20120927 asx release enclosing annual report · 9/27/2012 · annual report enclosed with this...

ASX Announcement 27 September 2012

Annual Report Enclosed with this announcement is CathRx’s Annual Report for the financial year ended 30 June 2012. We draw your attention to note 2(a) on page 25 of the Annual Report which identifies a change since filing of the company’s preliminary final report filed on 29 August 2012. The change relates to the treatment of refundable research and development tax offsets. About CathRx CathRx is a medical device company which designs reprocessable cardiac catheter solutions for the treatment of people suffering from electrical problems of the heart known as cardiac arrhythmias. CathRx’s proprietary diagnostic and therapeutic catheters are designed to give physicians the tools to cost effectively treat patients with speed, safety and precision. For further information: Denis Hanley CathRx Executive Chairman and Chief Executive Officer Telephone: 0418 445 021

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CathRx Limited ABN 23 089 310 421

2012 Annual Report

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CathRx Ltd Annual Report 2012 2

CathRx Limited2012 Annual Report - Contents

Chairman and Chief Executive Officer’s Letter to Shareholders 3 Directors’ Report (including Remuneration Report) 4 Corporate Governance Statement 16 Financial Statements 20 Auditors Independence Statement 51 Independent Auditor’s Report 52 Additional Shareholder Information 54 Corporate Directory 56

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Dear Shareholder,

CathRx is seeking to enter global cardiac catheter markets with our patented modular single use device (SUD) catheters designed to dramatically lower the costs of these important clinical procedures without compromising device quality or safety.

During the second half of the 2012 financial year, we focussed on raising funds for the continuing development of our range of cardiac catheters, establishing contract manufacturing capacity to produce these products and we are now moving to establish licencing & collaboration agreements with strategic players to provide a path to commercialise our product range.

As described in our shareholder reports, CathRx has restructured its operations to become a specialist catheter technology design house, significantly reducing operating cash burn. The Company has recently received approximately $2.2 million of research and development tax offset which provides additional working capital for continued product development.

The Company recently filed an application to be delisted from ASX as it considers it will be best placed to generate shareholder value as an unlisted company. The Company will also continue its discussions to secure an underwriter for a proposed capital raising planned to be undertaken after the delisting.

I would like to extend my personal gratitude to shareholders for their patience and support over our difficult product and market development period, to our key staff without whom we could not do this work and to our Board who have worked without pay since February to guide the business forward.

Finally, as many of you know, after 3 years with CathRx, in August 2012 Mr Jeffrey Goodman retired as a director due to health reasons. I would like to acknowledge Jeffrey’s substantial contribution to the company and thank him for his services.

I look forward to reporting positive progress over the coming year.

Yours sincerely,

Denis Hanley Chairman and Chief Executive Officer

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Directors’ ReportYour directors submit their report on CathRx Ltd (“company”) for the financial year ended 30 June 2012.

DIRECTORS

The following persons were directors of the company during the whole of the financial year and up to the date of this report:

Mr Denis Michael Hanley Dr Elizabeth (Jane) WilsonDr Colin Adam

Dr Michael Hirshorn was a director from the beginning of the financial year until his death on 18 November 2011.

Mr Jeffrey Goodman was a director from the beginning of the financial year until his resignation on 22 August 2012. He held the position as chief executive officer from the beginning of the financial year until retiring from that role on 2 February 2012.

Names, qualifications, experience and special responsibilities of the company’s directors are as follows:

Mr Denis Michael Hanley AM, MBA, FCPA, FAICD Executive Chairman and Chief Executive Officer

Mr Denis Hanley was appointed as the non-executive chairman of the company from April 2003. He was subsequently appointed as chief executive officer on 2 February 2012.

Denis has extensive experience in developing and commercialising new Australian technology including serving for 14 years as chief executive officer of Memtec Ltd. Prior to Memtec Ltd, Denis worked for the international medical company, Baxter Healthcare Corporation, both in the US and as their Australian managing director.

Denis has also served as a board member and then chairman of the Australian IR&D Board, a member of the Australian Prime Minister's Science and Engineering Council, the Australian Industry & Higher Education Round Table, the Australian Council for the Development of Environmental Opportunity and, from 1999 to 2001, as chairman of Judges at the Australian Technology awards. Denis was awarded membership in the Order of Australia and the Clunies Ross medal for his work in commercialising Australian technology.

Denis was the non-executive chairman of Pharmaxis Ltd, where he served from October 2001 until he retired from its board in April 2012. Denis is a non-executive director of Universal Biosensors, Inc., where he has served since September 2001. Denis continues to hold other private and unlisted public company directorships. F

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Dr Elizabeth (Jane) Wilson MBBS, MBA, FAICD Non-Executive Director

Dr Jane Wilson has been a non-executive director since August 2005.

Jane is a professional company director with a background in medicine, finance and banking and with extensive experience in the commercialisation of research in both the agricultural and biotechnology sectors. Her experience spans ASX listed, public and government sectors, serving as Queensland President and National Board Director of the Australian Institute of Company Directors (“AICD”) and currently on the AICD Advisory Panel.

She is a director of ASX-listed companies Sonic Healthcare Ltd and Universal Biosensors Inc., and a director of the General Sir John Monash Foundation. She is also a director of the Winston Churchill Memorial Trust where she is a finance director and Queensland Fellowship selection panel member.

Jane is a member of the University of Queensland Senate, Finance Committee, and Faculty of Health Sciences Board.

She was previously a director of Energex Ltd, Workcover Qld, Agen Biomedical Ltd, Biotech Ltd, and the National Archives of Australia, Chairman of Horticulture Australia and IMBcom Ltd, and a member of the Conoco Advisory Board.

Prior to becoming a professional director in 1995, Jane held senior executive positions with Macquarie Bank, Wilson HTM Investment Group, The Harley St Imaging Centre and Greenslopes Hospital.

Dr Colin Adam BE (Met), PhD FIEAust, FTSENon-Executive Director

Dr. Colin Adam has been a non-executive director since September 2010.

Colin has extensive project management experience in the commercialisation of technologies and research and development in the life sciences industry.

Colin’s career has included technology management positions within the US aerospace industry as Program Manager in advanced alloy development for Pratt & Whitney Aircraft in Florida and as Manager of the Materials Laboratory for Allied Corporation in New Jersey.

During 2000, Colin was the Acting Chief Executive of the CSIRO. Prior to that, Colin was Deputy Chief Executive directly responsible for all the CSIRO’s commercial activity. Colin has also served as a member of the Commonwealth Government’s Industry Research and Development Board, the Australian Prime Minister’s Science Engineering and Innovation Council and the Victorian Premier’s Science, Engineering and Technology Taskforce.

Colin is a non- executive director of Universal Biosensors, Inc. For

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Dr Michael Hirshorn OAM, MBA, MB, BS, FAICDFormer Non-Executive Director

Dr Michael Hirshorn was a non-executive director from September 2010 and was a member of the Audit and Risk Management Committee. Michael ceased being a director on his death on 18 November 2011.

With qualifications in medicine business and finance, Michael had over thirty years’ experience in founding, building, managing and investing in international technology companies and was an established leader in the Australian life science venture industry.

During his career Michael played a major role in the commercial development of Cochlear Limited, including a period as CEO, and was a founding director of Resmed Inc. He also spent some time in product development of cardiac pacemaker leads. He was a founder and Director of Four Hats Capital and a Director of Biotron Limited, TGR Pty Limited, LBT Innovations Limited and Dynamic Hearing Pty Limited.

Michael was a member of the AVCAL Council and has served on numerous Government advisory committees including working groups of the Prime Ministers Science Engineering and Innovation Committee. In 2004 Michael was awarded an Order of Australia Medal for commercializing medical technology.

Mr Jeffrey Goodman B. Accounting Former Chief Executive Officer and Managing Director

Mr Jeffrey Goodman was appointed chief executive officer of CathRx in February 2010 and, prior to that, had been a non-executive director of the Company since 20 March 2008. Jeffery retired as chief executive officer on 2 February 2012 and continued as a non- executive director until he retired on 22 August 2012.

Jeffrey has extensive business experience in the pharmaceutical and medical devices industry, particularly in general management, marketing and sales. Jeffrey has successfully managed changing environments, created strategic objectives and managed tactical operations to achieve strategic objectives.

Jeffrey was the Executive Vice President and President International of Boston Scientific Corporation from 1999 to 2008 and was responsible for sales and operations in over 100 countries along with the responsibility for more than 4,000 employees.

Prior to joining Boston Scientific Corporation Jeffrey was employed in a number of positions over a 25 year period by Baxter International, Inc. Jeffrey's last assignment at Baxter was as President, Biotech North America Division.

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As at the date of this report, the interests of the directors in the shares and options of the company are:

Director Number of Ordinary Shares Number of Options over

Ordinary Shares Mr Denis Hanley (1) 10,413,002 150,000 Dr Jane Wilson 3,418,630 75,000 Dr Colin Adam (1) 2,000,001 -

(1) Mr Hanley, and Dr Adam are directors of PFM Cornerstone Limited, a public company which holds 24,343,610 shares in the company (14.87% of the issued share capital). Mr Hanley and Dr Adam who are also shareholders of PFM Cornerstone Ltd each hold less than approximately 3.2% of the issued share capital of PFM Cornerstone Limited.

The company has established an Audit and Risk Management Committee and a Remuneration and Nomination Committee, the members of which are: Audit and Risk Management Committee Remuneration and Nomination Committee Dr Jane Wilson (Chairman) Dr Colin Adam (Chairman) Mr Denis Hanley Mr Denis Hanley Dr Colin Adam Dr Jane Wilson

Dr Michael Hirshorn was a member of the audit committee until 18 November 2011. Dr Colin Adam was appointed as a member of the Audit and Risk Management Committee to fill a vacancy following Dr Hirshorn’s death.

The charters for the Audit and risk Management Committee and Remuneration and Nomination Committee are available on the company’s website.

The number of meetings of the board and of each board committee held during the year ended 30 June 2012 and the numbers of meetings attended by each director were as follows:

Board

Remuneration and NominationCommittee

Audit and Risk Management Committee

Held Attended Held Attended Held Attended Mr Denis Hanley 16 15 4 3 10 9 Mr Jeffrey Goodman 16 14 - - - - Dr Jane Wilson 16 15 4 4 10 10 Dr Colin Adam (1) 16 16 4 4 5 5 Dr Michael Hirshorn (2) 6 4 - - 5 3

(1) Dr Adam was appointed as a member of the Audit and Risk Management Committee to fill a vacancy following Dr Hirshorn’s death on 18 November 2011

(2) Dr Hirshorn ceased as a director on 18 November 2011.

COMPANY SECRETARY

Mr Cameron David Billingsley BA, LLB (Hons) Company Secretary

Mr Cameron Billingsley has been company secretary of the company since August 2005 and has been involved with the company since January 2003. Cameron is a corporate and commercial lawyer and founder of PFM Legal Pty Ltd, a company established to provide company secretarial and legal services to Australian technology companies.

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DIVIDENDS

No dividends were paid during the financial year and the directors have not recommended the payment of any dividends.

PRINCIPAL ACTIVITIES

The principal activities of the company during the financial year ended 30 June 2012 were the research, development and commercialisation of innovative catheter devices.

OPERATING AND FINANCIAL REVIEW

During the first half of the year the company continued to develop and produce its range of innovative catheter devices with a view to funding further development via the receipt of milestone payments from licensees. Despite extensive time and effort devoted to discussions and subsequent negotiations with potential licensees, the company was unable to secure a licence of its technology.

In the second half, the company revised its strategy to focus on its strengths in product design and innovation. Production capabilities have been outsourced and headcount has been significantly reduced. Trials of the company’s product continued with six doctor trials of the loop diagnostic device completing successfully in the UK. The company also began negotiations to secure new funding to replace the previously anticipated licencing payments.

2012 $

2011 $

Loss for the year before income tax 8,688,192 8,947,978The change in strategy referred to above and subsequent staff reductions and production outsourcing resulted in or contributed to the following expenses: Asset impairment charges 1,826,195 - Inventory write downs 752,192 315,920 Redundancy costs 361,575 - Onerous contract – excess lease space 1,294,775 -

Refundable research and development tax offset 2,236,325 -Changes to the governments research and development tax incentives this year have given rise to a refundable tax offset of $2,236,325 which has been included as a current receivable and a credit to other income.

Cash and cash equivalents 471,312 4,758,761Operating cash outflows of $6,201,791 largely exhausted the company’s cash resources which had been boosted in November 2011 by an entitlement issue that raised $1,932,223 (net of costs of issue).

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Other than the impact of the losses referred to in the Operating and Financial Review above and the raising of $1,932,223 through the issue of 20,468,825 shares in an entitlement offer, there were no other changes in the state of affairs of the company during the financial year. F

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SIGNIFICANT EVENTS AFTER THE BALANCE DATE

On 1 August 2012 the company received loan funding of $1,000,000 ($989,329 net of costs). This loan is secured over all of the company's assets by virtue of a Security Deed entered into between the parties to the loan. The loan has been advanced to the company for a term of three years, but may earlier be applied by the lender to subscribe for shares in a capital raising by the company (other than the raising discussed below) . Interest of 10% per annum accrues on the loan and is payable three years after the advance of the loan.

There has otherwise not been any matter or circumstance, other than as may be referred to in the financial statements or notes thereto, that has arisen since the end of the financial year that has significantly affected, or may significantly affect:

the operations of the company in future financial years; the results of those operations in future financial years; or the state of affairs of the company in future financial years.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS

During the 2013 financial year the company anticipates obtaining new funding in the region of $5,000,000 through an underwritten capital raising. This will supplement $1,000,000 ($989,329, net of costs) of debt financing received in August 2012. As part of the capital raising process the company plans to seek ASX and shareholder approval to delist from the Australian stock market.

The operational focus of the company is expected to be on continuing to develop its suite of modular single-use catheters to address global cardiac markets and on seeking regional commercial partners to licence the company’s products and technologies. The company intends to seek commercial partners for the European Union, United States, China and other Asian markets.

Further information on likely developments in the operations of the company and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the company.

ENVIRONMENTAL REGULATIONS

The company is subject to a range of environmental regulations in respect of its activities. There have been no known material breaches of any environmental regulations that apply to the company.

SHARE OPTIONS

At the date of this report, there were 2,708,332 unissued ordinary shares under options (2,708,332 atthe reporting date). These options were issued under the company’s employee option plan. No new options were granted nor were any new shares issued upon the exercise of options during the financial year.

An option holder may only participate in new issues of shares by the company if the relevant options have been exercised and a share allotted before the books closing date for determining entitlements to the new issue of shares.

Further details on the options are contained in the remuneration report and in Note 24 to the financial statements.F

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INDEMNIFICATION AND INSURANCE OF OFFICERS

The company has entered into deeds of access, indemnity and insurance with each current director, the company secretary and the chief financial officer of the company. The deeds provide the relevant officer with:

rights of access to certain board papers of the company during the period while the relevant officer is or was an officer of the company and for a period of seven years after they cease to be an officer;subject to the limitations set out in the Corporations Act 2001, the company indemnifies the relevant officer against any liability incurred whilst acting in their capacity as an officer of the company; and the requirement for the company to use its best endeavours to maintain directors’ and officers’ insurance for the officer.

During the financial year, the company paid insurance premiums in respect of a contract, insuring all the directors, the company secretary and chief financial officer against liability whilst acting in their capacity as a director or officer (as applicable) of the company. In the event of a claim, the policy provides for the company to pay a deductible amount up to $25,000. In accordance with the terms of the insurance policy and commercial practice, the amount of the premium has not been disclosed.

No liability has arisen under these indemnities at the date of this report. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers of the company other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company.

PROCEEDINGS ON BEHALF OF THE COMPANY

No person has applied to the court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purposes of taking responsibility on behalf of the company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the company with leave of the court under section 237 of the Corporations Act 2001.

AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES

The directors have received an independence declaration from the company’s auditor, Ernst & Young, which is included at page 51.

The following non-audit services were provided by the company’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services during the year by Ernst & Young is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

Ernst & Young received or are due to receive the following amounts for the provision of non-audit services:

2012 2011 $ $

Tax compliance services 10,000 7,500Other services - 6,060

10,000 13,560

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REMUNERATION REPORT (Audited)

This report outlines the remuneration arrangements in place for the company’s non-executive directors, executive directors and other key management personnel. For the purposes of this report, key management personnel of the company are defined as those persons, including the directors of the company, having authority and responsibility for planning, directing and controlling the major activities of the company, directly or indirectly.

Details of key management personnel Details of the company’s directors are included on pages 4 to 7 of the Directors’ Report.

Other executives in key management positions during the year were: Mr Gerard Wallace (1) President Ms Amanda Wong (2) Chief Financial Officer Mr Roman Greifeneder (3) Director Research & Development and Operations / General Manager Mr Brian Lee (4) Director Technical Services

(1) Mr Wallace’s contract of employment ended without having been renewed on 30 June 2012. (2) Ms Wong’s employment was terminated on 22 February 2012 as part of the company’s restructuring. (3) Mr Greifender’s employment as Director Research & Development and Operations was terminated on 2

February 2012 as part of the company’s restructuring. Subsequently he was re-employed in the position of General Manager.

(4) Mr Lee’s employment was terminated on 2 February 2012 as part of the company’s restructuring.

Role of the Remuneration and Nomination Committee The Remuneration and Nomination Committee is responsible for, amongst other things:

assessing and reviewing on behalf of the board the appropriateness of the nature and amount of compensation of the directors and key executives on a periodic basis by reference to relevant market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of high quality directors and executives and ensuring that directors and executives are being rewarded commensurate with their responsibilities; determining with the board, appropriate performance targets for key executives; and determining and reviewing the company’s recruitment, retention and termination policies and procedures for senior executives generally.

The Remuneration and Nomination Committee has processes in place to review the performance of the board and senior executives of the company.

Remuneration philosophy The performance of the company depends upon the quality of its directors and executives. In order to attract, motivate and retain highly skilled directors and executives, the company embodies the following principles in its remuneration framework:

provide competitive remuneration to attract, motivate and retain high calibre directors and executives with appropriate skills and experience; remunerate with a mix of short and long term components; remunerate executives according to individual performance and pre-determined benchmarks through cash bonuses; and link executive remuneration to shareholder value through options.

Remuneration structure The structure of non-executive director and executive remuneration is separate and distinct.

Non-executive director remuneration policy The board seeks to set compensation for non-executive directors at a level that provides the company with the ability to attract and retain directors of the highest calibre which have relevant industry skills and experiences, whilst incurring a cost that is acceptable to shareholders.

The constitution of the company and the Listing Rules of the Australian Securities Exchange (“ASX”) specify that the aggregate remuneration of non-executive directors shall be determined from time to time by shareholders at general meeting. An amount not exceeding the amount determined is then divided between the non-executive directors as agreed. This can take the form of a salary or a fixed

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sum for attendance at each meeting of the directors or both. The shareholders of the company have approved an aggregate remuneration of $450,000 per annum. All share and share options issued to non-executive directors require separate approval at a general meeting of shareholders of the company.

The amount of aggregate remuneration payable to non-executive directors and the manner in which it is apportioned is determined by the Remuneration and Nomination Committee and the board and reviewed annually. The company currently relies on internal surveying of prevailing market conditions, however, the Remuneration and Nomination Committee and the board may consider advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process.

Non-executive remuneration currently comprises of: a base fee for serving as a director is currently $125,000 per annum for the chairman and $70,000 for other non-executive directors;an additional fee for directors serving on committees, currently $5,000 per annum; and statutory superannuation for the independent non-executive directors, currently 9% of the base fee.

However the directors have waived their rights to be remunerated from February 2012 onwards until such time as the company is on a more all sound financial footing.

Termination and cash bonus payments do not apply to non-executive directors.

There is no long term incentive plan.

Executive Director and Executive Remuneration The company aims to reward the executive director and executives with a level and mix of remuneration commensurate with their position and responsibilities within the company so as to:

reward the executive director and executives for the achievement of company, business unit and individual performance which are measured against appropriate benchmarks set by the board of the company; align the interests of the executive director and executives with those of shareholders; link rewards with the strategic goals and performance of the company; and ensure total remuneration is competitive by market standards.

The nature and amount of executive compensation is approved by the Remuneration and Nomination Committee and the board. The remuneration payable to executives and senior management is reviewed annually. The Remuneration and Nomination Committee and the board may consider advice from external consultants when undertaking the annual review process. The company currently relies on internal surveying of prevailing market conditions and has from time to time engaged executive recruitment firms who make recommendations. The company customarily enters into either employment or consulting agreements with each of its key executives and senior managers.

Executive remuneration typically comprises of: a base salary which is to be reviewed annually by the Remuneration and Nomination Committee. The process consists of a review of company-wide, business unit and individual performance, relevant comparative compensation in the market and internally and, where appropriate, external advice on policies and practices. Certain executives have the ability to receive their salary in a variety of forms including cash and fringe benefits. It is intended that the manner of payment is flexible without creating additional cost for the company; statutory superannuation, currently 9% of base salary and cash bonus; a variable compensation component comprising a cash bonus payable annually dependent on the achievement of key performance indicators approved by the Remuneration and Nomination Committee. The objective of the bonus plan is to link the achievement of the company’s operational key performance indicators with the compensation received by the executives charged with meeting those key performance indicators. Typical key performance indicators include measures of contribution to product research and development, risk management, product management, and leadership/team contribution. On an annual basis (expected to be November)

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following consideration of performance against key performance indicators, the Remuneration and Nomination Committee determines whether any bonuses are payable. Bonus payments are expected to be made in December of each year. The Remuneration and Nomination Committee has not, at the date of this report, considered whether any bonuses will be paid in respect of the financial year ended 30 June 2012; and options granted under the company’s employee option plan. The objective of the employee option plan is to reward executives in a manner that aligns this element of compensation with the creation of shareholder wealth. Options vest in December over three years but are not currently contingent on the achievement of other specific key performance indicators.

There is no long term incentive plan.

Employment and Consulting Services Agreements Jeff Goodman, Gerard Wallace, Amanda Wong, Roman Greifeneder and Brian Lee were key employees of the company, each of whom had entered into an employment contract with the company. Either through efflux of time or because these people are no longer executives, these contracts all ceased during the year to 30 June 2012.

The key employees of the company listed above had employment agreements on substantially the same terms which include:

normal statutory entitlements; entitlement to participate in the company’s employee option plan; typical confidentiality and intellectual property provisions intended to protect the company’s intellectual property rights and other proprietary information; and the following notice periods and ‘non-compete’ clauses and base salaries:

Employee Notice period Non-compete period Jeff Goodman 3 months 3 months Gerard Wallace 3 months 6 months Amanda Wong 4 weeks 3 months Roman Greifeneder 4 weeks 3 months Brian Lee 4 weeks 3 months

Employee

Annual Salary Including

Superannuation Contract ended Jeff Goodman $250,000 2 February 2012 Resigned as chief executive officer Gerard Wallace €218,000 30 June 2012 Contract expired Amanda Wong $174,400 22 February 2012 Employment terminated Roman Greifeneder (1) $190,750 2 February 2012 Employment terminated Brian Lee $147,150 2 February 2012 Employment terminated

(1) Mr Greifeneder was subsequently re-employed to fulfil a different role on an informal basis with no contract but at the same annual salary.

The employment contracts for each of the above employees of the company were able to be terminated immediately by the company for serious misconduct or with the notice period set out above, without cause. During such notice periods, the employee was entitled to receive base salary and any other benefits. Upon termination, the employee was also entitled to payment of any accrued entitlements payable at law.

Consultants Mr Cameron Billingsley is engaged as company secretary by way of a services agreement between the company and PFM Legal Pty Ltd (“PFM Legal”). In addition, PFM Legal provides legal services to the company. PFM Legal charges for these services at the usual hourly rates depending on the relevant PFM Legal employee undertaking the services. The Remuneration and Nomination Committee has resolved that Mr Billingsley is entitled to participate in the company’s employee option plan. The engagement of PFM Legal may be terminated at any time without additional payments being required.

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Key management personnel - compensationCompensation of Key Management Personnel of the company for the years ended 30 June 2012 and 2011. None of the compensation was performance related and no bonuses were paid.

Short Term Benefits

Post Retire-ment

Benefits Long term

Benefits

Share -based

Payments

2012

Cash Salary and Fees (1)

$

Non-monetary Benefits

$

Super-annuation

$

Termination Payments

$

Longservice

leave (2) $

Options (3) $

Total $

Directors (4)

Denis Hanley 72,917 `- 6,562 - - - 79,479Jeffrey Goodman 137,431 - 12,041 - - - 149,472Jane Wilson 43,750 - 3,937 - - - 47,687Colin Adam 35,350 - 12,337 - - - 47,687Michael Hirshorn (5) 31,250 - 2,813 - - - 34,063Total Directors 320,698 - 37,690 - - - 358,388

Executives Gerard Wallace 269,199 34,734 24,228 - - (4,973) 323,188Roman Greifeneder (6) 187,627 - 15,750 43,750 - (4,254) 242,873Amanda Wong (7) 112,814 - 9,310 48,889 - (4,254) 166,759Brian Lee (8) 64,826 - 7,648 15,577 - (4,489) 83,562Total Executives 634,466 34,734 56,936 108,216 - (17,970) 816,382

Total 955,164 34,734 94,626 108,216 - (17,970) 1,174,770

2011

Directors Denis Hanley 127,400 - 11,250 - - - 138,650Jeffrey Goodman 229,358 - 20,642 - 925 135,003 385,928Jane Wilson 77,400 - 6,750 - - - 84,150Colin Adam (9) 50,379 - 17,434 - - - 67,813Michael Hirshorn (5) 62,379 - 5,434 - - - 67,813Àndrew Denver (9) 15,057 1,355 16,412Total Directors 561,973 - 62,865 - 925 135,003 760,766

Executives Gerard Wallace 285,095 10,662 25,659 - 4,079 57,719 383,214Roman Greifeneder 163,333 - 14,700 - 871 22,590 201,494Amanda Wong 160,000 - 14,400 - 873 22,590 197,863Brian Lee (8) 113,106 - 10,180 - 182 19,955 143,423Total Executives 721,534 10,662 64,939 - 6,005 122,854 925,994

Total 1,283,507 10,662 127,804 - 6,930 257,857 1,686,760.1. For terminated executives, includes amounts in lieu of untaken annual leave 2. No amounts were accrued for long service leave during 2012 as all executives ceased to be eligible. 3. Negative amounts arise from the forfeit of options. 4. Directors’ remuneration for 2012 reflects their having waived their entitlements from February 2012

onwards. 5. Dr Hirshorn was appointed as a non-executive director on 13 September 2010 and ceased as a director on 18

November 2011. 6. Mr Greifeneder’s employment terminated on 2 February 2012, but subsequently he was re-employed. 7. Ms Wong’s employment terminated on 22 February 2012. 8. Mr Lee was appointed on 9 August 2010. His employment terminated on 2 February 2012. 9. Dr Adam was appointed as, and Mr Denver resigned as,a non-executive director on 13 September 2010,

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Key management personnel - details of options granted, vested, exercised and forfeited during the year ended 30 June 2012The options are granted for nil consideration. Each option entitles the holder to subscribe for one fully paid ordinary share in the company at an exercise price determined on the date of grant. The contractual life of each option granted is typically ten years. No option holder has any right under the option to participate in any other issues of shares of the company or any other entity without first having exercised the options.

During the year there were no alterations to the terms and conditions of options granted as remuneration that impact on the fair value of the option.

The assessed fair value of options at their grant date is allocated equally over the period from grant date to their vesting date, and is the amount included in the remuneration tables above.

During the financial year ended 30 June 2012, no options were granted, no options were exercised and there were no changes to the status of options issued to directors. Details of other changes are noted below:

Optionsgrantedduring

the year

Optionsvested

during the year

Vestingdate

Optionsforfeited during

the year

Value at date of forfeit

(4)$

Executives Gerard Wallace - 199,999 31 Dec 2012 366,668 (1) - Amanda Wong - 166,667 31 Dec 2012 500,000 (2) 2,850 Roman Greifeneder - 166,667 31 Dec 2012 500,000 (3) 4,250 Brian Lee - 166,667 31 Dec 2012 500,000 (3) 4,500

1. Non-vested options forfeited on cessation of employment contract on 30 June 2012. 2. Vested and non-vested options forfeited on termination of employment on 22 February 2012. 3. Vested and non-vested options forfeited on termination of employment on 2 February 2012. 4. The value at forfeit date of options that were granted as part of remuneration. The value has been

determined assuming all vesting conditions had been met at forfeit date.

Signed in accordance with a resolution of the directors

Denis Hanley Executive Chairman and Chief Executive Officer

Sydney, 27 September 2012 For

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Corporate Governance Statement The principal features of CathRx’s corporate governance regime are summarized in this section, following the primary headings used in the recommendations issued by ASX Limited’s Corporate Governance Council (“ASX Governance Principles”).

Further details on corporate governance matters are available on CathRx’s website www.cathrx.com and elsewhere in this annual report.

Principle 1 – Lay solid foundations for management and oversight

The board’s responsibilities include: overall responsibility for oversight of the company and its corporate governance, including control and accountability systems; reviewing and providing input into the company’s strategic direction and policies in conjunction with senior management; reviewing and approving performance objectives, business plans and budgets for the company; monitoring financial performance and reporting including approval of the annual and half-year financial statements and liaison with the company’s auditors; approving and monitoring major capital expenditures and acquisitions and divestments; reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance; appointing, removing and monitoring the performance of the chief executive officer, chief financial officer and company secretary; determining remuneration policies applicable to the board and senior management; monitoring the performance of senior management and the implementation of strategy; and ensuring board committees are appropriately constituted and performing their functions.

The chief executive officer and senior management responsibilities include: developing corporate strategy, performance objectives, business plans and budgets for review by the board; developing and implementing appropriate policies and procedures for the management of the company; and day to day management of the company’s affairs and the implementation of corporate strategies and policy initiatives.

The board regularly reviews the respective roles and the allocation of responsibilities between the board and management as the company grows, and will update and/or affirm the allocation of roles and responsibilities described above.

The performance of senior management is reviewed regularly against both measurable and qualitative performance indicators. The performance criteria against which senior management are assessed are aligned with the financial and non-financial objectives of the company which are reviewed and approved annually by the Remuneration and Nomination Committee. In or about November each year, the Remuneration and Nomination Committee conducts performance evaluations of the chief executive officer’s performance against specific and measurable qualitative and quantitative performance criteria. The Remuneration and Nomination Committee also reviews and evaluates the other member of senior management based on recommendations put forward by the chief executive officer.

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http://www.cathrx.com


Principle 2 – Structure the board to add value

The board currently consists of 2 non-executive directors and one executive director, Mr Denis Hanley, who is the executive chairman and chief executive officer.

The revised ASX Governance Principles include guidelines for determination of whether a director should be considered independent for purpose of the ASX Listing Rules. Under these guidelines Dr Jane Wilson is regarded as an independent director of the company. Mr Denis Hanley is not an independent director because he is a director and a securityholder of PFM Cornerstone Limited which holds a substantial interest in the company and, since 2 February 2012, has served as chief executive officer of the company. Dr Colin Adam is not regarded as an independent director for the purposes of the ASX Governance Principles, because he is both a director and securityholder of PFM Cornerstone Limited which holds a substantial interest in the company. Although the company does not consider the substantial interest held by PFM Cornerstone Limited would interfere with the ability of Dr Adam to exercise independent judgment in carrying out his responsibilities as a director and therefore considers him to be independent, for the purposes of the ASX Governance Principles, he may not be regarded as an independent director of the company. As a result, the company does not comply with the recommendations that the board have a majority of independent directors, that the chairman of the company be an independent director, and since 2 February 2012, that the roles of the chairman and chief executive officer not be exercised by the same person.

The names, skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report is included in the Directors’ Report. The board regularly considers the composition and performance of the directors and the committees of the board to ensure that they maximise their effectiveness and contribution to the company. The company considers that its current board membership is appropriate given the company’s current stage of development. The board will undertake a review of its performance, composition and the mix of skills of its members to ensure that they are appropriate to allow the board to maximise its effectiveness and its contribution to the company after the planned capital raising referred to in the directors’ report and will likely appoint additional directors at that time.

The board has established a Remuneration and Nomination Committee which operates under a Remuneration and Nomination Committee charter approved by the board. The charter is available on the company’s website. The composition of the Remuneration and Nomination Committee at the date of this report is included in the Director’s Report.

The composition of the Remuneration and Nomination Committee does not comply with the recommendations in the ASX Governance Principles that the Remuneration and Nomination Committee to have a majority of independent directors and that the chairman of the Remuneration and Nomination Committee be an independent director. The company considers that its current Remuneration and Nomination Committee membership is appropriate given the company’s current stage of development. The board will undertake a review of the composition of the Remuneration and Nomination Committee after the planned capital raising referred to in the directors’ report. For a full discussion of the company’s remuneration philosophy and framework for the year ended 30 June 2012, please refer to the Remuneration Report.

The board has an agreed procedure for directors and board committees to obtain independent professional advice at the company’s expense. Additionally, all directors have access to the company secretary at any time.

The company has not yet determined the mix of diversity that the company is seeking to achieve but will do so in the context of implementing a diversity policy. F

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Principle 3 – Promote ethical and responsible decision making

The company has adopted a Code of Conduct applicable to directors, senior managers and other employees. The company has also adopted a Securities Trading Policy. Both the code of conduct and the securities trading policy are available on the company’s website.

The company is aware of the importance of implementing, maintaining and notifying the market of any policy and any associated measurable objectives governing the diversity of its workforce. The company notes that, whilst diversity relating to gender, age, ethnicity, culture or background, skill, experience and perspective are factors considered in the nomination process, the company does not at present have a formal policy relating to diversity. The company intends to develop a diversity policy and conduct a review of gender diversity within the company in consultation with the Remuneration and Nomination Committee. The Remuneration and Nomination Committee will annually report to the board the relative proportion of women and men in the workforce at all levels within the company and the Remuneration and Nomination Committee charter will be updated to reflect this requirement. The company has not yet determined the mix of diversity that the company is seeking to achieve but will do so in the context of implementing a diversity policy. Currently women represent 20% of the overall employee’s in the workforce, none of whom are senior executives. In addition 33% of the board members are women.

Principle 4 – Safeguard integrity in financial statements

The board has established an Audit and Risk Management Committee, which operates under a charter approved by the board. The charter is available on the company’s website. The Audit and Risk Management Committee has been established to review the integrity of the company’s financial statements. The primary objective of the Audit and Risk Management Committee is to assist the board to fulfil its responsibilities relating to accounting and reporting practices of the company, including, the company’s annual and half-year financial statements and all other financial information released by the company.

The composition of the Audit and Risk Management Committee at the date of this report is included in the Directors’ Report.

Although the Chair of the Audit and Risk Management Committee is an independent director, its composition has not complied with the recommendation in the ASX Governance Principles that the Audit and Risk Management Committee has a majority of independent directors (since the death of Dr Hirshorn) and that it consist only of non-executive directors. The company considers that its current Remuneration and Nomination Committee membership is appropriate given the company’s current stage of development. The board will undertake a review of the composition of the Audit and Risk Management Committee after the planned capital raising referred to in the directors’ report.

The Audit and Risk Management Committee is responsible for recommending the appointment and reviewing the performance of the external auditors of the company. The lead audit partner will be required to rotate off the audit duties for the company after their involvement for a maximum of five years.

The board will regularly review the performance and composition of the Audit and Risk Management Committee.

Principle 5 – Make timely and balanced disclosure

The company has adopted a Continuous Disclosure and Shareholder Communication Policy which is available on the company’s website. The policy describes the processes implemented by the company to assist the company in complying with its continuous disclosure obligations under the Corporations Act and ASX Listing Rules. Furthermore, the board has established a disclosure committee to assist the company in complying with its disclosure obligations. The disclosure committee comprises of the chairman of the board, the chief executive officer and the company secretary.

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Principle 6 – Respect the rights of shareholders

The company has adopted the Continuous Disclosure and Shareholder Communication Policy referred to above. The company also provides shareholders with audio and written investor updates and utilises its website to disclose relevant information about the company. The company requires that the auditors of the company attend the company’s annual general meeting and respond to questions that shareholders may have. Shareholders are encouraged to attend and ask questions at general meetings of the company.

Principle 7 – Recognise and manage risk

The Audit and Risk Management Committee provides guidance on the structure and operation of risk management processes and is responsible for reviewing the company’s internal controls and management of financial risk. The Audit and Risk Management charter is available on the company’s website.

The board is responsible for reviewing the company’s general management of risk and reviews the effectiveness of the company’s risk management systems. Management, through the chief executive officer, is responsible for designing, implementing and reporting on the adequacy of the company’s risk management and internal control system. Management have adopted policies and procedures to ensure that the company’s material business risks are identified and that controls are adequate, in place, and functioning effectively.

The company’s risk management matrixes are updated with comprehensive reviews each time there is a material change to the company’s business and at other scheduled times each year. Strategic and operational risks are reviewed at least annually by all operating divisions as part of the company’s annual strategic planning, business planning, forecasting and budgeting process. To assist the board and Audit and Risk Management Committee to monitor and manage the company’s material business risks and mitigation processes, management provides regular reports in respect of operations and the financial position of the company to the board.

The chief executive officer and any person who performs a chief financial officer function must provide a statement to the board that the integrity of the company’s financial statements is founded on a sound system of risk management and internal compliance.

Principle 8 – Remunerate fairly and responsibly

The board has established a Remuneration and Nomination Committee, which operates under a charter approved by the board. For information in relation to the composition and structure of the Remuneration and Nomination Committee and the extent to which it complies with the ASX Governance Principles, please refer to Principle 2 -- Structure the Board to add value. For a full discussion of the company’s remuneration philosophy and framework and the remuneration received by directors and key management, please refer to the Remuneration Report.

Executives of the company are remunerated by way of fixed salary, variable bonus payments and equity. Non-executive directors are paid by way of fixed fee and are not entitled to bonus payments. Non-executive directors may be granted options upon their appointment. Any such grant of options is subject to approval of shareholders of the company in accordance with the requirements of the ASX Listing Rules. The company does not operate any schemes for retirement benefits, other than statutory superannuation for non-executive directors. F

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Statement of Comprehensive Income or LossFOR THE YEAR ENDED 30 JUNE 2012

Year ended Year ended Notes 30 June 2012 30 June 2011

$ $ Continuing Operations

RevenueSale of goods 20,616 24,622Other revenue 5 244,897 466,888

265,513 491,510

Other income 5 2,236,325 286,218 ExpensesCost of sales (23,482) (19,569)Research and development (7,094,067) (6,516,001)Sales and marketing (521,679) (710,424)Administration costs (3,540,550) (2,474,154)Finance costs (10,252) (5,558) 5 (11,190,030) (9,725,706)

Loss before income tax expense (8,688,192) (8,947,978)Income tax expense /(credit) 6 - - Loss from continuing operations after income tax (8,688,192) (8,947,978)

Other comprehensive income, net of tax - -Total comprehensive loss (8,688,192) (8,947,978)

Loss per share (cents per share) -Basic 7 (5.6) cents (6.2) cents-Diluted 7 (5.6) cents (6.2) cents

The above Statement of Comprehensive Income or Loss should be read in conjunction with the accompanying notes.

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Statement of Financial Position AS AT 30 JUNE 2012

As at As at Notes 30 June 2012 30 June 2011

$ $ ASSETS Current assets Cash and cash equivalents 8 471,312 4,758,761 Trade and other receivables 9 2,280,348 180,484 Inventories 10 - 982,235Other current assets 11 9,852 110,388 Total current assets 2,761,512 6,031,868

Non-current assets Property, plant and equipment 12 716,680 2,778,243 Intangible assets 13 21,578 618,739 Other non-current assets 14 412,087 412,077 Total non-current assets 1,150,345 3,809,059 TOTAL ASSETS 3,911,857 9,840,927

LIABILITIES Current liabilities Trade and other payables 15 362,285 724,200Interest bearing liabilities 16 7,742 6,805 Provisions 17 272,635 149,000Other liabilities 18 44,604 47,382Total current liabilities 687,266 927,387

Non-current liabilities Interest bearing liabilities 16 2,699 10,441Provisions 17 1,371,140 253,519Other liabilities 18 403,626 448,229Total non-current liabilities 1,777,465 712,189TOTAL LIABILITIES 2,464,731 1,639,576 NET ASSETS 1,447,126 8,201,351

EQUITYContributed equity 19 61,361,456 59,429,233 Other reserves 20 2,370,734 2,368,990 Accumulated losses 20 (62,285,064) (53,596,872)TOTAL EQUITY 1,447,126 8,201,351

The above Statement of Financial Position should be read in conjunction with the accompanying notes.F

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Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2012

Year ended Year ended Notes 30 June 2012 30 June 2011

$ $ Cash flows from operating activities Receipts from customers 29,775 177,819 Payments to suppliers and employees (inclusive of GST) (6,502,480) (7,649,665)Receipt of government grants - 286,218 Receipt of other income (inclusive of GST) 124,755 32,139 Interest received 146,159 441,359 Net cash outflow from operating activities 8 (6,201,791) (6,712,130)

Cash flows from investing activities Purchase of property, plant and equipment (65,143) (164,561)Addition to security deposit (10) -Proceeds from the sale of property, plant and equipment 54,077 -Purchase of intangibles - (8,850)Net cash outflow from investing activities (11,076) (173,411)

Cash flows from financing activities Payment of finance lease liabilities (6,805) (19,954)Proceeds from issue of shares 19 2,046,883 169,840Share issue costs 19 (114,660) -Proceeds from exercise of options 19 - 48,271 Net cash inflow from financing activities 1,925,418 198,157

Net increase/(decrease) in cash and cash equivalents (4,287,449) (6,687,384) Cash and cash equivalents at beginning of year 4,758,761 11,446,145 Cash and cash equivalents at end of year 8 471,312 4,758,761

The above Statement of Cash Flows should be read in conjunction with the accompanying notes.

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Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2012

ContributedEquity

AccumulatedLosses

OtherReserves Total

$ $ $ $ At 1 July 2010 59,211,122 (44,648,894) 2,092,590 16,654,818Loss for the year/ Total comprehensive loss for the year - (8,947,978) - (8,947,978)Transactions with owners in their capacity as owners: Employee share options - - 276,400 276,400 Proceeds from issue of shares 169,840 - - 169,840 Costs of share issue - - - - Proceeds from exercise of options 48,271 - - 48,271At 30 June 2011 59,429,233 (53,596,872) 2,368,990 8,201,351

At 1 July 2011 59,429,233 (53,596,872) 2,368,990 8,201,351Loss for the year/ Total comprehensive loss for the year - (8,688,192) - (8,688,192)Transactions with owners in their capacity as owners: Employee share options - - 1,744 1,744 Proceeds from issue of shares 2,046,883 - - 2,046,883 Costs of share issue (114,660) - - (114,660) Proceeds from exercise of options - - - -At 30 June 2012 61,361,456 (62,285,064) 2,370,734 1,447,126

The above Statement 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 30 JUNE 2012

1. CORPORATE INFORMATION

The financial statements of CathRx Ltd (the company) for the year ended 30 June 2012 were authorised for issue in accordance with a resolution of the directors of the company on 27 September 2012. The company is a public company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange.

The company is involved in the research, development and commercialisation of innovative cardiac catheter devices for use in the diagnosis and treatment of cardiac arrhythmias.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation The financial statements are general purpose financial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board

For the purpose of preparing the financial statements the company is a for –profit entity.

The financial statements have been prepared using the historical cost convention.

Going concern The company’s financial statements have been prepared and presented on a basis assuming it continues as a going concern.

During the financial year, the company continued to incur losses and net cash outflows from operating activities. As a consequence, at 30 June 2012 the company had only $1,447,126.of equity. At that date its cash and cash equivalents were only $471,312 although subsequent to year end it has received a loan of $1,000,000 ($989,329 net of cost) (refer Note 25) and $2,236,325 of refundable research and development tax offset. The company’s cash resources approximate $2,900,000 at the date of this report.

However additional funds are required to enable the company to execute its business plan and to continue as a going concern. Accordingly, the company anticipates obtaining new funding in the region of $5,000,000 through an underwritten capital raising and is in negotiations with a potential underwriter. Although the directors have reasonable expectations that the company will be successful in raising the equity required, the uncertainties associated with this process cast significant uncertainty on the company's ability to continue as a going concern for a period of at least twelve months from the date of the signing of these financial statements.

In the event that the company’s is unsuccessful in its fundraising efforts, the directors would need to re-evaluate the company’s business plan and whether the company will be able to continue as a going concern. If it is not, the company may have to realise its assets and extinguish its liabilities other than in the normal course of business. No adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or the amounts and classification of liabilities that might be necessary should the company not continue as a going concern.

Changes to presentationIn the current year it was decided to re-classify the straight lining of property lease accrual and the deferred lease incentive as other liabilities and, to the extent that these will not impact the results of the next financial year, classify them as non-current. Previously these amounts had been included in trade and other payables. This change was made to better reflect the nature of these balances. The comparative information has been reclassified accordingly. These accounts are disclosed in Note 18.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

(a) Basis of preparation (cont’d) New and amended standards adopted by the company None of the new standards and amendments to standards that are mandatory for the first time for the financial year beginning on 1 July 2011 affected any of the amounts recognised in the current period or any prior period nor are they likely to affect future periods. In the financial year commencing on 1 July 2011 the company has not elected to apply any pronouncements before their operative date.

Certain Australian Accounting Standards and interpretations have recently been issued or amended but not yet effective and have not been adopted by the company for the reporting period. When adopted, these are not expected to have a material impact on the company’s financial statements.

Changes since filing of the company’s preliminary final report (Appendix 4E) Since filing its preliminary final report with the ASX, the company has become aware that prevailing accounting interpretations require the classification of refundable research and development tax offsets as income from grants. This income is included in the measurement of loss before income tax. In the preliminary final report the company included the tax offset as an income tax credit. On adopting this new presentation in the annual accounts, the previously reported pre-tax loss decreases from $10,924,517 to $8,688,192, the tax credit is eliminated and the profit after tax remains unchanged.

(b) Foreign currency Both the functional and presentation currency of the company is Australian dollars (A$).

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

Exchange gains and losses are recognised in profit and loss in the period in which they arise.

(c) Impairment of non-financial assetsNon-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Where an indicator of impairment exists, the company makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other cash generating units. Non-financial assets other than goodwill that suffered impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.

(d) Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the Statement of Comprehensive Income or Loss on a straight-line basis over the lease term.

Operating lease incentives received are deferred and included as other liabilities. These are recognised in the Statement of Comprehensive Income as an integral part of the total lease expense on a straight-line basis over the lease term.

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(d) Leased (cont’d) Leases where the lessee substantially obtains all the risks and benefits incidental to ownership of the leased item are classified as finance leases. At inception of the lease, the fair value of the asset is capitalised and the corresponding rental obligations, net of finance charges, are included as current and non-current interest bearing liabilities (depending on whether amounts are required to be paid within twelve months from the balance date, or later). Lease payments are apportioned between the finance charges and reduction of the lease liability. Finance charges are recognised as an expense in profit or loss.

(e) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Sale of goods Revenue from the sale of goods is recognised when there is persuasive evidence, indicating that there has been a transfer of risks and rewards to the customer, no further work or processing is required, the quantity and quality of the goods has been determined, the price is fixed and generally title has passed which is usually at time of dispatch from the company or free on board for certain sales.

Interest income Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.

Property sub-lease rental income Rent from sub-leases is recognised on a straight-line basis over the life of the sub-lease.

(f) Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Grants relating to costs are deferred and recognised in the profit and loss over the period necessary to match them with the costs that they are intended to compensate. Refundable research and development tax offsets are classified as grant income as this tax incentive is a form of government assistance to the company.

(g) Employee benefits Liabilities for employee benefits (including wages and salaries, annual leave and long service leave) accumulated as a result of employees rendering services up to the reporting date that are expected to be settled in the next twelve months are included in trade and other payables. These liabilities are measured at their nominal amounts.

Liabilities for employee benefits, specifically long service leave, expected to be settled later than twelve months from the reporting date are measured at the present value of estimated future cash flows to be made for those benefits. These liabilities are included in non-current provisions.

The company provides retirement benefits to employees (and directors and certain consultants) of the company by way of contributions to defined contributions superannuation funds. These contributions are accrued and expensed in line with wages paid.

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(g) Employee benefits (cont’d)Share based compensation benefits are provided to employees via the CathRx Employee Option Plan. This plan is described in Note 24. The fair value of options granted under the plan is recognised as a component of employee benefits expense, with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting period”). Vesting conditions are solely related to period of service. The cumulative expense recognised at each reporting date until vesting date reflects the extent to which the vesting period has expired; and the best estimate opinion of the directors of the number of equity instruments that will ultimately vest. Accordingly, where options are forfeit before vesting, any expense recognised in relation to those options up to the date of forfeiture is reversed.

(h) Income taxIncome tax expense or credit for the period is the income tax payable on the current year’s profit or loss adjusted for changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The tax rates and tax laws used to compute the amount payable are those that are enacted or substantively enacted by the reporting date.

The benefits flowing from government’s taxation incentives for research and development are included as other income.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the Statement of Comprehensive Income or Loss.

(i) Cash and cash equivalentsCash and short-term deposits in the Statement of Financial Position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and short term deposits.

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(j) Trade and other receivables Trade receivables which generally have up to 60 day terms are recognised at fair value.

Other receivables, which generally have 30-90 days terms, are initially recognised at fair value.

Collectability of trade and other receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that the company will not be able to collect the debt.

(k) InventoriesInventories include raw materials and work in progress that are valued at the lower of cost or net realisable value.

Costs incurred in bringing each product to its present location and conditions are accounted for as follows:

Raw materialsPurchase cost is applied on a first-in, first-out basis. The cost of purchase comprises the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), transport, handling and other costs directly attributable to the acquisition of raw materials.

Finished goods and work in progressThese comprise the cost of direct materials and labour and a proportion of variable and fixed manufacturing overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

(l) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation expense is classified within research and development and general administration costs based on the nature and use of the asset being depreciated. Depreciation is provided on a straight-line basis to allocate their costs over their estimated useful lives, except for capitalised leased assets which are depreciated over the shorter of the estimated useful life of the asset or the lease term.

Major useful lives are: Plant and equipment 1 to 10 years Leasehold improvements lease term Leased office equipment 4 years

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

(m) Intangibles, including research and development expenditure Intangible assets acquired separately are initially measured at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred.

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(m) Intangibles, including research and development expenditure (cont’d)The company’s intangible assets are all assessed to have finite lives. (patents: 10 years; software: 5 years) These assets are amortised on a straight life basis over these periods which represent their estimated useful lives. The amortisation expense on intangible assets is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

Research expenditure, including the purchase of consumable materials for use in research activities, is expensed as incurred. Development expenditure (relating to the design and testing of new products) is only capitalised as an intangible asset when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. To date the company’s development expenditures have not meet these criteria and so are recognised as an expense as incurred. (n) ProvisionsA provision is recognised in the Statement of Financial Position 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 obligation the.

Where the effect of the time value of money is material provisions are measured at the present values of managements best estimate of the expenditures expected to be required to settle the obligation at the end of the financial period. The discount rate applied is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Increases in the provision due to the passage of time are recognised as interest expense.

(o) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(p) Significant accounting judgements, estimates and assumptionsIn applying the accounting policies of the company, management continually evaluates judgements, estimates and assumptions based on experience and other factors. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgement, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below:

Impairment of non-financial assets At each reporting date, an assessment is made as to whether there is any indication that an asset may be impaired. These include product and manufacturing performance, technology, economic and political environments and future product expectations. Where an indicator of impairment exists, the a formal estimate is made of the asset’s recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Impairment charges, totalling $1,826,195, were made against property plant and equipment (Note 12) and intangibles (Note 13) in the current year. The recoverable amounts of these assets are determined by reference to estimated scrapping or sale proceeds. The estimated proceeds are approximately $59,000. Variations from this estimate will impact the amount of impairment.

Make good provisions A provision has been made for the anticipated costs of future restoration of leased manufacturing premises. The provision includes future cost estimates associated with demolishing production offices, inventory and receiving areas. The provision is periodically reviewed and updated based on the facts and circumstances available at the time At 30 June 2012 the amount provided is $200,000.

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(p) Significant accounting judgements, estimates and assumptions (cont’d)Onerous contract provisions A provision has been made for the estimated expense of having excess and unutilised space under the company’s lease of its premises. In making this estimate, an allowance has been made for potential recoveries from sub-leases of the excess space over the five and a half years remaining on the lease. However not all excess space is yet sub-leased and existing sub-leases are short term in nature. The estimates of sub-lease income have been based on rates offered by potential sub-lessors. If the actual sub-lease rental income achieved over the remaining lease term were to increase by 10% over the estimates, the provision would be overstated by $110,740. If the actual sub-lease rental income achieved over the remaining lease term were to decrease by 10% compared to the estimates, the provision would be understated by $110,740. Information regarding the company’s lease commitments is set out in Note 23.

Income tax asset - refundable research and development tax offset In the current financial year there have been changes in the laws applicable in determining the tax incentives for research and development. The amount of refundable research and development tax offset has been estimated applying the company’s understanding of the relevant laws. Independent experts have been engaged to advise on the determination of the amount of expenditure eligible for the tax offset. The company’s income tax return for the year has been lodged and a refund of $2,236,325 flowing from this refundable offset has been received subsequent to balance date. However, the Australian Taxation Office has the right to, and may choose to, audit or otherwise examine the company’s tax return and the amount of the offset may be subject to change as a consequence.

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The company’s principal financial instruments comprise receivables, payables, finance leases, cash and short term deposits. The company manages its exposure to key financial risks, including interest rate and currency risk in accordance with the company’s treasury policy. The objective of the policy is to support the delivery of the company’s financial targets whilst protecting future financial security.

The primary responsibility for identification and control of financial risks rests with the Audit and Risk Management Committee under the authority of the board. The board reviews and agrees policies for managing each of the risks identified below, including interest rate risk and future cash flow forecast projections.

The company may enter into derivative transactions (foreign exchange contracts) to manage material foreign currency exposures associated with its operations. No such contracts were entered into in the current financial year

The main risks arising from the company’s financial instruments are interest rate risk, foreign currency risk and liquidity risk.

Risk exposures and response - Interest rate risk The company’s exposure to market interest rates primarily involves the company’s cash and term deposits. At balance date, the company had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk:

2012 2011 $ $

Financial Assets Cash and cash equivalents 417,312 4,758,761 Other assets 412,087 412,077

829,399 5,170,838

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3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)

Risk exposures and response - Interest rate risk (cont’d) The company constantly analyses its interest rate exposure. Consideration is given to variable interest rates by making the most effective use of funds in the highest possible interest rate but at the lowest risk.

Based on the interest rate risk exposures in existence at the reporting date, if interest rates had moved by +/-1%, with all other variables held constant, post-tax loss would have decreased/increased by $8,294 (2010: at +/- 1%, $51,708).

Risk exposures and response - Foreign currency risk The company has transactional currency exposures. Such exposure principally arises from purchases in currencies other than the functional currency. Significant firm commitments may be covered by foreign exchange contracts, other exposures are minimised by ensuring prompt settlement.

At 30 June 2012, the company had the following exposure to foreign currency: 2012 2011

$ $ Financial Assets Trade and other receivables 6,179 88,576

Financial Liabilities Trade and other payables 20,514 99,201

At 30 June 2012 and 30 June 2011 had the Australian Dollar moved by +/- 10% against the underlying currencies (principally the Euro) there would be no material impact on profits.

Risk exposures and response - Liquidity risk The company’s objective is to maintain a balance between continuity of funding for meeting its operating costs and maximising financing revenue through at call bank deposits in line with budget requirements. The company’s policy is to minimise its forward commitments in achieving this objective.

All liquid assets are represented by cash and cash equivalents, other current assets and other receivables. All liquid liabilities contractual maturities are represented by trade and other payables.

The contractual maturity amounts are the current carrying value. The company monitors its liquidity by reviewing a 12 month rolling forecast in conjunction with its overall strategy.

The contractual maturities of financial liabilities are:

Less than 6 months

Between 6-12 months

Between 1-2 years

Totalcontractualcash flows

Totalbalance

sheetamount

$ $ $ $ $ Financial Liabilities Trade and other payables 362,285 - - 362,285 362,285Finance leases 4,321 4,321 2,921 11,563 10,441 366,606 4,321 2,921 373,848 372,726

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3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)

Risk exposures and response - Credit risk Credit risk arises from holdings of cash and cash equivalents and deposits with banks and from trade and other receivables. The company constantly monitors its assets to minimise risk of default. For banks and financial institutions, this risk is managed by placing deposits only with institutions with high credit ratings and/or placing the funds with more than one financial institution. Distributors who wish to trade on credit terms are subject to credit verification procedures. The other receivables balances relate to amounts due from the Australian Taxation Office and an advance to an employee.

4 SEGMENT INFORMATION

The company researches, develops and commercialises innovative catheter devices. Its activities are based in New South Wales, Australia.

Based upon the internal reports that are reviewed and used by the chief executive officer (the chief operating decision maker) in assessing performance and in determining the allocation of resources, it has been determined that the company as a whole comprises a single reportable segment. Total segment revenue, net loss, assets and liabilities are the same as that disclosed in the financial statements.

For the financial year ended 30 June 2012, the two largest distributors account for 88% and 12% respectively of total external revenue. Sales revenue is attributed to geographic location as follows:

2012 2011 $ $

Europe 2,400 5,320UK 18,216 -Other foreign locations - 19,302

20,616 24,622

The company’s property, plant and equipment and intangible assets are located in: 2012 2011

$ $ Australia 513,411 3,396,982Malaysia 224,847 -

738,258 3,396,982

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5. REVENUES AND EXPENSES Notes 2012 2011

$ $ Loss before income tax includes the following:

Other revenue Interest income 140,867 437,979Property sub-lease rental income 104,030 28,909Total other revenue 244,897 466,888

Other income Refundable research and development tax offset 2,236,325 -Other government grant - 286,218

2,236,325 286,218

Employee benefits expense Wages and salaries including termination payments of $361,575 (2011: nil) 2,535,721 3,314,763Superannuation expense 198,707 263,803Payroll taxes 99,552 136,778Workers’ compensation costs 11,604 45,085 Share-based payments expense 20 1,744 276,400 Total employee benefits expense 2,847,328 4,036,829

Depreciation & amortisation expense Plant and equipment 538,644 846,538 Leasehold improvements 111,088 203,847Leased office equipment 8,007 8,007 Patents 22,500 45,000 Capitalised software 157,963 156,902 Total depreciation and amortisation expense 838,202 1,260,294

Impairment of non-current assets Plant and equipment 12 50,000 -Leasehold improvements 12 1,359,497 -Patents 13 262,729 -Capitalised software 13 153,969 -Total impairment expense 1,826,195 -

Net loss on disposalDisposal of property plant and equipment 5,393 -

Operating lease - rental expense Minimum lease payments recognised as an expense 629,068 629,068Amortisation of deferred lease incentive (20,242) (20,243)Landlord's outgoings payable under the lease 115,343 172,620Total operating lease rental expense 724,169 781,445(Rent received from subleases is included in other revenue)

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5. REVENUES AND EXPENSES (cont'd)Notes 2012 2011

$ $ Finance costs Finance charges payable under finance lease 1,837 2,960Financing of insurance premiums 8,415 2,898Total finance costs 10,252 5,858

Exchange (gain)/loss Foreign exchange (gain)/ loss (2,394) (65,424)

Onerous contract Amount set aside to provision for onerous contract 17 1,294,775 - Inventory write-down Discontinued product written off 10 752,192 315,920

6. INCOME TAX2012 2011

$ $ Income tax expense /(credit) Current income taxes - -Deferred income taxes - -

- -

Numerical reconciliation of the prima facie credit arising on the loss for the year to the income tax credit Accounting loss before income tax (8,688,192) (8,947,978)Income tax credit at the company’s statutory tax rate of 30% (2,606,458) (2,684,394)Decrease in tax credit due to: Research and development expenditure not deductable 1,490,883 - Research and development tax offset not assessable (670,897) - Tax incentives for research and development - (270,000) Share option expense 524 82,920 Non-deductible expenses 75,677 106,868 Other - 11,920

(1,710,271) (2,752,686)Adjustment in respect of taxes of prior years (166,773) (230,314)

(1,877,044) (2,983,000)Increase in deferred tax assets not brought to account 1,877,044 2,983,000Income tax credit - -

.

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6. INCOME TAX (cont'd)2012 2011

$ $Deferred tax assets relate to the following : The benefit, at the tax rate of 30% , of: Income tax losses of $59,274,668 (2011:$56,140,027) 17,782,400 16,842,008 Other temporary differences 1,724,580 753,528

19,506,980 17,595,536Amount not brought to account through profit and loss (18,838,869) (16,961,825)Amount not brought to account through equity (668,111) (633,711)

- -

Franking creditsFranking credits available to frank dividends in future periods - -

7. LOSS PER SHARE

The following reflects the income and share data used in both the basic and diluted loss per share computations:

2012 2011 $ $

Net loss attributable to ordinary equity holders (8,688,192) (8,947,978)

2012 2011 No. No.

Weighted average number of ordinary shares 155,718,832 143,246,836

Share options totalling 2,708,322 (2011: 5,611,700) are not included in the weighted average number of ordinary shares in determining the diluted loss per share as they are antidilutive. These options could potentially dilute basic earnings per share in the future.

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8. CASH AND CASH EQUIVALENTS2012 2011

$ $ Cash at bank and in hand 178,925 363,917 Short-term deposits 292,387 4,394,844

471,312 4,758,761

Cash at bank earns interest at floating rates based on daily bank deposit rates.

Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the company, and earn interest at short-term deposit rates. At 30 June 2012 the interest rate being earned on the term deposit was 4.55%. (2011: 4.60%)

Reconciliation of net profit after tax to net cash flows from operations2012 2011

$ $ Net loss (8,688,192) (8,947,978)Items of income and expense not resulting from cash flows: Depreciation and amortisation 838,202 1,260,295 Impairment of non-current assets 1,826,195 - Loss on sale of assets 5,393 - Share based payments expense 1,744 276,400Changes in operating assets and liabilities: (Increase)/ decrease in refundable research and development

tax offset (2,236,325) - (Increase)/decrease in trade and other receivables 136,461 136,780 (Increase)/decrease in inventory 982,235 351,969 (Increase)/decrease in other operating assets 100,536 134,841 Increase/(decrease) in trade and other payables (409,296) 52,596 Increase/(decrease) in provisions 1,241,256 22,967Net cash outflow from operating activities (6,201,791) (6,712,130)

Non-cash financing and investing activities Acquisition of assets by means of finance leases - 9,300

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9. TRADE AND OTHER RECEIVABLES2012 2011

$ $ Trade receivables - 92,576 Refundable research and development tax offset 2,236,325 -Goods and services tax 37,844 78,002 Other 6,179 9,906

2,280,348 180,484

Impairment and Fair Value During the year trade receivables amounting to $83,417 (2011:$ nil) were fully impaired and written off as irrecoverable. The amounts included in trade and other receivables at year end are all expected to be received in full within six months of the year end. Receivables past due date but not considered impaired are $ nil (2011: $92,268). Due to the short term nature of these receivables, their carrying value approximates the fair value.

Aging analysis At 30 June 2012, the aging analysis of trade receivables is as follows:

0-30 31-60 61-90 90+ Total days days days days

$ $ $ $ $ 2012 - - - - -2011 92,576 2,100 1,900 6,214 82,362

10. CURRENT ASSETS – INVENTORIES 2012 2011

$ $ Raw materials - 829,271Work in progress - 8,147 Finished goods - 144,817

- 982,235

Inventories amounting to $752,192 were written off during the financial year as a consequence of the company discontinuing the manufacture and marketing of single use catheters. In 2011, $315,920 was written off. Following the decision to outsource manufacturing, inventories amounting to $105,881 were reclassified as research and development consumables for use in new product development and were immediately expensed in accordance with the company’s accounting policy on research and development costs. In the Statement of Comprehensive Income or Loss these amounts are included in “Research and development”.

11. OTHER CURRENT ASSETS2012 2011

$ $ Prepayments 5,153 100,397Interest accrued 4,699 9,991

9,852 110,388

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12 PROPERTY, PLANT AND EQUIPMENT

Plant and equipment

Officeequipmentunder lease

Leaseholdimprovements Total

$ $ $ $ At 1 July 2010

Cost 4,860,477 32,027 2,718,830 7,611,334Accumulated depreciation and impairment (2,850,945) (12,376) (1,075,939) (3,939,260)Net book amount 2,009,532 19,651 1,642,891 3,672,074

Year ended 30 June 2011 Opening net book amount 2,009,532 19,651 1,642,891 3,672,074Additions 164,561 - - 164,561Depreciation charge for the year (846,538) (8,007) (203,847) (1,058,392)Closing net book amount 1,327,555 11,644 1,439,044 2,778,243

At 30 June 2011 Cost 5,025,038 32,027 2,718,830 7,775,895Accumulated depreciation and impairment (3,697,483) (20,383) (1,279,786) (4,997,652)Net book amount 1,327,555 11,644 1,439,044 2,778,243

Year ended 30 June 2012 Opening net book amount 1,327,555 11,644 1,439,044 2,778,243Additions 33,602 - 31,541 65,143Disposals (59,470) - - (59,470)Impairment (50,000) - (1,359,497) (1,409,497)Depreciation charge for the year (538,644) (8,007) (111,088) (657,739)Closing net book amount 713,043 3,637 - 716,680

At 30 June 2012 Cost 4,686,358 32,027 2,059,489 6,777,874Accumulated depreciation and impairment (3,973,315) (28,390) (2,059,489) (6,061,194)Net book amount 713,043 3,637 - 716,680

The impairment losses of $1,409,497 recognised in the current financial year have arisen from the company’s decision to outsource its manufacturing. The impairment charges are made to reduce the carrying amount of plant and leasehold improvements no longer required for the company’s operation to their estimated recoverable amounts. In the Statement of Comprehensive Income or Loss $117,544 of these losses is included in “Administration costs” and $1,291,953 is included in “Research and development”. There was no impairment loss recognised in the 30 June 2011 financial year.

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13. INTANGIBLE ASSETS

PatentsCapitalised

software Total $ $ $

At 1 July 2010 Cost 450,000 782,386 1,232,386Accumulated amortisation and impairment (119,771) (300,824) (420,595)Net book amount 330,229 481,562 811,791

Year ended 30 June 2011 Opening net book amount 330,229 481,562 811,791 Additions - 8,850 8,850 Amortisation (45,000) (156,902) (201,902)Closing net book amount 285,229 333,510 618,739

At 30 June 2011 Cost 450,000 791,236 1,241,236Accumulated amortisation and impairment (164,771) (457,726) (622,497)Net book amount 285,229 333,510 618,739

Year ended 30 June 2012 Opening net book amount 285,229 333,510 618,739Additions - - -Impairment (262,729) (153,969) (416,698)Amortisation (22,500) (157,963) (180,463)Closing net book amount - 21,578 21,578

At 30 June 2012 Cost 450,000 791.236 1,241,236 Accumulated amortisation and impairment (450,000) (769,658) (1,219,658)Net book amount - 21,578 21,578

The impairment loss on patents of $262,729 recognised in the current financial year has arisen from the company’s decision not to pursue the development of product to which the patents relate. In the statement of Comprehensive Income or Loss this amount is included in “Research and Development.” The impairment loss on software of $153,969 recognised in the current financial year has arisen from the company’s decision to migrate to a less complex information system following the downsizing of the company’s headcount. In the statement of Comprehensive Income or Loss this amount is included in “Administration costs.” There was no impairment loss recognised in the 30 June 2011 financial year. F

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14. OTHER NON-CURRENT ASSETS2012 2011

$ $ Security deposit for premises 412,087 412,077

412,087 412,077

This sum is held on deposit by the company’s bank as security for a rental guarantee (of the same amount) granted by the bank to the company’s landlord. Interest, on the deposit accrues to the company on a six monthly term. At 30 June 2012 the interest rate was 5.5%.

Fair ValueThe carrying value approximates the fair value.

15. TRADE AND OTHER PAYABLES2012 2011

$ $ CurrentTrade payables 125,669 176,574 Accrued expenses 150,176 226,254Other payables 26,012 100,300 Employee benefits 60,428 221,072

362,285 724,200

Terms and conditions and fair valueTrade and other payables are generally payable within 60 days. These amounts are non–interest bearing. Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

Interest rate, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in Note 3.

16. INTEREST BEARING LIABILITIES2012 2011

$ $ CurrentObligations under finance leases and hire purchase contracts - secured 7,742 6,805

Non-Current Obligations under finance leases and hire purchase contracts- secured 2,699 10,441

Fair values The carrying amounts of the company’s interest bearing obligations approximate their fair values.

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17. PROVISIONS2012 2011

$ $ Current Onerous contract 272,635 149,000

272,635 149,000

Non-CurrentOnerous contract 1,171,140 -Long service leave - 53,519Make good provision 200,000 200,000 1,371,140 253,519

Movements in provisionsMovements in each provision during the financial year are set out below:

Make goodOnerouscontract Total

$ $ $ Year ended 30 June 2012 At 1 July 2011 200,000 149,000 349,000Charged to profit or loss - 1,294,775 1,294,775At 30 June 2012 200,000 1,443,775 1,643,775

Make good In accordance with the lease agreement of is premises the company must restore the leased premises to its original condition at the end of the lease term in 2017. The company has provided $200,000 in respect of its obligation to remove leasehold improvements from the leased premises. This provision is based on internal estimates of costs likely to be incurred on exiting the premises.

Onerous contract The company is a party to a non-cancellable lease on its premises that extends until December 2017. Following the company’s decision to outsource manufacturing and the subsequent downsizing of the company’s headcount an assessment of the company’s current and future space needs has been completed. Excess leased space has been identified and some short term sub-leasing of part of that excess has occurred prior to 30 June 2012. Further space has been vacated by the company with a view to securing additional sub-tenants. This provision recognises the estimated present value of the cost to the company of leasing the excess space less the amounts that are anticipated as recoverable under sub-leases over the five and a half years remaining on the lease. Further information regarding the company’s lease commitments is set out in Note 23. Matters impacting the determination of this provision are discussed in Critical Accounting Estimates and Judgements in Note 2 (p).

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18. OTHER LIABILITIES2012 2011

$ $ Current Straight-lining of property lease accrual 24,361 27,139Deferred lease incentive 20,243 20,243

44,604 47,382

Non-Current Straight-lining of property lease accrual 312,533 336,894Deferred lease incentive 91,093 111,335

403,626 448,229

19. CONTRIBUTED EQUITY2012 2011

$ $ Ordinary shares Issued and fully paid 61,361,456 59,429,233

Fully paid ordinary shares carry one vote per share and carry the right to dividends and the proceeds of any winding up in proportion to the number of shares held.

Movement in ordinary shares on issue were as follows: Number $ At 1 July 2010 141,720,778 59,211,122Proceeds from issue of shares- placement July 2010 1,061,502 169,840Proceeds from exercise of options 497,640 48,271At 30 June 2011 143,279,920 59,429,233Proceeds from issue of shares – entitlement offer November 2011 20,468,825 2,046,883Equity raising transaction costs - (114,660)At 30 June 2012 163,748,745 61,361,456

Options Options over unissued shares are granted under the company’s Employee Option Plan. Details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year are set out in Note 24.

Capital management When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management are constantly monitoring the capital structure and raising capital as and when needed. The company is not subject to any externally imposed capital requirements.

Income tax impact of equity transactions The tax credit of $34,400 arising on the equity transaction costs in the current period has not been brought to account as no deferred tax assets are recognized at 30 June 2012.

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20. ACCUMULATED LOSSES AND RESERVES

Movements in accumulated losses were as follows:2012 2011

$ $ Opening balance (53,596,872) (44,648,894)Net loss for the year (8,688,192) (8,947,978)Closing balance (62,285,064) (53,596,872)

Movements in share-based payments reserve were as follows:2012 2011

$ $ Opening balance 2,368,990 2,092,590Share-based payments expense 1,744 276,400Closing balance 2,370,734 2,368,990

Nature and purpose of reserves --Share based payments reserve The reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to Note 24 for further details of the Employee Option Plan pursuant to which equity benefits are provided to employees and directors.

21. RELATED PARTY TRANSACTIONS

There are no related party transactions other those disclosed in Note 26, Key Management Personnel.

22. AUDITORS’ REMUNERATION

Amounts received or due and receivable by Ernst & Young (Australia), the auditor of the company, for:

2012 2011 $ $

An audit or review of the financial statements of the company 141,490 148,443

Other services in relation to the entity Tax compliance services 10,000 7,500 Other services - 6,060

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23. COMMITMENTS AND CONTINGENCIES

Operating lease commitments The company has entered into a lease agreement for the lease of its premises. The lease agreement has a remaining term of five years and six months (from the end of the financial year ended 30 June 2012). In addition to the minimum lease payments, outgoings of the landlord are payable.

The minimum lease payments are expensed on a straight line basis over the life of the lease which does not correspond to the pattern of their payment.

The future minimum commitments at 30 June 2012 are payable as follows: 2012 2011

$ $ Within one year 437,509 656,206 After one year but not more than five years 2,962,872 2,621,013More than five years 396,386 1,175,753

3,796,767 4,452,972

The above commitments are offset in part by minimum lease payments received under the sub leases of parts of the premises. At 30 June 2012 the minimum amount receivable on a sub-lease that terminates on 30 November 2012 is $42,656.

Finance lease commitments The company has entered into a finance lease arrangement of office equipment over a 5 years term. The future minimum commitments at 30 June 2012 are payable as follows:

Note 2012 2011 $ $

Within one year 8,642 8,642After one year but not more than five years 2,921 11,563Total minimum lease payments 11,563 20,205Less: Future finance charges (1,122) (2,959)Total finance lease liabilities 10,441 17,246

Representing lease liabilities:Current 16 7,742 6,805Non–current 16 2,699 10,441

10,441 17,246

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24. SHARE BASED PAYMENTS

Employee Option Plan The company adopted the Employee Option Plan in 2003 which was amended in 2005. Pursuant to the Employee Option Plan the company may, at the discretion of the board or a committee appointed by the board to administer the Employee Option Plan and grant options to purchase ordinary shares to directors, employees, advisors and consultants of the company. The options are issued for a term stated in the notice of grant of options for a period not exceeding 10 years from the date of the grant. The options cannot be transferred and will not be quoted on the Australian Securities Exchange. Vesting requirements are set out in the notice of grant of options and are determined at the discretion of the board or a committee appointed by the board. Employee options typically vest on 31 December each year, over 3 years, with the first tranche typically vesting in December of the year of grant and the second tranche and third tranche vesting in December of the second and third year after grant, respectively. The vesting of options granted in 2003 and 2004 accelerated on the closing of the initial public offering of the company’s ordinary shares in accordance with the terms of the Employee Option Plan so that those options are all fully vested. Other than for service conditions outlined above, no other vesting conditions apply to the options unvested at 30 June 2012 and 30 June 2011. The exercise price is based on the five day average of the share price up to the date of the grant. The following table illustrates the number and weighted average exercise prices (“WAEP”) of and movements in share options issued under the plan:

The following analysis of options outstanding by range of exercise prices is given in respect of the outstanding options at 30 June 2012:

Option exercise price range

Number of options

outstanding

Weighted average

exercise price ($)

Weighted remaining average

contractual life (years)

Between $0.15 and $0.40 1,308,332 0.16 8.14 Between $0.84 and $2.12 1,400,000 0.94 5.43 Total 2,708,332 0.56 6.74 Total at 30 June 2011 5,611,700 0.47 7.65

No employee options were exercised in the current financial year. On 23 July 2010, 497,640 new shares were issued upon exercise of employee share options and the payment of $0.097 per share. The closing share price of the company’s shares on 23 July 2010 was $0.20.

No options were granted during the year ended 30 June 2012. The weighted average fair value of options granted during the year ended 30 June 2011 was $0.12.

2012 2012 2011 2011 No. WAEP($) No. WAEP($)

Outstanding at the beginning of the year 5,611,700 0.47 5,554,350 0.62 Options granted during the year - - 2,320,000 0.18 Options exercised during the year - - (497,640) 0.10 Options forfeited during the year (2,903,368) 0.28 (1,765,010) 0.42 Outstanding at the end of the year 2,708,332 0.56 5,611,700 0.47 Of which vested and exercisable at end of the year 2,674,999 0.57 3,533,364 0.57

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24. SHARE BASED PAYMENTS (cont'd)

The fair value of the equity-settled share options granted under the option plan is estimated as at the date of grant using a binomial model taking into account the terms upon which the options were granted.The following table lists the inputs to the model used for the year ended 30 June 2011: Dividend yield (%) 0.00Expected volatility (%) 57.00Risk-free interest rate (%) 5.26Expected life of option (years) 6.0Option exercise price ($) 0.18

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.

During the year the exercise prices of the options were varied in accordance with the option plan (and as contemplated by the ASX Listing Rules) to reflect the impact of the share issue in November 2011. As a consequence the exercise price of each option on issue at that time was decreased by approximately $0.006. There was no significant change in the fair values of the options as a consequence of this change.

25. EVENTS OCCURRING AFTER THE BALANCE DATE

On 1 August 2012 the company received loan funding of $1,000,000 ($989,329 net of costs). This loan is secured over all of the company's assets by virtue of a Security Deed entered into between the parties to the loan. The loan has been advanced to the company for a term of three years, but may earlier be applied by the lender to subscribe for shares in a capital raising by the company (other than the raising discussed below) . Interest of 10% per annum accrues on the loan and is payable three years after the advance of the loan.

26. KEY MANAGEMENT PERSONNEL

The names of Key Management Personnel, together with detailed remuneration disclosures, can be found in the audited remuneration report on pages 10 to 14.

Compensation of Key Management Personnel2012 2011

$ $Short term benefits 989,898 1,283,507Post-employment benefits 94,626 127,804Long term benefits - 6,930Termination benefits 108,216 -Share-based payments (17,970) 257,857

1,174,770 1,676,098

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26. KEY MANAGEMENT PERSONNEL (cont.)

(b) Option holdings of Key Management Personnel as at 30 June 2012 Details of options provided as remuneration and shares issued upon the exercise of such options, together with terms and conditions of the options, can be found in the remuneration report on pages 11 to 15. The number of options over ordinary shares in the company held during the financial year by each director and other key management personnel of the company, including their personally related parties are set out below:

Exercise Opening Granted as of Options Closing Not Vested and

2012 Balance Remuneration Options Forfeit Balance Vested Exercisable Directors Denis Hanley 150,000 - - - 150,000 - 150,000 Jeffrey Goodman 1,050,000 - - 1,050,000 - 1,050,000 Jane Wilson 75,000 - - - 75,000 - 75,000 Colin Adam - - - - - - -Michael Hirshorn (1) - - - - - - -Total Directors 1,275,000 - - - 1,275,000 - 1,275,000 Executives Gerard Wallace (5) 1,600,000 - - (366,668) 1,233,332 - 1,233,332Amanda Wong (4) 500,000 - - (500,000) - - -Roman Greifeneder(4) 500,000 - - (500,000) - - -Brian Lee (4) 500,000 - - (500,000) - - -Total Executives 3,100,000 - - (1,866,668) 1,233,332 - 1,233,332

Total 2012 4,375,000 - - (1,866,668) 2,508,332 - 2,508,332 2011 Directors Denis Hanley 179,168 - - (29,168) 150,000 - 150,000 Jeffrey Goodman 50,000 1,000,000 - - 1,050,000 - 1,050,000 Jane Wilson 75,000 - - - 75,000 - 75,000 Colin Adam (2) - - - - - - -Michael Hirshorn (1) - - - - - - -Andy Denver (3) 104,168 - - (104,168) - - -Total Directors 408,336 1,000,000 - (133,336) 1,275,000 - 1,275,000 Executives Gerard Wallace 1,100,000 500,000 - - 1,600,000 566,667 1,033,333Amanda Wong 500,000 - - - 500,000 333,333 166,667 Roman Greifeneder 500,000 - - - 500,000 333,333 166,667 Brian Lee (4) - 500,000 - - 500,000 500,000 -Total Executives 2,100,000 1,000,000 - - 3,100,000 1,733,333 1,366,667

Total 2011 2,508,336 2,000,000 - (133,336) 4,375,000 1,733,333 2,641,667

(1) Dr Hirshorn ceased as a non-executive director on 18 November 2011. He was appointed on 13 September 2011 (2) Dr Adam was appointed as non-executive director on 13 September 2010. (3) Mr Denver resigned as a non-executive director on 13 September 2010. (4) Mr Lee was appointed on 9 August 2010. His employment terminated on 2 February 2012. Mr Greifeneder was

also terminated on that date, but subsequently was re-employed. Ms Wong’s employment terminated on 22 February 2012

(5) Mr Wallace’s employment contract ended on 30 June 2012 without being renewed. Only his unvested options were forfeit at that date. If not exercised beforehand, Mr Wallace’s vested options will forfeit on 30 Sep 2012.

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(c) Shareholdings of Key Management PersonnelThe number of ordinary shares in the company held during the financial year by each director and other key management personnel of the company, including their personally related parties are set out below. There were no shares granted during either year as compensation nor were any issued on the exercise of options.

2012 OpeningBalance Net change

ClosingBalance

Directors Denis Hanley (1) 9,033,806 1,379,196 10,413,002Jane Wilson 3,418,630 - 3,418,630Jeffrey Goodman (1) 1,175,255 167,894 1,343,149Colin Adam (1), 1,500,000 500,001 2,000,001Michael Hirshorn (3) 80,000 - 80,000Total Directors 15,207,691 2,047,091 17,254,782

Executives Gerard Wallace (4) 605,174 86,455 691,629Amanda Wong (5) 66,500 9,500 76,000Roman Greifeneder - - -Brian Lee (6) - - -Total Executives 671,674 95,955 767,629

Total 2012 15,879,365 2,143,046 18,022,4112011 Directors Denis Hanley (1) 8,383,806 650,000 9,033,806Jane Wilson 3,418,630 - 3,418,630Jeffrey Goodman (1) 925,000 250,255 1,175,255Colin Adam(1),(2) 1,360,000 140,000 1,500,000Michael Hirshorn (3) - 80,000 80,000Total Directors 14,087,436 1,120,255 15,207,691

Executives Gerard Wallace 605,174 - 605,174Amanda Wong 66,500 - 66,500Roman Greifeneder - - -Brian Lee (6) - - -Total Executives 671,674 - 671,674

Total 2011 14,759,110 1,120,255 15,879,365

(1) Mr Hanley, Mr Goodman and Dr Adam are directors of PFM Cornerstone Limited, a public company which holds 24,343,610 shares in the company.

(2) Dr Adam was appointed as non-executive director on 13 September 2010. (3) Dr Hirshorn was appointed as non-executive director on 13 September 2010 and ceased as a director

on 18 November 2011. (4) Mr Wallace’s employment contract ended on 30 June 2012 without being renewed. (5) Ms Wong’s employment terminated on 22 February 2012. (6) Mr Lee was appointed on 9 August 2010. His employment terminated on 2 February 2012.

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(c) Shareholdings of Key Management Personnel (cont.)All equity transactions with key management personnel other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the company would have adopted if dealing at arm’s length.

For further information in relation to directors and key management remuneration and equity holdings, refer to the Remuneration Report.

(d) Other transactions and balances with Key Management Personnel

PurchasesDuring the financial year there were no transactions with key management personnel other than as set out below.

Related Party Transactions Cameron Billingsley, the company secretary is associated with PFM Legal Pty Ltd which provides company secretarial, general counsel and administrative services to the company. In the financial year ended 30 June 2012 fees totalling $ $198,720 (exclusive of GST) (2011: $97,227) were incurred with PFM Legal Pty Ltd in connection with legal and administrative services provided to the company. At 30 June 2012 $52,331 (2011: $1,950) of the total fees was owing to PFM Legal Pty Limited. Cameron Billingsley holds 6,858 shares and 50,000 employee options over shares with an expiry date of 25 August 2015 as well as 10,000 options with an expiry date of 22 August 2017. Cameron Billingsley is also a potential beneficiary under a trust that holds 431,500 shares.

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Directors’ Declaration In accordance with a resolution of the directors of CathRx Ltd, I state that:

1. In the opinion of the directors:

(a) The financial statements, notes and the additional disclosures included in the directors’ report designated as audited, of the company are in accordance with the Corporations Act 2001, including:

(i) Giving a true and fair view of the company's financial position as at 30 June 2012and of its performance

(ii) Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.

(b) The financial statements and notes also comply with the International Financial Reporting Standards as disclosed in note 2.

(c) There are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ended 30 June 2012.

On behalf of the board

Denis Hanley Executive Chairman and Chief Executive Officer

Sydney, 27 September 2012

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Additional Shareholder InformationASX Additional Information Additional information required by the Listing Rules of the Australian Securities Exchange, and not shown elsewhere in this annual report is as follows. The information is current as at 18 September 2012.

Distribution of equity securities As at 18 September 2012 there were:

163,748,745 fully paid ordinary shares on issue in the capital of the Company held by 654 shareholders. At a general meeting, all shareholders present (in person or by proxy) have one vote on a show of hands. If a poll is validly called, all shareholders present (or by direct vote if applicable), have one vote per share held; and 2,708,332 options over ordinary shares in the capital of the Company held by 14 option holders. There are no voting rights attaching to the options.

Holding Ranges

Holdings Ranges

Number of ordinary

shareholders Number of

optionholders 1 - 1,000 52 0

1,001 - 5,000 170 55,001 - 10,000 65 0

10,001 - 100,000 236 6100,001 and above 131 3

Totals 654 14

As at 18 September 2012 there were 444 shareholders with less than a marketable parcel of ordinary shares.

Substantial shareholders

Ordinary shareholders

Number of ordinary shares in which they

have disclosed a relevant interest %

*KFT Investments Pty Ltd 31,593,610 19.294% PFM Cornerstone Limited 24,343,610 14.866% Cybotel Industries Sdn Bhd 14,563,496 8.894% **Denis Hanley Superannuation Fund Pty Ltd <Denis Hanley Super Fund A/C> 10,413,002 6.359% *KFT Investments Pty Ltd is the registered holder of 7,250,000 ordinary shares in CathRx Ltd. KFT Investments Pty Ltd is a shareholder in PFM Cornerstone Limited and is deemed to hold a relevant interest in PFM Cornerstone Pty Ltd through the operation of section 608(3) of the Corporations Act 2001. ** Mr Denis Hanley is a member of the Denis Hanley Super Fund and a potential beneficiary of the Denis M Hanley Family Trust which collectively hold 10,413,002 ordinary shares in CathRx Ltd. F

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Twenty largest holders of quoted equity securities

As at 18 September 2012 the twenty largest holders were

Shareholder name Ordinary shares

Number % PFM Cornerstone Limited 24,343,610 14.866% Cybotel Industries Sdn Bhd 14,563,496 8.894% Mr Jek Nan Yap 13,000,000 7.939% Denis Hanley Superannuation Fund Pty Ltd <Denis Hanley Super Fund A/C> 10,336,346 6.312% KFT Investments Pty Ltd 7,250,000 4.428% Litster & Associates Pty Ltd <C & C Super Fund A/C> 5,053,880 3.086% Mr Hin Choong Low 5,000,000 3.053% AMC Technologies Pty Limited <The AMC Technology A/C> 4,201,369 2.566% Ginga Pty Ltd 3,769,143 2.302% Link Traders (Aust) Pty Ltd 3,683,517 2.249% Earlston Nominees Pty Ltd <Steven Wilson Investment A/C> 3,178,630 1.941% Powers Pty Ltd 3,134,828 1.914% Rojo Green Pty Limited <Rojo Super Fund A/C> 3,096,410 1.891% Willben Pty Ltd <Willben Super Fund A/C> 2,400,000 1.466% Citicorp Nominees Pty Limited 2,204,226 1.346% Mr Christopher J La Croix & Mrs Kathleen M La Croix 2,000,000 1.221% Mr John Rives & Ms Venita Hudson <Rives & Hudson S/F A/C> 1,980,000 1.209% Mr David Duncan Hisco 1,650,000 1.008% UBS Wealth Management Australia Nominees Pty Ltd 1,514,286 0.925% G O Drew Pty Ltd <Superannuation Fund A/C> 1,428,572 0.872%

Details of unquoted equity securities

As at 18 September 2012, 14 option holders held 2,708,332 options to take up ordinary shares on a 1:1 basis. These options were issued under the Employee Option Plan.

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Corporate Directory

Board of Directors Mr Denis Hanley (Chairman and Chief Executive Officer) Dr Jane Wilson Dr Colin Adam

Company Secretary Mr Cameron Billingsley

Registered Office 5 Parkview DriveHomebush Bay NSW 2127 Australia

Telephone: +61 2 9397 5700 Facsimile: +61 2 9397 5701

ASX Code CXD

Websitewww.cathrx.com

Legal advisers PEM Legal Pty Ltd Level 12, 117 York Street Sydney NSW 2000 Australia

AuditorErnst & Young 680 George Street Sydney NSW 2000 Australia

Share Register Boardroom Pty Ltd Level 7, 207 Kent Street Sydney NSW 2000 Australia

Telephone: 1300 737 760 Facsimile: 1300 653 459 [email protected] www.boardroomlimited.com.au

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http://www.cathrx.com

mailto:[email protected]

http://www.boardroomlimited.com.au

20120927 asx release enclosing annual report · 9/27/2012 · annual report enclosed with this...

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