A and Class B and

 

3.3       cents for Class C Performance Rights;

 

c)              the continuously compounded risk-free rate being 2.02% for all classes of Performance Rights (calculated with reference to the RBA quoted Commonwealth Government bonds as at 8 October 2018 of similar duration to that of the expected life of each class of Performance Right);

 

d)             the expected option life of 2.8 years for all classes of Performance Rights; and

 

e)              a volatility measure of 80%.

 

Based on the independent valuation of the performance rights, the company agrees that the total value of the performance rights to be issued to each director (depending on the share price at issue) is as follows:

 

Valuation of Class A Performance Rights

 

 

 

Number of
Performance
Rights issued

 

Valuation per
Class A (cents)

 

Total fair value of Class
A Performance Rights

 

Expense accounted
for during the year

 

Dr Paul Kasian

 

7,500,000

 

0.77

 

$

57,750

 

$

11,229

 

Dr Lindsay Wakefield

 

3,750,000

 

0.77

 

$

28,875

 

$

5,614

 

Dr George Muchnicki

 

6,250,000

 

0.77

 

$

48,125

 

$

9,358

 

Mr Peter Rubinstein

 

5,000,000

 

0.77

 

$

38,500

 

$

7,486

 

Mr Sam Lee

 

3,750,000

 

0.77

 

$

28,875

 

$

5,614

 

 

Valuation of Class B Performance Rights

 

 

 

Number of
Performance
Rights issued

 

Valuation per
Class B (cents)

 

Class B Performance
Rights

 

Expense accounted for
during the year

 

Dr Paul Kasian

 

25,000,000

 

0.77

 

$

192,500

 

$

37,431

 

 

Valuation of Class C Performance Rights

 

 

 

Number of
Performance
Rights issued

 

Valuation per
Class C (cents)

 

Class C Performance
Rights

 

Expense accounted for
during the year

 

Dr Paul Kasian

 

25,000,000

 

0.57

 

$

142,500

 

$

27,708

 

 

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22.          SHARE BASED PAYMENTS (cont.)

 

(b) Expenses arising from share-based payment transactions

 

Total expenses arising from share-based payment transactions recognized during the period as part of employee benefit expense were as follows:

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

Kentgrove options issued

 

15,278

 

 

 

Performance rights issued

 

104,441

 

 

120,287

 

Options issued under employee option plan

 

215,383

 

129,635

 

120,287

 

Total expenses arising from share-based payments

 

335,102

 

129,635

 

120,287

 

 

23.           COMMITMENTS AND CONTINGENCIES

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

Operating lease expenditure commitments

 

A$

 

A$

 

A$

 

Minimum operating lease payments

 

 

 

 

 

 

 

- not later than one year

 

250,068

 

41,625

 

227,992

 

- later than one year but not later than five years

 

266,560

 

 

35,676

 

- later than five years

 

 

 

 

Total minimum operating lease payments

 

516,628

 

41,625

 

263,668

 

 

As at June 30, 2019, the above operating leases related to the following premises that are currently occupied by the Company:

 

Location

 

Landlord

 

Use

 

Date of expiry
of lease

 

Minimum
payments
($)

60-66 Hanover Street

Fitzroy, Victoria 3065 Australia

 

Crude Pty. Ltd.

 

Office / laboratory

 

August 31, 2021

 

487,837

1300 Baxter Street, Suite 157, Charlotte, North Carolina

 

Mid-Town Partners LLC

 

Office

 

Month to month

 

28,791

 

 

 

 

 

 

Total

 

516,628

 

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Apart from the above, there were no other commitments or contingencies as at June 30, 2019.

 

On July 3, 2018 the lease agreement for the Fitzroy premises in Melbourne was extended for 3 years from September 1, 2018 to August 31, 2021. In addition, Phenogen Sciences Inc. has vacated the Harris Corners Parkway office in Charlotte and entered into a lease agreement effective July 23, 2018 for premises situated at 1300 Baxter Street, Suite 157, Charlotte, North Carolina.

 

24.    AUDITORS’ REMUNERATION

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Audit and assurance services

 

 

 

 

 

 

 

PricewaterhouseCoopers in respect of:

 

 

 

 

 

 

 

Audit(1)

 

288,000

 

288,200

 

325,972

 

Audit related

 

 

 

107,451

 

Other audit firms in respect of:

 

 

 

 

 

 

 

Audit of the Financial Reports of subsidiaries

 

 

 

4,070

 

Total remuneration in respect of audit services

 

288,000

 

288,200

 

437,493

 

 


(1) Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally only the independent accountant can reasonably provide.

 

25.          RELATED PARTY DISCLOSURES

 

Ultimate parent

 

Genetic Technologies Limited is the ultimate Australian parent company. As at the date of this Report, no shareholder controls more than 50% of the issued capital of the Company.

 

Transactions within the Group and with other related parties

 

During the year ended 31 December 2019, the only transactions between entities within the Group and other related parties occurred, are as listed below. Except where noted, all amounts were charged on similar to market terms and at commercial rates.

 

Debt convertible notes

 

During the year ended 30 June 2015, the Company finalised the raising of $2,150,000 via the issue of unlisted secured (debt) notes to existing and new Australian institutional and wholesale investors. The debt notes carried a 10.0% coupon rate, and as approved at the Annual General Meeting, held on 25 November 2014, became convertible notes which could convert into ordinary shares (at a 10.0% discount to the 5 day VWAP). These convertible notes also carry free attached options to purchase further shares in the Company.

 

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Of these convertible notes, $125,000 were issued to a holder associated with Dr Lindsay Wakefield, a Company director at the time of issue, on the same terms and conditions as other note holders, all of which were converted during the year ended 30 June 2015. The 8,333,333 share options attached to these convertible notes expired during the year ended 30 June 2019. Dr Muchnicki and Mr Rubinstein, both of whom were elected as Directors of the Company on 31 January 2018, also participated in the debt convertible notes raising, during the year ended 30 June 2019 associated options indirectly held of 6,666,667 and 5,000,000 respectively expired.

 

Blockchain Global Limited

 

As announced by the Company on 15 February 2018, a non-binding terms sheet with Blockchain Global Limited(BCG) was entered to provide a framework for continuing discussions between the two companies, with the proposed transaction being subject to shareholder approval (by non-associated Shareholders); and as announced by the Company on 2 August 2018, a framework agreement with BCG was entered formalizing the non-binding terms sheet and providing a framework for a strategic alliance between the Company and BCG, with the agreement became binding on 29 November 2018 upon receiving the requisite shareholder approval. The agreement proposed the issue of 486 million shares to BCG in 3 tranches subject to the achievement of certain milestones. To date no shares have been issued under the framework agreements and no milestones have been achieved. Any rights to the 486 million milestone shares lapse between 27th December 2019 and 27 June 2020.

 

The company has accounted for these share issuances in accordance with its accounting policy for share-based payment transactions and has not recorded any associated expense in the current year given performance conditions have not been met and are not currently considering any Blockchain related projects.

 

A number of Directors of the Company presently or previously have had involvement with BCG. Mr Sam Lee has a direct and indirect share interest and was a CEO and managing director of BCG. Mr Peter Rubinstein held a minority shareholding in the entity and was also a director in BCG. Dr George Muchnicki has a direct and indirect interest in BCG. Dr Paul Kasian was previously a director of BCG until July 2018.

 

Performance Rights Issuance

 

After receiving requisite shareholder approval on 29 November 2018, the Company has issued 76,250,000 performance rights to Directors of the Company as follows:

 

· 7,500,000 Class A Performance Rights, 25,000,000 Class B Performance Rights and 25,000,000 Class C performance Rights to Dr Paul Kasian

 

· 3,750,000 Class A Performance Rights to Dr Lindsay Wakefield

 

· 6,250,000 Class A Performance Rights to Dr George Muchnicki

 

· 5,000,000 Class A Performance Rights to Mr Peter Rubinstein

 

· 3,750,000 Class A Performance Rights to Mr Xue Lee

 

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The Company has accounted for these performance rights in accordance with its accounting policy for share-based payment transactions and has recorded $104,441 of associated expense in the current year.

 

Valuation of Performance Rights

 

The Performance Rights are not currently quoted on the ASX and as such have no ready market value. The Performance Rights each grant the holder a right of grant of one ordinary Share in the Company upon vesting of the Performance Rights for nil consideration. Accordingly, the Performance Rights may have a present value at the date of their grant. Various factors impact upon the value of Performance Rights including:

 

· the period outstanding before the expiry date of the Performance Rights;

 

· the underlying price or value of the securities into which they may be converted;

 

· the proportion of the issued capital as expanded consequent upon conversion of the Performance Rights into Shares (i.e. whether or not the shares that might be acquired upon exercise of the options represent a controlling or other significant interest); and

 

· the value of the shares into Which the Performance Rights may be converted.

 

Blockshine Health Joint Venture

 

The Company, via its subsidiary Gene Ventures Pty Ltd, entered into a joint venture with Blockshine Technology Corporation (BTC). The joint venture company, called Blockshine Health, will pursue and develop blockchain opportunities in the biomedical sector. Blockshine Health will have full access to BTC’s technology (royalty free) as well as all of its opportunities in the biomedical sector. The Company invested $250,000 into the joint venture for a 49% equity stake. The Company has recorded an impairment against the investment during the financial year ended June 30, 2019, due to the cancellation of the project.  

 

Dr George Muchnicki (GTG’s nominee for directorship) is currently the director of both the Company and Blockshine Health. At this time, no Directors fees are payable to Dr Muchnicki by the joint venture company Blockshine Health.

 

There were no transactions with parties related to Key Management Personnel during the year other than that disclosed above.

 

Genetic Technologies HK Limited and Aocheng Genetic Technologies Co. Ltd - Joint Venture

 

In August 2018, the Company announced a Heads of Agreement had been reached with Representatives of the Hainan Government - Hainan Ecological Smart City Group (“HESCG”), a Chinese industrial park development & operations company have formally invited Genetic Technologies Limited (“GTG”) to visit the Hainan Medical Pilot Zone to conduct a formal review and discuss opportunities for market entry into China via the Hainan Free Trade Zone initiative. The invitation was extended to GTG via Beijing Zishan Health Consultancy Limited (“Zishan”), demonstrating the potential for growth presented by the proposed Joint Venture between the parties (as announced to the market on 14 August 2018).

 

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Participants in the Hainan Medical Pilot Zone gain access to the Chinese healthcare market with an estimated value in excess of US$800B. Discussions with HESCG form part of an official review process to evaluate the feasibility of offering GTG’s suite of genetic risk assessment tests into China through the Hainan Medical Pilot Zone.

 

Subsequently, the Company announced the official formation of Genetic Technologies HK Limited and Aocheng Genetic Technologies Co. Ltd in Hong Kong to the market on March 27, 2019,

 

With a growing clinical market and increased government investment in health-related technology, China is poised to become one of the largest global markets for genomic testing. The invitation from representatives of the Hainan Government represents a significant opportunity for GTG to advance the adoption of genetic risk assessment tests in the region.

 

GTG’s Chairman, Dr Paul Kasian has been named in the formation Heads of Agreement document to be the Chairman of the Joint Venture entity. At this time, no Directors fees or emoluments have been paid to Dr Kasian, nor have agreements regarding fees been reached.

 

Lodge Corporate

 

Dr. Kasian was a director of corporate finance and corporate advisor from December 2017 to February 2019 with Lodge Corporate. During the year, the company engaged in corporate advisory services with Lodge Corporate and had transactions worth $67,000 during the financial year end 2019.

 

Mr. Phillip Hains (Chief Financial Officer)

 

Subsequent to the financial year end 2019, on July 11, 2019, the Company announced that it had appointed Mr. Phillip Hains (MBA, CA) as the Chief Financial Officer who has over 30 years of extensive experience in roles with a portfolio of ASX and NASDAQ listed companies and provides CFO services through his firm The CFO Solution. The Company had a similar arrange with The CFO Solution, where it would engage and provided services of overall CFO, accounting and other finance related activities.

 

During the financial year 2019, the company had transactions valued at $45,459 with The CFO Solution towards provision of overall CFO, accounting and other finance related activities.

 

Details of Directors and Key Management Personnel as at balance date

 

Directors

 

• Dr Paul Kasian (Former Chairman and Interim CEO) (resigned September 24, 2019)

• Dr Lindsay Wakefield (Non-Executive)

• Dr Jerzy Muchnicki (Executive Director and Interim CEO) (appointed on September 24, 2019)

• Mr Peter Rubinstein (Non-Executive)

• Mr Xue Lee (Non-Executive) (resigned on July 9, 2019)

 

Executives

 

• Dr Richard Allman (Scientific Director)

• Mr Paul Viney (Chief Financial Officer, Chief Operating Officer and Company Secretary) (appointed on December 15, 2018 and resigned on July 15, 2019)

• Kevin Fischer (Chief Financial Officer) (resigned on December 31, 2018)

 

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25.    RELATED PARTY DISCLOSURES (cont.)

 

 

 

Consolidated

 

 

 

2019

 

2018

 

2017

 

 

 

A$

 

A$

 

A$

 

Remuneration of Key Management Personnel

 

 

 

 

 

 

 

Short-term employee benefits

 

964,162

 

1,215,632

 

1,533,457

 

Post-employment benefits

 

86,130

 

96,315

 

101,320

 

Share-based payments

 

157,886

 

130,385

 

121,269

 

Other long-term benefits

 

734

 

2,371

 

61,594

 

Termination benefits

 

 

164,760

 

 

Total remuneration of Key Management Personnel

 

1,208,912

 

1,609,463

 

1,817,640

 

 

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26.    SUBSIDIARIES

 

The following diagram is a depiction of the Company structure as at June 30, 2019.

 

 

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Company interest (%)

 

Net carrying value
($)

 

Name of Company

 

Incorporation details

 

2019

 

2018

 

2019

 

2018

 

Entities held directly by parent

 

 

 

 

 

 

 

 

 

 

 

GeneType Pty. Ltd.
(Dormant)

 

September 5, 1990
Victoria, Australia

 

100

%

100

%

 

 

Genetic Technologies Corporation Pty. Ltd.
(Genetic testing)

 

October 11, 1996
N.S.W., Australia

 

100

%

100

%

2

 

2

 

Gene Ventures Pty. Ltd. *
(Dormant)

 

March 7, 2001
N.S.W., Australia

 

100

%

100

%

10

 

10

 

GeneType AG **
(Dormant)

 

February 13, 1989
Zug, Switzerland

 

 

 

 

 

GeneType Corporation
(Dormant)

 

December 18, 1989
California, U.S.A.

 

100

%

100

%

 

 

Phenogen Sciences Inc.
(BREVAGen
TM )

 

June 28, 2010
Delaware, U.S.A.

 

100

%

100

%

11,006

 

11,006

 

Genetic Technologies HK Ltd

 

March 18, 2019
Hong Kong, China

 

100

%

N/A

 

 

 

Total carrying value

 

 

 

 

 

 

 

11,018

 

11,018

 

 


* On 26 April 2018, the name of RareCellect Pty Ltd (ACN 096 135 9847) was changed to Gene Ventures Pty Ltd (ACN 096 135 947)

 

** Liquidation of GeneType AG was completed on 13 December 2017

 

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27.    FINANCIAL RISK MANAGEMENT

 

The Company’s activities expose it to a variety of financial risks such as credit risk, market risk (including foreign currency risk and interest rate risk) and liquidity risk.  The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company.  The Company uses different methods to measure the different types of risk to which it is exposed.  These methods include sensitivity analysis in the case of foreign exchange, interest rate and aging analysis for credit risk.

 

Risk management is managed by the Executive under guidance provided by the Board of Directors via its Audit Committee, which provides guidance for overall risk management, as well as policies covering specific areas, such as credit risk, foreign exchange risk and interest rate risk.  The Committee identifies and evaluates financial risks in close cooperation with the Company’s executive management.

 

The Company’s principal financial instruments comprise cash and cash equivalents.  The Company also has other financial assets and liabilities, such as trade receivables and payables, which arise directly from its operations.

 

The Company does not typically enter into derivative transactions, such as interest rate swaps or forward currency contracts.  It is, and has been throughout the period under review, the Company’s policy that no trading in financial instruments shall be undertaken.  The main risks arising from the Company’s financial instruments are credit risk exposures, foreign currency risk, interest rate risk and liquidity risk.  The policies for managing each of these risks are summarized below.

 

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 2.

 

The Company holds the following financial instruments:

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Financial assets

 

 

 

 

 

Cash at bank / on hand

 

2,131,741

 

5,487,035

 

Trade and other receivables

 

818,766

 

301,383

 

Performance bond and deposits

 

53,456

 

3,505

 

Total financial assets

 

3,003,963

 

5,791,923

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

Trade and other payables

 

1,005,308

 

945,130

 

Total financial liabilities

 

1,005,308

 

945,130

 

 

Credit risk

 

The Company’s credit risk is managed on a Company basis.  Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. Other receivables represent amounts accrued for which reimbursement will be applied for from the Australian Taxation Authority under the Governments Research & Development grant. The maximum exposures to credit risk at June 30, 2019 in relation to each class of recognized financial asset is the carrying amount of those assets, as indicated in the balance sheet.

 

Financial assets included on the balance sheet that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade receivables.  In accordance with the guidelines of the Company’s Short Term Investment Policy, the Company minimizes this concentration of risk by placing its cash and cash equivalents with financial institutions that maintain superior credit ratings in order to limit the degree of credit exposure.  For banks and financial institutions, only independently-rated parties with a minimum rating of “A-1” are accepted.  The Company has also established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity.  The Company does not require collateral to provide credit to its customers.  The Group has not entered into any transactions that qualify as a financial derivative instrument.

 

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27.           FINANCIAL RISK MANAGEMENT (cont.)

 

Credit risk (cont.)

 

The trade receivables balance is reflective of historical collection rates which are monitored on an ongoing basis and adjusted accordingly based on changing collection and test data. As at June 30, 2019, the balance of the Company’s total accrued net trade receivables was $16,529 (2018: $10,503 (refer Note 12)).

 

Credit risk further arises in relation to financial guarantees given by the Company to certain parties in respect of obligations of its subsidiaries.  Such guarantees are only provided in exceptional circumstances.

 

An analysis of the aging of trade and other receivables s is provided below:

 

 

 

Consolidated

 

 

 

2019

 

2018

 

 

 

A$

 

A$

 

Net trade and other receivables

 

 

 

 

 

Current (less than 30 days)

 

802,237

 

294,454

 

31 days to 60 days

 

11,159

 

3142

 

61 days to 90 days (note)

 

 

783

 

Greater than 90 days (note)

 

5,370

 

3004

 

Total net trade and other receivables (Note 12)

 

818,766

 

301,383

 

 

Market risk

 

Foreign currency risk

 

The Company operates internationally and is exposed to foreign currency exchange risk, primarily with respect to the US dollar, through financial assets and liabilities.  It is the Company’s policy not to hedge these transactions as the exposure is considered to be minimal from a consolidated operations perspective.  Further, as the Company incurs expenses which are payable in US dollars, the financial assets that are held in US dollars provide a natural hedge for the Company.

 

Foreign exchange risk arises from planned future commercial transactions and recognized assets and liabilities denominated in a currency that is not the entity’s functional currency and net investments in foreign operations.  The risk is measured using sensitivity analysis and cash flow forecasting.

 

The Company has a Foreign Exchange Management Policy which was developed to establish a formal framework and procedures for the efficient management of the financial risks that impact on Genetic Technologies Limited through its activities outside of Australia, predominantly in the United States.  The policy governs the way in which the financial assets and liabilities of the Company that are denominated in foreign currencies are managed and any risks associated with that management are identified and addressed.  Under the policy, which is updated on a regular basis as circumstances dictate, the Company generally retains in foreign currency only sufficient funds to meet the expected expenditures in that currency.  Surplus funds are converted into Australian dollars as and when deemed appropriate by the Board in consultation with the CFO.

 

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Table of Contents

 

27.           FINANCIAL RISK MANAGEMENT (cont.)

 

Market risk (cont.)

 

As at June 30, 2019, the Company held the following financial assets and liabilities that were denominated in foreign currencies:

 

Consolidated

 

Year

 

USD

 

EUR

 

CHF

 

Financial assets

 

 

 

 

 

 

 

 

 

Cash at bank / on hand

 

2019

 

201,737

 

27,052

 

 

 

 

2018

 

2,154,291

 

28,952

 

 

Bonds and deposits

 

2019

 

1,986

 

 

 

 

 

2018

 

3,505

 

 

 

Total financial assets

 

2019

 

203,723

 

27,052

 

 

 

 

2018

 

2,157,796

 

28,952

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Trade and other payables

 

2019

 

117,992

 

1,900

 

 

 

 

2018

 

116,063

 

 

 

Total financial liabilities

 

2019

 

117,992

 

1,900

 

 

 

 

2018

 

116,063

 

 

 

 

Notes:    USD — United States dollars     EUR — European euros             CHF — Swiss francs

 

During the year ended June 30, 2019, the Australian dollar / US dollar exchange rate weakened by 5.13%, from 0.7403 at the beginning of the year to 0.7023 at the end of the year.

 

Based on the financial instruments held at June 30, 2019, had the Australian dollar weakened/ strengthened by 10% against the US dollar with all other variables held constant, the Company’s loss for the year would have been $11,851 lower/ $9,696 higher (2018: 306,000 lower/ $250,000 higher), mainly as a result of changes in the values of cash and cash equivalents which are denominated in US dollars, as detailed in the above tables.

 

Interest rate risk

 

The Company’s main interest rate risk arises in relation to its short-term deposits with various financial institutions.  If rates were to decrease, the Company may generate less interest revenue from such deposits.  However, given the relatively short duration of such deposits, the associate risk is relatively minimal.

 

The Company has a Short Term Investment Policy which was developed to manage the Company’s surplus cash and cash equivalents.  In this context, the Company adopts a prudent approach that is tailored to cash forecasts rather than seeking high returns that may compromise access to funds as and when they are required.  Under the policy, the Company deposits its surplus cash in a range of deposits / securities over different time frames and with different institutions in order to diversify its portfolio and minimize risk.

 

On a monthly basis, Management provides the Board with a detailed list of all cash and cash equivalents, showing the periods over which the cash has been deposited, the name and credit rating of the institution holding the deposit and the interest rate at which the funds have been deposited.

 

At June 30, 2019, if interest rates had changed by +/- 50 basis points from the year-end rates, with all other variables held constant, the Company’s loss for the year would have been $8,969 lower / higher (2018: loss $12,000 lower / higher), as a result of higher / lower interest income from cash and cash equivalents.

 

F-48


Table of Contents

 

27.           FINANCIAL RISK MANAGEMENT (cont.)

 

Market risk (cont.)

 

The exposure to interest rate risks and the effective interest rates of financial assets and liabilities, both recognized and unrealized, for the Company is as follows:

 

 

 

 

 

Floating rate

 

Fixed rate

 

Carrying
amount

 

Weighted
ave. effective
rate

 

Ave. maturity
Period

 

Consolidated

 

Year

 

A$

 

A$

 

A$

 

%

 

Days

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at bank / on hand

 

2019

 

2,131,741

 

 

 

2,131,741

 

1.74

%

At call

 

 

 

2018

 

2,394,754

 

 

2,394,754

 

1.74

%

At call

 

Performance bond / deposits

 

2019

 

 

 

53,456

 

53,456

 

 

At call

 

 

 

2018

 

 

3,505

 

3,505

 

 

At call

 

Totals

 

2019

 

2,131,741

 

53,456

 

2,131,741

 

 

 

 

 

 

 

2018

 

2,394,754

 

3,505

 

2,398,259

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss

 

2019

 

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

Totals

 

2019

 

 

 

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

Note  The Company holds the balance of its cash in non-interest bearing bank accounts.

 

Liquidity risk

 

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities, such as its hire purchase and credit card facilities.  The Company manages liquidity risk by continuously monitoring forecast and actual cash flows and, wherever possible, matching the maturity profiles of financial assets and liabilities.  Due to the dynamic nature of the underlying businesses, Management aims to maintain flexibility in funding by keeping committed credit lines available.  Surplus funds are generally only invested in instruments that are tradeable in highly liquid markets. Refer note 2(a) for further information on the material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern.

 

F-49


Table of Contents

 

27.           FINANCIAL RISK MANAGEMENT (cont.)

 

Liquidity risk (cont.)

 

A balanced view of cash inflows and outflows affecting the Company is summarized in the table below:

 

 

 

 

 

< 6 months

 

6 to 12 months

 

1 to 5 years

 

> 5 years

 

Totals

 

Consolidated

 

Year

 

A$

 

A$

 

A$

 

A$

 

A$

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at bank / on hand

 

2019

 

2,131,741

 

 

 

 

 

 

 

2,131,741

 

 

 

2018

 

5,487,035

 

 

 

 

5,487,035

 

Trade and other receivables

 

2019

 

818,766

 

 

 

 

 

 

 

818,766

 

 

 

2018

 

301,383

 

 

 

 

301,383

 

Performance bond and deposits

 

2019

 

53,456

 

 

 

 

 

 

 

53,456

 

 

 

2018

 

3,505

 

 

 

 

3,505

 

Total financial assets

 

2019

 

3,003,963

 

 

 

 

 

 

 

3,003,963

 

 

 

2018

 

5,791,923

 

 

 

 

5,791,923

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

2019

 

1,005,308

 

 

 

 

 

 

 

1,005,308

 

 

 

2018

 

945,130

 

 

 

 

945,130

 

Total financial liabilities

 

2019

 

1,005,308

 

 

 

 

 

 

 

1,005,308

 

 

 

2018

 

945,130

 

 

 

 

945,130

 

Net maturity

 

2019

 

(1,998,655

)

 

 

 

 

 

 

(1,998,655

)

 

 

2018

 

4,846,793

 

 

 

 

4,846,793

 

 

The Company had access to the following undrawn borrowing facility as at June 30, 2019:

 

 

 

Facility limit

 

Amount used

 

Amount available

 

 

 

A$

 

A$

 

A$

 

Nature of facility

 

 

 

 

 

 

 

Credit card facility

 

95,714

 

-6,516

 

89,198

 

 

F-50


Table of Contents

 

28.    SUBSEQUENT EVENTS

 

Significant events after balance date

 

The following significant events have occurred after balance date;

 

·      The Company appointed Mr. Nick Burrows as Non- Executive Independent Director to the board on September 2, 2019.

 

·      On August 15, 2019, the Company announced a ratio change on the ADR program from 1 ADS representing 150 Ordinary Shares to a new ratio of 1 ADS representing 600 Ordinary Shares. The ratio change will result in a reverse split on Genetic Technologies ADSs on the basis of 1 ADS for 4 old ADS held. The Ordinary Shares of Genetic Technologies Limited will not be affected by this change in the ADS to ordinary shares ratio.

 

·      On July 11, 2019, the Company announced the appointment of a new Company Secretary in form of Mr. Justyn Stedwell and appointed a new Chief Financial Officer of the Company in form of Mr. Phillip Hains. These appointments replace roles performed by Mr. Paul Viney due to his departure which was announced during the same month.

 

·      On September 24, 2019, the Company announced resignation of Dr. Paul Kasian (current Chairman and interim Chief Executive Officer) with immediate effect with Dr. George Muchnicki taking up the role of the interim Chief Executive Officer.

 

·      On September 23, 2019, the Company announced the signing of a three-year collaboration agreement with Translational Genomics Research Institute (TGen) of Phoenix, Arizona USA. The agreement includes cooperation in the design feasibility analysis of clinical research studies to support the clinical application of GTG’s polygenic risk tests and identification of appropriate clinical partners to participate in the studies.

 

F-51


Exhibit 12.01

 

SARBANES-OXLEY SECTION 302(a) CERTIFICATION

 

I, Dr Jerzy Muchnicki, certify that:

 

1.                                      I have reviewed this annual report on Form 20-F of Genetic Technologies Limited;

 

2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4.                                      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)         Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect the company’s internal control over financial reporting; and

 

5.                                      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

 

 

Date: October 03, 2019

 

 

/s/ Dr Jerzy Muchnicki

 

Dr Jerzy Muchnicki

 

Chief Executive Officer

 


Exhibit 12.02

 

SARBANES-OXLEY SECTION 302(a) CERTIFICATION

 

I, Phillip Hains, certify that:

 

1.                                      I have reviewed this annual report on Form 20-F of Genetic Technologies Limited;

 

2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4.                                      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)         Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect the company’s internal control over financial reporting; and

 

5.                                      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

 

 

Date: October 03, 2019

 

 

/s/ Phillip Hains

 

Phillip Hains

 

Chief Financial Officer

 


Exhibit 13.1

 

CERTIFICATION PURSUANT TO 18 U.S.C.

 

SECTION 1350 AS ADOPTED

 

PURSUANT TO

 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Genetic Technologies Limited (the “Company”) on Form 20-F for the period ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dr. Jerzy Muchnicki, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)                              The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)                              The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

October 03, 2019

 

By:

/s/ Dr Jerzy Muchnicki

 

Dr Jerzy Muchnicki

 

Interim Chief Executive Officer

 

*                                       The originally executed copy of this Certification will be maintained at the Company’s offices and will be made available for inspection upon request.

 


Exhibit 13.2

 

CERTIFICATION PURSUANT TO 18 U.S.C.

 

SECTION 1350 AS ADOPTED

 

PURSUANT TO

 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Genetic Technologies Limited (the “Company”) on Form 20-F for the period ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Philip Hains, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)                                 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)                                 The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

October 03, 2019

 

By:

/s/ Phillip Hains

 

Phillip Hains

 

Chief Financial Officer

 

 

*                                       The originally executed copy of this Certification will be maintained at the Company’s offices and will be made available for inspection upon request.