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Contents
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FY19 Highlights
Message from the Board
Company Profile
Board of Directors & Key Management Personnel
Financial Report
Corporate Directory
Recce Pharmaceuticals Ltd (ASX:RCE) is an
Australian based globally-focused, biotech
company engaged in the development
and commercialisation of a new class of
broad spectrum antibiotics designed to
address the urgent global health issue of
antibiotic resistant superbugs. Its patented
lead candidate known as RECCE® 327 has
been developed for the treatment of blood
infections and sepsis derived from E. coli
and S. aureus bacteria – including their
superbug forms.
recce.com.au
FY19 Highlights
Capital
Regulatory
• US Patents and Trademarks Office
granted 23 claims for US patent
‘Copolymer and Method for Treatment
of Bacterial Infection’
• Australian Patent Office has granted
34 claims for AUS patent, covering the
Company’s broad spectrum antibiotic
compounds
• Received positive preliminary feedback
from FDA on RECCE® 327's Chemistry,
Manufacturing and Controls (CMC).
• RECCE® 327 cleared for use under
Therapeutic Goods Administration (TGA)
Special Access Scheme – Category A
• Raised approximately A$1.8m
from sophisticated and institutional
investors
• Company received $679,624 from
the Australian Government R&D
Tax Incentive Rebate
• Executive Director James Graham
purchased approximately $100,000
worth of fully paid ordinary shares
in the Company on the market
Manufacturing
• Achieved scale-up quantities of
patented synthesis of RECCE® 327
• Reproducibility of RECCE® 327 to
supply its clinical development needs
• Consistency in meeting high standards
of internal and external QA
• Packaging and labelling for IV use
meeting international standards and
non-tampering protocols
1
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Message from the Board
“During Financial Year
18/19 the Company has
made strong progress
on the manufacturing of
its lead drug candidate
RECCE® 327.”
2019 has been a year of
achievement and progress
for Recce Pharmaceuticals with
a number of key development
milestones having been met.
The Company has continued to make considerable
advances on an operational and business development
level, towards its goal of commercialising its unique,
broad-spectrum synthetic antibiotics targeting the global
health problem of antimicrobial resistant superbugs.
Foundations for future growth
Recce received unsolicited enquires from representatives
at a number of Australian hospitals related to the
consideration of RECCE® 327 under the Therapeutic
Goods Administration (TGA) Special Access Scheme
(SAS) Category A.
The Company believes that the Australian medical
community is beginning to recognise Recce's novel
synthetic antibiotics may form new hope since many
patients either are becoming increasingly allergic to
existing antibiotics, or have developed resistance to
multidrug treatments and are now burdened by life
threatening infection/s.
2
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 We thank the hard working management team and
employees at Recce Pharmaceuticals whose combined
dedication, experience and expertise have contributed
to this year of achievement.
The Year Ahead
The business fundamentals and market demand for
our unique synthetic antibiotic remain strong and we
believe we have invested in building the necessary
internal capabilities and resources to support first-
in-human use.
With FY20 in full view, we believe we will see positive
results based on the years of dedication, enthusiasm
and hard work from our team at Recce, as we tackle the
global health problem of antibiotic resistant superbugs.
On behalf of the Board, we would like to record our
sincere gratitude for the continued support from our
institutional and retail shareholders, including your
participation in our February 2019 placement.
Everyone at Recce is constantly striving to ensure
we achieve our short-term and long-term strategic
milestones and build significant long-term value for
all our shareholders.
Dr John Prendergast
Non-Executive Chairman
What is Special Access Scheme (SAS)?
The Special Access Scheme (SAS) refers to
arrangements which provide for the importation
and/or supply of an unapproved therapeutic
good (i.e. those not included on the Australian
Register of Therapeutic Goods (ARTG)) for a
single patient, on a case-by-case basis.
Product and Manufacturing
The team made good progress with our in-house research
and development activities to achieve a number of
important manufacturing milestones. These included the
scale-up of manufacturing and synthesis of RECCE® 327
and to ensure the accurate reproducibility of RECCE® 327
across multiple batches.
We continued to work closely with our expert contract
research organisations in the US to deliver an expanded
analysis and documentation in line with the guidance
provided last year to Recce by the US FDA.
We have also demonstrated the ability to meet FDA
standards of internal and external quality assurance.
Our packaging and labelling for intravenous use also
meets international standards and non-tampering
protocols in use across multiple markets.
Achieving these key milestones allowed the Company
to submit additional data to the US FDA at their request.
Data included a 500% increase in the Company’s
manufacturing capabilities, following the scale-up of
the Sydney facility in response to the ever increasing
enquiries and future clinical needs outside Phase I
and II volumes.
We were pleased to receive positive preliminary feedback
from the FDA on RECCE® 327’s chemistry, manufacturing
and controls (CMC) through the most recent data
submission.
Board and personnel
We continued to see growth with the addition of a
new Clinical Advisory Committee chaired by Dr David
Bowers – a Spinal Injury Physician at Royal North Shore,
Sydney, one of Australia’s leading teaching hospitals.
The committee will advise the Board as it evaluates the
growing clinical considerations under the TGA SAS.
As we progress towards human clinical trials and
product commercialisation, we have put in place a formal
program to substantially broaden and complement the
makeup of the Board.
3
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
Company Profile
Recce’s new class of synthetic antibiotics demonstrate rapid, potent and broad-spectrum
activity including against those that are serious and potentially life-threatening multi-drug
resistant pathogens. This new class of antibiotics are bactericidal and therefore kill bacteria
rather than inhibiting their growth.
In Minimum Inhibitory Concentration and Minimal Killing/Bactericidal Concentration testing RECCE® 327 demonstrated
high potency against a range of Gram-positive and Gram-negative bacteria pathogens including Staphylococcus
aureus, Escherichia coli and Pseudomonas aeruginosa and their superbug forms. RECCE® 327 exhibited a fast-acting
mechanism of action therefore killing the bacteria at clinically practical rates.
Due to their increasingly common resistance to antibiotics, the scientific community have grouped six bacterial
pathogens to form the ESKAPE pathogens from the first letters of their scientific names: Enterococcus faecium,
Staphylococcus aureus, Klebsiella pneumoniae, Acinetobacter baumannii, Pseudomonas aeruginosa, and Enterobacter
species. The ESKAPE pathogens are a leading cause of nosocomial infections across the world.
Further testing of RECCE® antibiotics continued to demonstrate potent antibacterial activity, against deadly pathogens
Enterococcus faecalis, Staphylococcus aureus, Klebsiella pneumoniae and Pseudomonas aeruginosa, with availability
of Acinetobacter baumannii and Enterobacter species impractical/prohibitively regulated.
What Bacteria has RECCE antibiotics demonstrated capability against?
Clostridium difficile
Helicobacter pylori
Pseudomonas aeruginosa
Neisseria gonorrhoeae
Escherichia coli
Klebsiella pneumoniae
Staphylococcus aureus
Streptococcus pyogenes
Enterococcus species
Clostridium difficile
Helicobacter pylori
Pseudomonas aeruginosa
Neisseria gonorrhoeae
Escherichia coli
Designed with a purpose
The Company has designed a patented, automated, economically attractive manufacturing
process for RECCE® 327.
It has invested in a purpose built, wholly owned manufacturing facility, compliant with cGMP manufacturing standards.
Furthermore, the manufacturing process is reproducible and has a CMC (Chemistry, Manufacturing, and Controls) data
package, essential for clinical study materials.
Klebsiella pneumoniae
Conventional antibiotics are naturally derived by certain fungi or soil bacteria and therefore rely on timely fermentation
processes that require large scale bacteria culture and then several subsequent purification stages. In contrast, Recce
Pharmaceutical’s synthetic process is efficient giving rise to a 99.9% product yield in several hours. It requires no
specialised and expensive waste removal or risk of environmental contamination.
Streptococcus pyogenes
Staphylococcus aureus
Enterococcus species
Intravenous
Inhaled
Topical
Nasal
Oral
RECCE antibiotics can be formulated for intravenous, topical, nasal, oral and inhaled use.
4
Intravenous
Topical
Nasal
Oral
Inhaled
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Global crisis of antibiotic resistance
Global crisis of antibiotic resistance
“Antimicrobial resistance
is one of the most urgent
health risks of our time.”
Global crisis of antibiotic resistance
Dr Tedros Adhanom Ghebreyesus,
Director-General, WHO
The estimated current death
toll world wide caused by AMR.
700,000
The estimated current death
toll world wide caused by AMR.
AMR
AMR
700,000
Compared to other causes of death
AMR in 2050
AMR in 2050
10 Million
10 Million
If antibiotic resistance were allowed
to grow unchecked, the number of
deaths per year would grow to
10 million by 2050.
If antibiotic resistance were allowed
to grow unchecked, the number of
deaths per year would grow to
10 million by 2050.
Cancer
Compared to other causes of death
8.2 million
Diabetes
Cancer
1.5 million
8.2 million
Diarrhoeal disease
Diabetes
1.4 million
1.5 million
Road traffic accidents
1.2 million
Diarrhoeal disease
1.4 million
1.2 million
Road traffic accidents
Measles
130,000
Measles
130,000
100,000 - 120,000
Cholera
60,000
Tetanus
Tetanus
Cholera
60,000
100,000 - 120,000
In a world without effective antibiotics,
the global economic burden would
In a world without effective antibiotics,
be approximately
the global economic burden would
be approximately
USD120 Trillion
USD120 Trillion
Deaths attributable to AMR every year by 2050
Deaths attributable to AMR every year by 2050
Number of deaths
Number of deaths
Asia
Africa
Latin America
Europe
North America
Oceania
Asia
4,730,000
Africa
4,150,000
Latin America
Europe
317,000
North America
390,000
Oceania
317,000
22,000
4,730,000
4,150,000
317,000
390,000
317,000
22,000
Mortality per 10,000 population
5
8
Mortality per 10,000 population
6
7
9
10
>
5
6
7
8
9
10
>
Reference
www.amr-review.org
Antimicrobial Resistance: Tackling a crisis for the health and wealth of nations. The Review on Antimicrobial Resistance Chaired by Jim O’Neill December 2014.
5
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Company Profile Continued
RECCE® 327 unique mechanism of action
Unlike current antibiotics, RECCE® antibiotics are wholly synthetic and based
on a patented polymeric structure; rationally designed to overcome resistance.
Traditional antibiotics inhibit a single target such as bacterial gyrases, cell wall biosynthetic enzymes or
enzymes required for DNA replication during bacterial cell division. They operate on a ‘lock and key’ mechanism
and therefore only bind to a few active sites on the bacteria target. However, if a mutation is introduced into
the target site then the antibiotic will cease to be effective.
In contrast, RECCE® 327 is non-specifically attracted
to the bacteria plasma membrane through hydrophobic
interactions, especially to all the proteins of the bacterial
plasma membrane.
1
RECCE 327
®
RECCE 327
®
2
Hydrophobic
attraction
Hydrophobic
attraction
cell wall
cell wall
RECCE 327
®
RECCE 327
®
nucleoid (DNA)
cell membrane
cell wall
Hydrophobic
attraction
nucleoid (DNA)
Hydrophobic
cell membrane
attraction
cell wall
This results in a subsequent disrupting* of the bacterial
cell wall and the natural, unique high metabolic pressure
in the bacteria results in bacteria cell lysis (bursting).
nucleoid (DNA)
cell membrane
nucleoid (DNA)
cell membrane
3
Hydrophobic
4
interaction
Hydrophobic
interaction
BURST!
Hydrophobic
interaction
Hydrophobic
interaction
BURST!
BURST!
BURST!
*Although the affinity between RECCE® 327 and the surface proteins of bacteria is not precise, the effectiveness
of RECCE® 327 relies on its ability to adsorb to bacteria, which uniquely contain high internal pressure (up to 10
atmospheres); normal non-bacterial cells remain intact as they do not contain high internal pressures. RECCE®
antibiotics patents and data indicates the strong capability of targeting multiple active sites on (specific) protein(s)
in the plasma membrane, this results in a Mode of Action that is akin to a ‘master key’ and therefore universal such
that RECCE® 327 will still be effective against mutated membrane proteins – even with repeated use.
6
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Recce Pharmaceuticals on a global stage
Throughout the year, the Company has presented across a number of media platforms,
conferences and investor events. Such companies Recce has worked with consist of
Wholesale Investor, Proactive Investor, Spark Plus, Finance News Network and more;
however, the most prominent conference was when the Company was represented
at the World Anti-Microbial Resistance (AMR) Congress in Washington D.C.
The conference featured 150 speakers from 20 countries
and is a leading international forum for researchers,
investors, businesses and governments working to
address antibiotic resistance. The World AMR Congress
is the largest commercially focused conference with
AMR at its centre. It attracts key stakeholders from the
pharma and biotech industry who are involved in the
development of antimicrobial drugs and diagnostics.
With FY20 in full swing, the Company will again be
attending the World AMR congress in Washington
D.C. and be delivering the Opening R&D Address
showcasing the potential of new synthetic antibiotics.
Recce Chairman Dr Prendergast will be delivering the
presentation on: ‘How synthetic antibiotic development
can change the antibiotic treatment model’.
7
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Board of Directors and
Key Management Personnel
Dr John Prendergast
Chairman
(Non-Executive)
BSc (Hons), MSc (UNSW), PhD (UNSW),
CSS (HU)
Dr Graham Melrose
Executive Director and
Chief Research Officer
BSc (Hons), PhD, MBA, FRACI,
CChem, FAICD
US based, current Chairman and
Co-founder of Palatin Technologies,
Inc. (NYSE: PTN) and Lead Director
of Heat Biologics, Inc. (NASDAQ:
HTBX) – extensive experience in the
international commercialisation of
pharmaceutical technologies.
As of 9th July, Dr Prendergast appointed
Non-Executive Chairman.
Founder and inventor. Former
Executive Director and Head of
Research at Johnson & Johnson (Aust)
in Sydney, with global responsibilities,
particularly in Asia-Pacific.
As of 9th July, Dr Melrose appointed Executive
Director and Chief Research Officer.
Michele Dilizia
Executive Director (Regulatory
Affairs & Microbiology)
BSc (Med Sci), Grad Dip Bus (Mkting),
BA (Journ), GAICD, MASM
Co-inventor and qualified medical
scientist; specialisation in medical
microbiology and regulatory affairs.
James Graham
Executive Director (Marketing &
Business Development)
BCom (Entrepreneurship), GAICD
Extensive experience in marketing,
business development and
commercialisation of early stage
technologies with global potential.
Arthur Kollaras
Principal Engineer & Head of
Manufacturing
BSc, BEng (Chem), PhilEng (Enviro),
MIEAust, MISPE
Highly qualified in chemical engineering
and microbiology, has significant
experience taking a new technology
concept to pilot plant and full-scale
to FDA standards and production
internationally.
Dr Justin Ward
Executive Director and
Principal Quality Chemist
BSc (Chem), PhD (Chem),
MRACI, CChem
A quality control expert who has
worked with leading pharmaceutical
companies according to international
regulatory standards.
As of 9th July, Dr Ward appointed Executive
Director and Principal Quality Chemist.
Dr David Bowers
Chair of the Clinical
Advisory Committee
Alistair McKeough
Company Secretary
(Automic Group)
Justin Reynolds
Chief Financial Officer
(Pitcher Partners Sydney)
Leading spinal injury physician at Royal
North Shore Hospital. Dr Bowers has
a special interest in the treatment of
complex and life-threatening antibiotic
resistant infections, particularly among
patients with severe spinal cord injuries.
Alistair is a qualified lawyer and
Principal of Automic Legal Pty Ltd,
Alistair has broad experience as a
commercial litigator and Company
Secretary to ASX Listed companies.
Justin is a qualified accountant and
Partner of Pitcher Partners Sydney.
Justin has broad experience covering
all areas of accounting, taxation and
assurance. Particularly, Justin’s areas
of expertise are business services and
outsourced accounting.
8
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Financial Report
Recce Pharmaceuticals Ltd (Formerly Recce Ltd) and Controlled Entities ABN 73 124 849 065
Consolidated Financial Report for the year ended 30 June 2019
10 Directors’ Report
24 Auditor's Independence Declaration
25 Corporate Governance Statement
36 Consolidated Statement of Profit or Loss and Other Comprehensive Income
37 Consolidated Statement of Financial Position
38 Consolidated Statement of Changes In Equity
39 Consolidated Statement of Cash Flows
40 Notes to the Consolidated Financial Statements
60 Directors’ Declaration
61
64 ASX Additional Information
Independent Auditor’s Report
9
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
Your Directors present their report on Recce
Pharmaceuticals Ltd (formerly Recce Ltd) (the
‘Company’) and controlled entities (the ‘Group’)
for the year ended 30 June 2019.
Directors
The following persons held office as Directors of
the Company during the year and up to the date
of this report:
Dr John Prendergast
Dr Graham Melrose
Ms Michele Dilizia
Mr James Graham
Dr Justin Ward (appointed 9 July 2019)
Directors have been in office since the start of
the financial year to the date of this report unless
otherwise stated.
Information on Directors
Dr John Prendergast
Chairman (Non-Executive) (Appointed 9 July 2019)
Qualifications
BSc (Hons), M.Sc. and Ph.D., C.S.S. (Admin & Mgmt)
Experience
Dr Prendergast is currently Chairman and Co-founder
of Palatin Technologies, Inc. (NYSE: PTN), a US
biotechnology company capitalised at over US$260m,
developing therapeutics for diseases with significant
unmet medical need; Lead Director of Heat Biologics,
Inc. (NASDAQ: HTBX) and Co-founder/Executive
Chairman of Nejo, Inc.
Dr Prendergast held previous US biotechnology Board
Positions, most notably Lead Director of MediciNova,
Inc. valued at over US$470m (Nasdaq: MNOV) and
Osaka Securities Exchange (#4875) and Co-founder/
Lead Director of Avigen, Inc, which was acquired by
MediciNova in 2009 for US$37m.
Prior to a career in commercialising pharmaceutical
technologies, Dr Prendergast was Managing Director
of Paramount Capital Investments and The Castle Group.
Dr Prendergast has also served as a member of the
Advisory Board for the Institute for the Biotechnology
of Infectious Diseases (‘IBID’) at the University of
Technology Sydney, now called the ithree Institute.
Interest in Shares
250,000 Ordinary Shares
Special Responsibilities
Chairman of Audit & Risk Management Committee
Chairman of Nomination & Remuneration Committee
Directorships held in other listed entities during
the last three years
Palatin Technologies, Inc. (NYSE: PTN)
Heat Biologics, Inc. (NASDAQ: HTBX)
10
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Directors’ Report ContinuedFor the year ended 30 June 2019 Dr Graham Melrose
Director (Executive)
Qualifications
Ms Michele Dilizia
Director (Executive)
Qualifications
BSc (Med Sci), Grad Dip Bus (Mkting), BA (Journ),
GAICD, MASM
Experience
Ms Dilizia is a Qualified Medical Scientist with
specialisation in medical microbiology. Previously,
she had a successful executive career in public relations
and marketing for a leading retail chain.
Ms Dilizia was a market research consultant, which
included marketing development of health-care and
pharmaceutical products.
Interest in Shares
2,886,061 Ordinary Shares
577,212 Class B Performance Shares
577,212 Class C Performance Shares
577,212 Class D Performance Shares
Special Responsibilities
Member of the Nomination and Remuneration Committee
Member of the Audit & Risk Management Committee
Directorships held in other listed entities during
the last three years
Nil
BSc(Hons), PhD, MBA, FRACI, CChem, FAICD
Experience
Dr Melrose is the founder of Recce Pharmaceuticals
Ltd and inventor of RECCE antibiotics. He also founded
Chemeq Ltd and under his leadership and R&D direction,
achieved over a three-year period the top capital gain of
all companies listed on the ASX, and an average market
capitalisation of approximately $500 million.
Dr Melrose was a former senior academic in the
University of NSW’s Department of Applied Organic
Chemistry; visiting research scientist at Oxford
University and Munich University.
Dr Melrose was the former Executive Director and
Chief Research Executive of Johnson & Johnson
(Aust) Pty Ltd in Sydney, with global responsibilities,
particularly in the Asia-Pacific Region. He also established
and operated for some 10 years, an industry-leading
marketing consultancy firm.
Interest in Shares
30,375,003 Ordinary Shares*
6,075,000 Class B Performance Shares*
6,075,000 Class C Performance Shares*
6,075,000 Class D Performance Shares*
*held jointly with wife Olga Mary Melrose
Special Responsibilities
Nil
Directorships held in other listed entities during
the last three years
Nil
11
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Mr James Graham
Director (Executive)
Qualifications
Dr Justin Ward
Director (Executive)
Qualifications
BCom (Entrepreneurship), GAICD
BSc (Chem), PhD (Chem), MRACI, Chartered Chemist
Experience
Experience
James Graham is Executive Director of the Company.
Mr Graham has a background in marketing, business
development and commercialisation of early stage
technologies with global potential.
Mr Graham continues to work closely with the growth
and direction of the Company, routinely investing
alongside shareholders in capital rounds to date.
Interest in Shares
Direct ownership
1,868,601 Ordinary Shares
356,250 Class B Performance Shares
356,250 Class C Performance Shares
356,250 Class D Performance Shares
Indirect ownership
2,431,250 Ordinary Shares
356,250 Class B Performance Shares
356,250 Class C Performance Shares
356,250 Class D Performance Shares
Special Responsibilities
Member of the Audit and Risk Management Committee
Directorships held in other listed entities during
the last three years
Nil
Dr Ward is a qualified chemist with specialisation in
pharmaceutical quality management and product
development.
Before Recce Pharmaceuticals, he held a technical
specialty and special project leadership role with Pfizer
Pharmaceuticals, involving providing data for the
regulatory submissions to the FDA and TGA.
After Pfizer, he was the Laboratory Manager for Solbec,
involving, again as presently, drug specifications and
pharmaceutical trials for the ASX-listed company.
Most recently, he was Quality Manager at Phebra and
responsible for product quality and release of all drugs
of the company with the TGA.
Interest in Shares
Direct ownership
115,488 Ordinary Shares
Indirect ownership
0 Ordinary Shares
Special Responsibilities
Nil
Directorships held in other listed entities during
the last three years
Nil
12
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Directors’ Report ContinuedFor the year ended 30 June 2019 Chief Financial Officer
Justin Reynolds
Justin Reynolds is a Partner at Pitcher Partners Sydney.
Mr Reynolds’ experience with multinational companies
has led to him developing particular expertise as an
Outsourced Financial Controller. He and his team provide
their clients with the peace of mind that comes from
high quality, technically expert outsourced accounting.
Mr Reynolds’ has a broad range of experience having
dealt with a variety of different sized organisations from
small family business to multinational companies and
high net worth individuals.
Company Secretary
Alistair McKeough
Alistair McKeough is a Partner at Automic Legal.
Alistair specialises in complex commercial matters
that require careful strategic planning. An experienced
commercial litigator with an outstanding record of
success in contested litigation, Alistair also applies
his exceptional black letter knowledge and analytical
skills in transactional work. He is trusted by some of
Australia’s most preeminent business people to handle
their personal legal affairs. Alistair is regularly engaged in
matters involving serious risk to personal and corporate
reputations and he has extensive experience in media
sensitive matters. Prior to founding Automic Legal in
2010, Alistair worked at Freehills and was an Associate
to a Judge of the Federal Court of Australia. Alistair’s
academic work has been quoted by the Court of Appeal
of New South Wales and in leading Australian text books.
Alistair has extensive experience advising ASX listed
companies and their directors and is a member of the
University of New South Wales Law Advisory Council.
Principal Activities
The Group is a drug discovery and development business
commercialising a new class of synthetic antibiotics
with broad spectrum activity designed to address the
global health challenge of antibiotic resistant superbugs.
Its patented lead candidate known as RECCE® 327 has
been developed for the treatment of blood infections
and sepsis derived from E. coli and S. aureus bacteria –
including their superbug forms.
Review of Operations
On 17 July 2018, the Company announced submission
of its recent data package to the US Food & Drug
Administration (FDA), and close interaction with the FDA
facilitated by the Qualified Infectious Disease Product
designation, has enabled Recce in conjunction with its
FDA advisory partners, to develop a simple protocol,
subject to FDA approval, for a first- in-human Phase Ia
clinical trial.
On 31 July 2018, the Company announced that Australian
patent WO2016/077879 ‘Copolymer and Method for
Treatment of Bacterial Infection’, has been accepted for
grant by the Australian Patent Office. The patent is the
first of Recce’s patent family 2 (Multi Drug Applications)
and offers significant additional market monopolies to
November 2034.
On 13 September 2018, the Company announced it had
entered into an agreement with Radium Capital to receive
advance payments of its R&D tax incentive funds.
On 2 October 2018, the Company announced the cash
receipt of a A$679,624 Research and Development Tax
Incentive rebate from the Australian Tax Office for the
year ending 30 June 2018.
On 25 October 2018, the Company announced it was to
be represented at the World Anti-Microbial Resistance
Congress in Washington D.C., 25 - 26 October 2018.
On 18 December 2018, the Company announced that
Dr Graham Melrose had provided the Company with a
short term, unsecured loan of A$200,000 to support
the Company’s cash flow.
On 18 January 2019, the Company announced that
Dr Graham Melrose had provided the Company with a
further short term, unsecured loan of A$50,000. Further
to the loan offered by Dr Melrose, Mr James Graham also
provided the Company with a short term, unsecured loan
of A$100,000 to support the Company’s cash flow.
On 8 February 2019, the Company announced that it
had raised approximately A$1.8m (before costs) from
sophisticated and institutional investors that resulted
in 12,857,143 fully paid ordinary shares being issued at
A$0.14 per share.
On 7 March 2019, the Company announced that
Mr James Graham, had purchased 650,000 fully paid
ordinary shares in the Company on the market for a total
consideration of approximately $100,460 (an average
price of A$0.1546 per share).
On 14 March 2019, the Company announced the US
Patents and Trademarks Office had Granted 23 claims
for patent US 10,226,482 B2, ‘Copolymer and Method for
Treatment of Bacterial Infection’.
On 3 June 2019, the Company announced the formation
of a Clinical Advisory Committee to assist in the Board’s
growing clinical considerations under the Therapeutic
Goods Administration (TGA) Special Access Scheme
(SAS). The new Clinical Advisory Committee will be
chaired by Dr David Bowers, Spinal Injury Physician
at Royal North Shore and other University Hospitals
in Sydney.
13
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Results of Operations
The operating loss has increased to $2,789,197 (2018:
loss of $1,674,288) as a result of the increased focus
on its R&D activities. The annual loss was after a reduced
R&D tax incentive of $679,624 (2018: $1,288,518).
The loss per share has increased during the year to
2.95 cents (2018: 1.98 cents).
The Group’s focus is on progressing RECCE® 327 into
human clinical trials.
Dividends Paid or Recommended
No dividends have been paid or declared for payment
during the year and at the date of this report.
Options
During the financial year, the Company issued 1,800,000
(2018: 721,576) options to acquire ordinary shares in
the Company at various exercise prices and dates
as disclosed in Note 16 to the consolidated financial
statements. There were no options exercised during the
year (2018: nil).
Significant Changes in State of Affairs
There are no significant changes in the Group's state of
affairs occurred during the year.
Environment Issues
The Group’s operations are not subject to significant
environmental regulations under the law of the
Commonwealth or of a State or Territory. The policy is
to comply with or exceed its environmental obligations
in each jurisdiction in which it operates. No known
environmental breaches have occurred.
Future Developments, Prospects and
Business Strategies
The Group continues its strategy of having its antibiotic
drug tested for safety, efficacy and chemistry to enable
the Group to lodge its application for Investigational New
Drug (IND) status with the Food and Drug Administration
(FDA) in the USA.
Events Subsequent to Reporting Period
Subsequent to year end:
John Prendergast was appointed Chairman and Justin
Ward was appointed a director.
The Company also received a further R&D advance from
Radium Capital in the amount of $262,462.
The Company received its R&D tax refund in the amount
of $1,071,727 and repaid its loan plus interest to Radium
Capital of $908,054.
The Company placed $150,000 under its controlled
Placement Agreement with Acuity Capital. This will result
in the issue of 750,000 ordinary shares being issued
at $0.20.
The Company entered into a number of unsecured, short
term loans with Australian based sophisticated investors.
The total amount of these loans was $350,000 at an
interest rate of 3.71%. The loans and interest are repayable
following completion of a capital raising by the Company
or within 6 weeks of the advance date, whichever is
earlier.
Other than the above, no matters or circumstances
have arisen since the end of the financial year, which
significantly affected, or may significantly affect, the
operations of the Group, the results of those operations,
or state of affairs of the Group in future financial years.
Going Concern
The Directors believe that the Group is in a position to
meet all its commitments as and when they fall due. Refer
to Note 3 to the consolidated financial statements for
further details.
Insurance of Officers
During the financial year, the Company paid a premium
for an insurance policy insuring all Directors and Officers
against liabilities for costs and expenses incurred by
them in defending any legal proceedings arising out of
their conduct while acting in their capacity as Director
or Officer of the Company, other than conduct involving
a wilful breach of duty in relation to the Company. In
accordance with common commercial practice, the
insurance policy prohibits disclosure of the nature of the
liability insured against the amount of the premium.
Proceedings on Behalf of Group
No person has applied for leave of Court to bring
proceedings on behalf of the Group or intervene in
any proceedings to which the Group is a party for the
purpose of taking responsibility on behalf of the Group
for all or any part of those proceedings.
The Group was not a party to any such proceedings
during the year.
Remuneration Report (Audited)
The remuneration report details the Key Management
Personnel (‘KMP’) remuneration arrangements for the
Group, in accordance with the requirements of the
Corporations Act 2001 and its Regulations.
KMP are those persons having authority and responsibility
for planning, directing and controlling the activities of the
entity, directly or indirectly, including all Directors.
For the purposes of this Remuneration Report, KMP
includes the following Directors and Senior Executives
who were engaged by the Company at any time during
the year ended 30 June 2019:
14
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Directors’ Report ContinuedFor the year ended 30 June 2019 (i) Directors
Dr John Prendergast Non-Executive Chairman
benefit of the Group. The principles underpinning the
Group’s remuneration policy are that:
(formerly Non-Executive Director)
• Reward reflects the competitive global market in
Dr Graham Melrose
Executive Director
(formerly Executive Chairman)
Ms Michele Dilizia
Executive Director
Mr James Graham
Executive Director
(ii) Key Management Personnel
which we operate;
• Rewards to executives are linked to creating value
for shareholders;
• Remuneration arrangements are equitable and facilitate
the development of senior management across the
consolidated entity; and
Mr Justin Ward
Quality Assurance Manager
(appointed Executive Director
9 July 2019)
• Where appropriate senior managers may receive a
component of their remuneration in equity securities
to align their interests with those of the shareholders.
Mr Arthur Kollaras
Principal Engineer
The Remuneration Report covers the following matters:
(A) Principles used to determine the nature and amount
of remuneration;
(B) Executive service agreements;
(C) Details of remuneration;
(D) Share-based remuneration;
(E) Other transactions with Key Management Personnel;
and
(F) Other information.
(A) Principles Used to Determine the Nature
and Amount of Remuneration
In determining competitive remuneration rates, the
Board seeks independent advice on local and
international trends among comparative companies and
industry generally. It examines terms and conditions for
employee incentive schemes, benefit plans and share
plans. Independent advice may also be obtained to
confirm that executive remuneration is in line with market
practice and is reasonable in the context of Australian
executive reward practices.
Executive Remuneration
The Group’s Remuneration Policy for Executive and
Non-Executive Directors is designed to promote superior
performance and long-term commitment to the Group.
Executives receive a base remuneration which is market
related, and may be entitled to performance based
remuneration at the ultimate discretion of the Board.
Overall remuneration policies are subject to the discretion
of the Board and can be changed to reflect competitive
market and business conditions where it is in the interests
of the Group and shareholders to do so.
Executive remuneration and other terms of employment
are normally reviewed annually by the Board having
regard to performance, relevant comparative information
and expert advice.
The Group’s reward policy reflects its obligation to align
executive’s remuneration with shareholders’ interests and
to retain appropriately qualified executive talent for the
The total remuneration of executives and other senior
managers consists of the following:
(a) Salary – Executive Directors and senior managers
receive a sum payable monthly in cash;
(b) Long-term incentives – Executive Directors may
participate in share option/performance right
schemes with the prior approval of shareholders.
Other senior managers may also participate in
employee share option/performance right schemes,
with any option/performance rights issues generally
being made in accordance with thresholds set in
plans approved by shareholders. The Board however,
considers it appropriate to retain the flexibility to
issue options/performance rights to executives
outside of approved employee option/performance
right plans in exceptional circumstances; and
(c) Other benefits – Executive Directors and senior
managers are eligible to participate in superannuation
schemes and other appropriate additional benefits.
Non-Executive Remuneration
Shareholders approve the maximum aggregate
remuneration for Non-Executive Directors. The full Board
recommends the actual payments to Directors and the
Board is responsible for ratifying any recommendations,
if appropriate. The maximum aggregate remuneration
approved for Non-Executive Directors is currently
$180,000.
It is recognised that Non-Executive Directors’
remuneration is ideally structured to exclude equity based
remuneration. However, whilst the Group remains small,
and the full Board, including the Non-Executive Directors
are included in the operations of the Group more closely
than may be the case with larger companies, the Non-
Executive Directors are entitled to participate in equity
based remuneration schemes subject to shareholders
approval.
The Directors’ believed that as at this stage, there is
no relationship between the remunerations policy and
performance.
All Directors are entitled to have their indemnity
insurance paid by the Group.
15
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 (B) Executive Service Agreements
Name
Base Salary from
January 2019 (pa)
Performance-
Based Incentives
Term
Dr John Prendergast $50,000
Dr Graham Melrose
$220,000
Ms Michele Dilizia
$155,000
Mr James Graham
$155,500
Mr Justin Ward
$136,986
Mr Arthur Kollaras1
$178,082
Nil
Nil
Nil
Nil
Nil
Nil
No fixed term
5 years effective from 1 July 2015
No fixed term
No fixed term
No fixed term
No fixed term
1 Subsequent to 1 August 2019, A Kollaras moved to a consulting arrangement with the company.
Notice Period
3 months
3 months
3 months
3 months
4 weeks
4 weeks
(C) Details of Remuneration
Director and other KMP Remuneration
Details of the nature and amount of each element of the remuneration of each KMP are shown in the table below:
Year ended 30 June 2019
Name
Directors
G Melrose
M Dilizia
J Graham
J Prendergast
Executives
J Ward
A Kollaras
Short-term
benefits,
cash salary and
fees
$
Accrued
Long
Service
Leave
$
Superannuation
(post-
employment
benefit)
$
Termination
payments
$
Other
benefits
$
Share-
based
payments
$
Percentage
Performance
Related
%
Total
$
220,0001
155,000
155,000
50,0002
133,7233
174,041
887,764
23,533
14,551
7,255
–
2,599
3,333
51,271
20,900
14,725
14,725
–
12,704
16,534
79,588
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
264,433
184,276
176,980
50,000
149,026
193,908
1,018,623
–
–
–
–
–
–
1 G Melrose assumed the role of Executive Director effective 9 July 2019 (formerly Executive Chairman).
2 J Prendergast was appointed Non-Executive Chairman 9 July 2019.
3 J Ward was appointed Director effective 9 July 2019.
Year ended 30 June 2018
Name
Directors
G Melrose
M Dilizia
J Graham
J Prendergast1
Executives
P Williams2
J Ward
A Kollaras
Short-term
benefits,
cash salary and
fees
$
Accrued
Long
Service
Leave
$
Superannuation
(post-
employment
benefit)
$
Termination
payments
$
Other
benefits
$
Share-
based
payments
$
Percentage
Performance
Related
%
Total
$
220,000
114,500
142,250
12,500
67,058
115,460
164,910
17,516
6,858
3,831
–
–
720
1,119
836,678
30,044
20,900
10,877
13,514
–
–
–
–
–
6,371
21,263
10,969
15,666
78,297
–
–
21,263
–
–
–
–
–
–
–
-
–
–
–
258,416
132,235
159,595
46,250
58,750
–
94,692
10,000
137,149
15,000
196,695
71,250 1,037,532
–
–
–
–
–
–
–
1 J Prendergast was appointed to the Board on 24 April 2018.
2 P Williams resigned as CFO and CO-SEC on 29 November 2017.
16
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Directors’ Report ContinuedFor the year ended 30 June 2019 (D) Share-based Remuneration
Year Ended 30 June 2019
(i) Issue of ordinary shares
The following shares were issued on 15 February 2019
under an entitlement previously disclosed in the 2018
accounts.
Name
Shares to be issued
No.
$
Chairman – Non-Executive
J Prendergast
250,000
46,250
Executives
J Ward1
A Kollaras
57,143
85,715
329,858
10,000
15,000
71,250
1 Appointed a director 9 July 2019
(ii) Issue of options
There were no options issued to Directors or KMP
as part of their compensation during the year ended
30 June 2019.
(iii) Issue of performance shares
There were no performance shares issued to Directors
or KMP as part of their compensation during the year
ended 30 June 2019.
Year Ended 30 June 2018
(i) Issue of ordinary shares
There were no shares issued to Directors or KMP as part
of their compensation during the year ended 30 June
2018. However, entitlements were given to the following
KMPs during the year but shares were not issued as at
30 June 2018.
Name
Shares to be issued
(ii) Issue of options
There were no options issued to Directors or KMP
as part of their compensation during the year ended
30 June 2018.
(iii) Issue of performance shares
There were no performance shares issued to Directors
or KMP as part of their compensation during the year
ended 30 June 2018.
Terms and Conditions of Performance Shares
The terms and conditions of the Performance Shares
are intended to be as follows:
Rights attaching to the Performance Shares
(a) (Performance Shares) Each Performance Share
is a share in the capital of the Company.
(b) (General Meetings) Each Performance Share confers
on the holder (Holder) the right to receive notices of
general meetings and financial reports and accounts
of the Company that are circulated to holders of fully
paid ordinary shares in the capital of the Company
(Shareholders). Holders have the right to attend
general meetings of Shareholders.
(c) (No Voting Rights) A Performance Share does
not entitle the Holder to vote on any resolutions
proposed by the Company except as otherwise
required by law.
(d) (No Dividend Rights) A Performance Share does
not entitle the Holder to any dividends.
(e) (No rights on return of capital) A Performance Share
does not entitle the Holder to a return of capital,
whether in a winding up, upon a reduction of capital
or otherwise.
(f) (Rights on Winding Up) A Performance Share does
not entitle the Holder to participate in the surplus
profits or assets of the Company upon winding up.
No.
$
(g) (Not Transferable) A Performance Share is not
Chairman – Non-Executive
J Prendergast2
250,000
46,250
Executives
J Ward³
A Kollaras³
57,143
85,715
329,858
10,000
15,000
71,250
2 Pertained to a sign on bonus as a Non-Executive Director
of the Company. The allocation of shares was subject to
shareholder approval at the next Annual General Meeting.
3 The share entitlement was given as part of their compensation.
transferable.
(h) (Reorganisation of Capital) If at any time the issued
capital of the Company is reconstructed, all rights of
a Holder will be changed to the extent necessary to
comply with the applicable ASX Listing Rules at the
time of reorganisation.
(i) (Application to ASX) The Performance Shares will not
be quoted on ASX. However, if the Company is listed
on ASX at the time of conversion of the Performance
Shares into fully paid ordinary shares (Shares), the
Company must within 10 Business Days apply for
the official quotation of the Shares arising from the
conversion on ASX.
17
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 (j) (Participation in entitlements and bonus issues)
(m) (Deferral of Conversion if Resulting in a Prohibited
A Performance Share does not entitle a Holder
(in their capacity as a holder of a Performance
Share) to participate in new issues of capital offered
to holders of Shares such as bonus issues and
entitlement issues.
(k) (No Other Rights) A Performance Share gives the
Holders no rights other than those expressly provided
by these terms and those provided at law where such
rights at law cannot be excluded by these terms.
(l) (Conversion on Achievement of Milestone) Subject
to paragraph (m), a Performance Share in the
relevant class will convert into one Share upon
achievement of:
(i) Class A: the volume weighted average price of
Shares as traded on ASX over 20 consecutive
trading days on which the Shares are traded is
not less than $0.30 on or before 19 August 2020
(Milestone).
(ii) Class B: the Company is awarded the US Food
and Drug Administration’s (FDA) Investigational
New Drug (IND) status (or European equivalent
– European Medicines Agency (EMEA)) on or
before 19 August 2020 (Milestone).
(iii) Class C: the volume weighted average price of
Shares as traded on ASX over 20 consecutive
trading days on which the Shares are traded
is not less than $0.60 on or before 20 August
2020 (Milestone).
(iv) Class D: the volume weighted average price of
Shares as traded on ASX over 20 consecutive
trading days on which the Shares are traded is
not less than $1.20 on or before 20 August
2020 (Milestone).
Acquisition of Shares) If the conversion of a
Performance Share would result in any person
being in contravention of section 606(1) of the
Corporations Act 2001 (Cth) (General Prohibition)
then the conversion of that Performance Share
shall be deferred until such later time or times that
the conversion would not result in a contravention
of the General Prohibition. In assessing whether a
conversion of a Performance Share would result
in a contravention of the General Prohibition:
(i) Holders may give written notification to the
Company if they consider that the conversion
of a Performance Share may result in the
contravention of the General Prohibition.
The absence of such written notification from
the Holder will entitle the Company to assume
the conversion of a Performance Share will not
result in any person being in contravention of
the General Prohibition.
(ii) The Company may (but is not obliged to) by
written notice to a Holder request a Holder
to provide the written notice referred to in
paragraph (m) (i) within seven days if the
Company considers that the conversion of a
Performance Share may result in a contravention
of the General Prohibition. The absence of such
written notification from the Holder will entitle
the Company to assume the conversion of a
Performance Share will not result in any person
being in contravention of the General Prohibition.
(n) (Redemption if Milestone not Achieved) If the
relevant Milestone is not achieved by the required
date, then each Performance Share in that class
will be automatically redeemed by the Company
for the sum of $0.00001 within 10 Business days
of non-satisfaction of the Milestone.
(o) (Conversion Procedure) The Company will issue the
Holder with a new holding statement for any Share
issued upon conversion of a class of Performance
Shares within 10 Business Days following the
conversion.
(p) (Ranking upon Conversion) The Share into which the
Performance Share may convert will rank pari passu
in all respects with existing Shares.
18
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Directors’ Report ContinuedFor the year ended 30 June 2019
Details of Performance Shares issued
There were no new performance shares issued for the years ended 30 June 2019 and 2018.
A summary of performance shares issued is as follows:
Name
Directors
G Melrose
M Dilizia
J Graham
Performance Shares
Class A
Class B
Class C
Class D
6,075,000
6,075,000
6,075,000
6,075,000
577,212
745,962
577,212
745,962
577,212
745,962
577,212
745,962
7,398,174
7,398,174
7,398,174
7,398,174
Value per performance share
$0.173
$0.201
$0.111
$0.054
1 Class B performance shares have a non-market vesting condition i.e. the Company is awarded the US Food and Drug Administration’s
Investigational New Drug (IND) status on or before 19 August 2020. The multiplicity of the inter- dependent variables required for
the achievement of IND status means there is no statistical data to support the probability of Class B performance shares vesting.
Accordingly, the calculated value of $0.20 per share was not recognised as it is unlikely the shares will vest.
The Trinomial option pricing model has been used to calculate the value of the performance shares.
The following assumptions were used:
Underlying share price
20-day VWAP barrier
Term
Risk-free rate
Class A
$0.20
$0.30
5 Years
2.18%
Class B
$0.20
N/A
5 Years
2.18%
Class C
$0.20
$0.60
5 Years
2.18%
Class D
$0.20
$1.20
5 Years
2.18%
Number of Initial Performance Shares Issued
8,754,423
8,754,423
8,754,423
8,754,423
Probability of reaching milestone
N/A
0%
N/A
N/A
There was also an additional 4,749,996 performance shares issued to employees apportioned across the performance
share classes.
19
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Equity Instrument Disclosures Relating to KMP
(a) Ordinary Shares
The movement of the numbers of shares in the Company for the year ended 30 June 2019 held by the Directors of
the Company and other KMP of the Group, including their personally related parties, are set out below. There were no
shares granted during the current financial year as compensation.
Balance at
1 July 2018
Net Change
Other
Conversion of
Performance
Shares
Share-based
Payment
Balance at
Date of
Resignation
Balance at
30 June 2019
Name
Directors
G Melrose
M Dilizia
J Graham
30,375,003
2,886,061
3,649,851
J Prendergast
–
Executives
J Ward
A Kollaras
52,631
51,282
37,014,828
(b) Performance Shares
–
–
650,000
–
5,714
(114,286)
541,428
–
–
–
–
–
–
–
–
–
–
250,000
57,143
85,715
392,858
–
–
–
–
–
–
–
30,375,003
2,886,061
4,299,851
250,000
115,488
22,711
37,949,114
The movement of the numbers of performance shares in the Company for the year ended 30 June 2019 held by the
Directors of the Company and other KMP of the Group, including their personally related parties, are set out below.
Balance at
1 July 2018
Granted
Converted to
Shares
Lapsed
Unexercised
Balance at
Date of
Resignation
Balance at
30 June 2019
Name
Directors
G Melrose1
18,225,000
M Dilizia
J Graham
J Prendergast
Executives
J Ward
A Kollaras
1,731,636
2,237,886
–
–
–
22,194,522
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,225,000
1,731,636
2,237,886
–
–
–
22,194,522
1 Although G Melrose was entitled to convert 6,075,000 Class A Performance Shares to ordinary shares on 16 February 2016,
he was restricted to converting only 1,473,000 Performance Shares as a result of the application of section 606(1) of the
Corporations Act 2001.
Performance Shares Awarded, Vested and Lapsed During the Year
The tables below disclose the number of performance shares granted to KMP as remuneration as well as the number
of performance shares that vested or lapsed/forfeited during the year.
Performance shares do not carry any voting or dividend rights and will convert once the vesting conditions have
been met.
20
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Directors’ Report ContinuedFor the year ended 30 June 2019 Year ended 30 June 2019
Class A Performance Shares
All Class A Performance shares vested and converted to ordinary shares in the financial year ended 30 June 2017 and
30 June 2016.
Performance Shares Outstanding at 30 June 2019
Class B Performance Shares
Year
Granted
Number
Granted
Grant Date
Value Per
Share
Vested
%
Number
of Vested
Shares1
Forfeited
%
Financial
Years in
which Shares
May Vest
Maximum
Value Yet
to Vest
$
Name
Directors
G Melrose
2015
6,075,000
M Dilizia
J Graham
2015
2015
577,212
745,962
7,398,174
$0.20
$0.20
$0.20
–
–
–
–
–
–
–
–
–
–
–
–
1
1
1
1,215,000
115,442
149,192
1,479,634
1 These performance shares may vest in any year up until 19 August 2020.
Class C Performance Shares
Year
Granted
Number
Granted
Grant Date
Value Per
Share
Vested
%
Number
of Vested
Shares
Forfeited
%
Financial
Years in
which Shares
May Vest
Maximum
Value Yet
to Vest
$
Name
Directors
G Melrose
2015
6,075,000
M Dilizia
J Graham
2015
2015
577,212
745,962
7,398,174
$0.111
$0.111
$0.111
–
–
–
–
–
–
–
–
–
–
–
–
1
1
1
674,325
64,071
82,802
821,198
1 These performance shares may vest in any year up until 20 August 2020.
Class D Performance Shares
Year
Granted
Number
Granted
Grant Date
Value Per
Share
Vested
%
Number
of Vested
Shares
Forfeited
%
Financial
Years in
which Shares
May Vest
Maximum
Value Yet
to Vest
$
Name
Directors
G Melrose
2015
6,075,000
M Dilizia
J Graham
2015
2015
577,212
745,962
7,398,174
$0.054
$0.054
$0.054
–
–
–
–
–
–
–
–
–
–
–
–
1
1
1
328,050
31,169
40,282
399,501
1 These performance shares may vest in any year up until 20 August 2020.
The share-based payments expenses on the Class C and D Performance shares were recognised during the year ended
30 June 2016.
21
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 (E) Other Transactions with KMP
During the financial year, the Group did not have any other transactions with key management personnel.
(F) Other Information
Loans to key management personnel
At 30 June 2019, Dr Graham Melrose had lent the company $150,000 (2018: $nil). Any other loans during the year had
been repaid by balance date. Interest paid or payable to Dr Melrose for the year ended 30 June 2019 totalled $8,854.52
(2018: $nil). Mr James Graham also advanced funds to the Company during the year ended 30 June 2019 which were
fully repaid at year end. Interest paid to Mr Graham totalled $424.66 (2018: $nil).
There were no other loans, payables, receivables or other transactions at the end of the financial year with Directors
and other KMP and their related parties of the Company or the Group.
Two strikes Rule in Respect to the Adoption of the Remuneration Report
The Corporations Act 2001 includes a ‘two strikes’ rule with regard to the adoption of Remuneration Reports. The
‘two strikes’ rule provides that if 25% or more of the votes cast on the resolution to adopt the Remuneration Report at
two consecutive Annual General Meetings are against the resolution, the Company must at the later Annual General
Meeting put a resolution to the shareholders proposing to convene another shareholder meeting to consider the spill
of the Board (‘Spill Resolution’).
Under the Corporations Act 2001, the Company must have a minimum of three Directors at all times. The Corporations
Act 2001, provides guidance in circumstances where either or both of the Directors are not re-elected by way of
ordinary resolution, then they will be taken to have been appointed as Directors by resolutions passed at the Spill
Meeting so that the Company maintains the required three Directors.
For the purposes of determining the length of time in office for future retirements by rotation, each Director who
is re-elected at the Spill Meeting is considered to have been in office from the time of their previous rotation.
END OF REMUNERATION REPORT (AUDITED)
22
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Directors’ Report ContinuedFor the year ended 30 June 2019 Meetings of Directors
During the financial year, 11 meetings of Directors (including committees of Directors) were held. Attendances by each
Director during the year were as follows:
Committee Meetings
Directors’ Meetings
Audit & Risk
Management Committee
Nomination &
Remuneration Committee
A
7
7
7
7
B
7
7
7
7
A
–
2
2
2
B
–
2
2
2
A
–
2
2
2
B
–
2
2
2
Dr Graham Melrose
Ms Michele Dilizia
Mr James Graham
Dr John Prendergast
A = Number eligible to attend
B = Number attended
Non-Audit Services
During the year no payments were made to BDO Audit (WA) Pty Ltd, the auditor of the Group, for non-audit related
services.
Corporate Governance
In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of the
Company support the principal of corporate governance. The Company’s corporate governance statement is available
on the Company’s website: www.recce.com.au.
Rounding of Amounts
In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, the amounts in
the Directors' Report have been rounded to the nearest dollar, unless otherwise stated.
Auditor’s Independence Declaration
The lead auditor’s independence declaration for the year ended 30 June 2019 has been received and can be found on
page 24.
Signed in accordance with a resolution of the Board of Directors.
Dr John Prendergast
Chairman
27 September 2019
23
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Auditor’s Independence Declaration
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
38 Station Street
Subiaco, WA 6008
PO Box 700 West Perth WA 6872
Australia
DECLARATION OF INDEPENDENCE BY NEIL SMITH TO THE DIRECTORS OF RECCE PHARMACEUTICALS LTD
As lead auditor of Recce Pharmaceuticals Ltd for the year ended 30 June 2019, I declare that, to the
best of my knowledge and belief, there have been:
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
2. No contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Recce Pharmaceuticals Ltd and the entities it controlled during the
period.
Neil Smith
Director
BDO Audit (WA) Pty Ltd
Perth, 27 September 2019
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275,
an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and
form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.
24
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Corporate Governance Statement
This corporate governance statement sets out Recce
Pharmaceuticals Ltd’s (Company) current compliance
with the ASX Corporate Governance Council’s Corporate
Governance Principles and Recommendations (ASX
Principles and Recommendations). The ASX Principles
and Recommendations are not mandatory. However, this
corporate governance statement discloses the extent
to which the Company has followed the ASX Principles
and Recommendations. This corporate governance
statement is current as at 18 September 2019 and has
been approved by the Board of the Company (Board).
ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
1: Lay solid foundations for management and oversight
1.1 A listed entity should have and disclose a
YES
charter which sets out the respective roles and
responsibilities of the Board, the Chair and
management; and includes a description of
those matters expressly reserved to the Board
and those delegated to management.
1.2 A listed entity should:
(a) undertake appropriate checks before
YES
appointing a person, or putting forward to
security holders a candidate for election, as a
Director; and
(b) provide security holders with all material
information in its possession relevant to a
decision on whether or not to elect or re-elect
a director.
YES
The Company has adopted a Board Charter which
complies with the guidelines prescribed by the
ASX Corporate Governance Council.
A copy of the Company’s Board Charter is available
on the Company’s website at https://recce.com.au/
index.php/company/corporate-governance.
(a) The Nomination and Remuneration Committee
is responsible for recommendations to the
Board for the selection and appointment
of members of the Board. The Company’s
Nomination and Remuneration Committee
Charter requires the Nomination and
Remuneration Committee to undertake
appropriate checks before the Board appoints
a person, or putting forward to security holders
a candidate for election, as a Director.
(b) All material information relevant to the decision
on whether or not to re-elect Dr Justin Ward
(and any other potential Directors, as the case
may be), including information relating to his
qualifications, experience and proposed roles
within the Board will be set out in the Notice of
Meeting which will be sent to all shareholders
ahead of the Annual General Meeting to be
held in November 2019.
25
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
ASX PRINCIPLES AND RECOMMENDATIONS
1.3 A listed entity should have a written
agreement with each Director and Senior
Executive setting out the terms of their
appointment.
COMPLY
(Yes/No)
YES
EXPLANATION
The Company has written agreements with all
Directors and Senior Executives which sets out
the terms of their appointment.
1.4 The Company Secretary of a listed entity
YES
should be accountable directly to the Board,
through the Chair, on all matters to do with the
proper functioning of the Board.
The Company Secretary has been appointed
by and is responsible to the Board through the
Chairman. The Company Secretary is accessible
to all Directors.
1.5 A listed entity should:
(a) Have a diversity policy which includes
YES
(a) The Company has adopted a Diversity Policy
requirements for the Board:
(1) to set measurable objectives for achieving
gender diversity; and
(2) to assess annually both the objectives and
the entity’s progress in achieving them;
(b) Disclose that policy or a summary of it; and
YES
which complies with the guidelines prescribed
by the ASX Corporate Governance Council,
including:
(i) the Diversity Policy provides a framework
for the Company to set and achieve
measurable objectives that encompass
gender equality.
(c) Disclose as at the end of each reporting
(ii) the Diversity Policy provides for the
period:
(1) the measurable objectives for achieving
gender diversity set by the Board in
accordance with the entity’s diversity
policy and its progress towards achieving
them; and
(2) either:
(A) The respective proportions of men
and women on the Board, in Senior
Executive positions and across the
whole organisation (including how the
entity has defined ‘Senior Executive’
for these purposes); or
(B) The entity’s ‘Gender Equality
Indicators’, as defined in the
Workplace Gender Equality Act 2012.
YES
YES
N/A
monitoring and evaluation of the scope
and currency of the Diversity Policy. The
Company is responsible for implementing,
monitoring and reporting on the
measurable objectives.
(b) The Diversity Policy is available on the
Company’s website at https://recce.com.au/
index.php/company/corporate-governance.
(c) The Company strives to achieve the
measurable objectives for achieving gender
diversity as set out in the Diversity Policy. As
at 30 June 2019, the respective proportions
of men and women on the Board, in Senior
Executive positions and across the whole
organisation are set out below.
• 80% of the Company’s Board were male and
20% were female;
• 100% of the Company’s Senior Executives
were male (excluding members of the Board)
25% of the Group’s entire workforce (including
Board members) were female and 75% were
male.
26
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Corporate Governance Statement Continued
ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
1.6 A listed entity should:
(a) have and disclose a process for periodically
evaluating the performance of the Board, its
committees and individual directors; and
(b) Disclose, in relation to each reporting
YES
period, whether a performance evaluation
was undertaken in the reporting period in
accordance with that process.
YES
(a) The Nomination and Remuneration Committee
is responsible for evaluating the performance
of the Board and individual Directors on an
annual basis. The process for this is set out in
the Company’s Nomination and Remuneration
Committee Charter which is available on the
Company’s website at https://recce.com.au/
index.php/company/corporate-governance.
(b) Although the Nomination and Remuneration
Committee did not undertake a performance
evaluation of the Company’s board or its
individual Directors during the financial year
to 30 June 2019, such a review was conducted
by the Board of the Company. The Company
expects that an evaluation of the Company’s
board and/or its individual Directors will be
conducted during the financial year ended
30 June 2020.
1.7 A listed entity should:
(a) Have and disclose a process for periodically
evaluating the performance of its Senior
Executives; and
(b) Disclose in relation to each reporting
YES
period, whether a performance evaluation
was undertaken in the reporting period in
accordance with that process.
YES
(a) The Nomination and Remuneration Committee
is responsible for evaluating the performance
of Senior Executives on an annual basis in
accordance with the Company’s Nomination
and Remuneration Committee Charter.
(b) Although the Nomination and Remuneration
Committee did not undertake a performance
evaluation of the Company’s senior executives
during the financial year to 30 June 2019,
such a review was conducted by the Board of
the Company. The Company expects that an
evaluation of the Company’s senior executives
will be conducted during the financial year
ended 30 June 2020.
27
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
2: Structure the board to add value
2.1 The board of a listed entity should:
(a) have a nomination committee which:
(a) The Company has established a
Nomination and Remuneration Committee
with Dr Prendergast as Chair of the Committee.
The Committee has three members, but due to
the current size and structure of the Board of
the Company, the majority of the committee
members are not independent. The attendance
at each committee meeting is disclosed in
section 23 of the Directors’ Report. A copy of
the Nomination and Remuneration Committee
Charter is available on the Company’s website
at https://recce.com.au/index.php/company/
corporate-governance.
(1) has at least three members, a majority
of whom are independent directors; and
(2) is chaired by an Independent Director,
and disclose:
(3) the charter of the committee;
(4) the members of the committee; and
(5) as at the end of each reporting period,
the number of times the committee met
throughout the period and the individual
attendances of the members at those
meetings; or
NO
YES
YES
YES
YES
(b) If it does not have a nomination committee,
N/A
disclose that fact and the processes it employs
to address Board succession issues and to
ensure that the Board has the appropriate
balance of skills, experience, independence and
knowledge to enable it to discharge its duties
and responsibilities effectively.
2.2 A listed entity should have and disclose a
YES
Board skills matrix setting out the mix of skills
and diversity that the Board currently has or
is looking to achieve in its membership.
The Company has a skills matrix which is disclosed
on the Company’s website at https://recce.com.au/
index.php/company/corporate-governance.
2.3 A listed entity should disclose:
(a) the names of the Directors considered by
the Board to be Independent Directors;
YES
(a) Dr John Prendergast is the only Director of the
Company considered independent.
(b) if a Director has an interest, position,
YES
(b) Dr John Prendergast, the only Director of
association or relationship of the type
described in Box 2.3 of the ASX Corporate
Governance Principles and recommendations
(3rd Edition) but the Board is of the opinion
that it does not compromise the independence
of the Director, the nature of the interest,
position, association or relationship in question
and an explanation of why the Board is of that
opinion; and
the Company considered independent, has
not had an interest, position, association or
relationship of the type described in Box 2.3 of
the ASX Corporate Governance Principles and
recommendations (3rd Edition).
(c) The Company has disclosed the details of each
Director (including their length of service in the
Company’s Annual Report.
(c) the length of service of each Director.
YES
28
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Corporate Governance Statement Continued
ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
2.4 A majority of the Board of a listed entity
NO
should be Independent Directors.
The Board Charter requires that where practical
the majority of the Board will be independent. The
Board currently comprises a total of five Directors,
of whom one is considered to be independent,
being Dr John Prendergast.
The Board does not currently consider an
independent majority of the Board to be
appropriate given:
(a) The magnitude of the Company’s operations;
and
(b) The relevant skills and experience of
Dr Melrose, Ms Dilizia, Mr Graham, Dr Ward
and Dr Prendergast mean that the Board is
appropriately skilled at this stage, to further
the progress and development of the Company.
2.5 The Chair of the Board of a listed entity should
YES
be an Independent Director and, in particular,
should not be the same person as the CEO of
the entity.
The Company’s Independent, Non-Executive
Chairman is Dr John Prendergast, who is not the
CEO of the Company.
2.6 A listed entity should have a program for
inducting new Directors and providing
appropriate professional development
opportunities for Directors to develop and
maintain the skills and knowledge needed to
perform their role as Directors effectively.
YES
The Nomination and Remuneration Committee
is responsible to the Board for reviewing and
recommending to the Board induction and
professional development programs and
procedures for Directors to ensure that they can
effectively discharge their responsibilities.
As a result, the Company has in place a program
for the induction of new Directors which is tailored
to each new Director depending on their personal
requirements, background skills, qualifications
and experience and includes the provision of a
formal letter of appointment and an induction
pack containing sufficient information to allow
the new Director to gain an understanding of the
business of the Company, and the roles, duties
and responsibilities of Directors and the Executive
Team.
All Directors are encouraged to undergo continual
professional development and, subject to prior
approval by the Chairman, all Directors have
access to numerous resources and professional
development training to address any skills gaps.
29
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
3: Promote ethical and responsible decision-making
3.1 A listed entity should:
(a) Have a code of conduct for its Directors,
Senior Executives and employees; and
(b) Disclose that code or a summary of it.
YES
YES
(a) The Company has a Code of Conduct – the
Company’s Obligations to Stakeholders that
applies to all.
(b) The Company’s Code of Conduct – the
Company’s Obligations to Stakeholders is
available on the Company’s website at
https://recce.com.au/index.php/company/
corporate-governance.
The Company has established an Audit and Risk
Management Committee with Dr Prendergast,
an Independent Director and Chairman of
the Company, as Chair of the Committee. The
Committee has three members, but due to the
current size and structure of the Board of the
Company, the majority of the committee members
are not independent. The attendance at each
committee meeting is disclosed in section 23 of
the Directors’ Report. A copy of the Audit and Risk
Management Committee Charter is available on the
Company’s website at https://recce.com.au/index.
php/company/corporate-governance.
Prior to the execution of the Financial
Statements of the Company, the Company’s
Executive Director and CFO provided the Board
with written assurances that the declaration
provided in accordance with section 295A of the
Corporations Act is founded on a sound system
of risk management and internal control which
is operating effectively in all material aspects in
relation to the Company’s financial reporting risks.
4: Safeguard integrity in financial reporting
4.1 The Board of a listed entity should:
(a) have an audit committee which:
(1) has at least three members, all of whom
NO
are Non-Executive Directors and a majority
of whom are Independent Directors; and
(2) is chaired by an Independent Director,
who is not the Chair of the Board,
and disclose:
(3) the charter of the committee;
(4) the relevant qualifications and experience
of the members of the committee; and
(5) in relation to each reporting period, the
number of times the committee met
throughout the period and the individual
attendances of the members at those
meetings; or
NO
YES
YES
YES
(b) If it does not have an audit committee,
N/A
disclose that fact and the processes it employs
that independently verify and safeguard
the integrity of its corporate reporting,
including the processes for the appointment
and removal of the external auditor and the
rotation of the audit engagement partner.
4.2 The board of a listed entity should, before it
YES
approves the entity’s financial statements for
a financial period, receive from its CEO and
CFO a declaration that the financial records of
the entity have been properly maintained and
that the financial statements comply with the
appropriate accounting standards and give
a true and fair view of the financial position
and performance of the entity and that the
opinion has been formed on the basis of a
sound system of risk management and internal
control which is operating effectively.
30
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Corporate Governance Statement Continued
ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
4.3 A listed entity that has an AGM should ensure
YES
that its external auditor attends its AGM and
is available to answer questions from security
holders relevant to the audit.
At the last AGM of the company, held on
29 November 2018 the external auditor of the
Company attended this meeting and it is expected
that the Company’s external auditor will attend
future AGMs and is available to answer questions
from security holders relevant to the audit.
5: Make timely and balanced disclosure
5.1 A listed entity should:
(a) Have a written policy for complying with its
continuous disclosure obligations under the
Listing Rules; and
(b) disclose that policy or a summary of it.
YES
6: Respect the rights of shareholders
6.1 A listed entity should provide information
YES
about itself and its governance to investors via
its website.
6.2 A listed entity should design and implement an
investor relations program to facilitate effective
two-way communication with investors.
YES
6.3 A listed entity should disclose the policies
YES
and processes it has in place to facilitate
and encourage participation at meetings of
security holders.
YES
(a) The Company has adopted a Continuous
Disclosure Policy which details the processes
and procedures which have been adopted by
the Company so as to comply its continuous
disclosure obligations as required under the
ASX Listing Rules and other relevant legislation.
(b) The Continuous Disclosure Policy is available on
the Company’s website at https://recce.com.au/
index.php/company/corporate-governance.
Shareholders can access information about
the Company and its governance (including its
Constitution and adopted governance policies)
from the Company’s website at https://recce.com.
au/index.php/company/corporate-governance.
The Company has adopted a Shareholder
Communications Strategy which aims to promote
and facilitate effective two-way communication
with its investors. The Strategy outlines a range
of ways in which information is communicated to
shareholders.
A copy of the Company’s Shareholder
Communications Strategy policy is available on the
Company’s website at https://recce.com.au/index.
php/company/corporate-governance.
Security holders have the ability to communicate
with Directors through various means including:
• having the opportunity to ask questions of
Directors at all general meetings;
• the presence of the Auditor at AGMs to take
shareholder questions on any issue relevant to
their capacity as Auditor; and
• the Company having Directors available to answer
shareholder questions submitted by telephone,
email and other means (where appropriate).
Traditionally, the key forum for two-way
communication between the Company and its
Security holders is its AGM.
31
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
ASX PRINCIPLES AND RECOMMENDATIONS
6.4 A listed entity should give security holders the
option to receive communications from, and
send communications to, the entity and its
security registry electronically.
COMPLY
(Yes/No)
YES
EXPLANATION
Security holders can register with the Company to
receive email notifications when an announcement
is made by the Company to the ASX.
Security holders can also elect to receive electronic
communications via the Company’s registry,
Automic Registry Services.
7: Recognise and manage risk
7.1 The Board of a listed entity should:
(a) have a committee or committees to oversee
risk, each of which:
(1) has at least three members, a majority
of whom are Independent Directors; and
(2) is chaired by an Independent Director,
and disclose:
(3) the charter of the committee;
(4) the members of the committee; and
(5) as at the end of each reporting period,
the number of times the committee met
throughout the period and the individual
attendances of the members at those
meetings; or
NO
YES
YES
YES
YES
The Company has established an Audit and Risk
Management Committee with Dr Prendergast,
an independent Director and Chairman of
the Company, as Chair of the Committee. The
Committee has three members, but due to the
current size and structure of the Board of the
Company, the majority of the committee members
are not independent. The attendance at each
committee meeting is disclosed in section 23 of
the Directors’ Report. A copy of the Audit and Risk
Management Committee Charter is available on the
Company’s website at https://recce.com.au/index.
php/company/corporate-governance.
(b) If it does not have a risk committee or
N/A
committees that satisfy (a) above, disclose
that fact and the processes it employs for
overseeing the entity’s risk management
framework.
32
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Corporate Governance Statement Continued
ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
7.2 The Board or a committee of the board should:
(a) Review the entity’s risk management
YES
framework at least annually to satisfy itself that
it continues to be sound, to determine whether
there have been any changes in the material
business risks the entity faces and to ensure
they remain within the risk appetite set by the
Board; and
(b) Disclose in relation to each reporting period,
whether such a review has taken place.
YES
7.3 A listed entity should disclose:
(a) If it has an internal audit function, how
N/A
the function is structured and what role it
performs; or
(b) If it does not have an internal audit function,
that fact and the processes it employs for
evaluating and continually improving the
effectiveness of its risk management and
internal control processes.
YES
7.4 A listed entity should disclose whether,
YES
and if so how, it has regard to economic,
environmental and social sustainability risks
and, if it does, how it manages or intends to
manage those risks.
(a) The Audit and Risk Management Committee
Charter sets out a requirement for the Audit
and Risk Management Committee to review
the Company’s risk management framework
on an annual basis.
The Company monitors, evaluates and seeks
to improve its risk management and internal
control processes in line with the processes set
out in its Risk Management Policy, a copy of
which is available on the Company’s website
at https://recce.com.au/index.php/company/
corporate-governance.
In addition, the Company has a number of
other policies that directly or indirectly serve
to reduce and/or manage risk, including:
• Continuous Disclosure Policy
• Code of Conduct
• Trading Policy
(b) The Audit and Risk Management Committee
completed such a review during the current
reporting period.
(a) The Audit and Risk Management Committee
Charter provides for the Audit and Risk
Management Committee to monitor the need
for an internal audit function. At this stage, due
to the current size and nature of the existing
Board and the magnitude of the Company’s
operations the Company does not have an
internal audit function.
(b) The Company has adopted a Risk Management
Policy which the Company follows. The Board
of the Company and the Audit and Risk
Management Committee will periodically
review the Company’s operations to evaluate
the effectiveness of risk management and
internal control processes of the Company.
All material risks to economic, environmental and
social sustainability risks will be announced to the
market, in accordance with the requirements of the
ASX Listing Rules and otherwise.
33
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
8: Remunerate fairly and responsibly
8.1
(a) The Board of a listed entity should have a
remuneration committee which:
(1) has at least three members, a majority
of whom are Independent Directors; and
(2) is chaired by an independent director,
and disclose;
(3) the charter of the committee;
(4) the members of the committee; and
(5) as at the end of each reporting period,
the number of times the committee met
throughout the period and the individual
attendances of the members at those
meetings; or
The Company has established a Nomination and
Remuneration Committee with Dr Prendergast,
an independent Director and Chairman of
the Company, as Chair of the Committee. The
Committee has three members, but due to the
current size and structure of the Board of the
Company, the majority of the committee members
are not independent. The attendance at each
committee meeting is disclosed in section 23 of the
Directors’ Report. A copy of the Nomination and
Remuneration Committee Charter is available on
the Company’s website at https://recce.com.au/
index.php/company/corporate-governance.
NO
NO
YES
YES
YES
(b) if it does not have a remuneration committee,
N/A
disclose that fact and the processes it
employs for setting the level and composition
of remuneration for Directors and Senior
Executives and ensuring that such
remuneration is appropriate and not excessive.
8.2 A listed entity should separately disclose
its policies and practices regarding the
Remuneration of Non-Executive Directors and
other Senior Executives and ensure that the
different roles and responsibilities of Non-
Executive Directors compared to Executive
Directors and other Senior Executives are
reflected at the level and composition of
their remuneration.
YES
The Company’s Corporate Governance Plan
requires the Board to disclose its policies and
practices regarding the remuneration of Non-
Executive and Executive Directors and other
senior employees. This disclosure is set out in the
Remuneration Report section of the Company’s
Annual Report.
34
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Corporate Governance Statement Continued
ASX PRINCIPLES AND RECOMMENDATIONS
COMPLY
(Yes/No)
EXPLANATION
8.3 A listed entity which has an equity-based
remuneration scheme should:
(a) Have a policy on whether participants are
YES
permitted to enter into transactions (whether
through the use of derivatives or otherwise)
which limit the economic risk of participating
in the scheme; and
(b) Disclose that policy or a summary of it.
YES
(a) The Company’s Nomination and Remuneration
Committee is responsible for the review and
recommendation to the Board of any equity-
based remuneration schemes offered to
Directors and employees of the Company.
Further, in accordance with the Nomination
and Remuneration Committee Charter, the
Nomination and Remuneration Committee is
also responsible for recommending, on a case
by case basis, for scheme participants to enter
into transactions (whether through the use
of derivatives or otherwise) which limit the
economic risk of participating in the Scheme.
(b) The Company’s policy in this regard is set
out in the Company’s Nomination and
Remuneration Committee Charter, a copy of
which is available on the Company’s website
at https://recce.com.au/index.php/company/
corporate-governance.
35
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
Consolidated Statement of
Profit or Loss and Other Comprehensive Income
For the year ended 30 June 2019
Revenue
Other income
Expenses
Laboratory expenses
Employee benefits expenses
Share-based payments expense
Depreciation and amortisation expenses
Travel expenses
Patent related costs
Rental expenses
Finance costs
Other expenses
Loss before income tax
Income tax expense
Loss for the year
Other comprehensive income for the year
Total comprehensive loss for the year
Loss per share:
Basic loss per share for the year
Diluted loss per share for the year
Dividends per share for the year
Note
5
5
6
20
6
6
8
9
9
2019
$
–
2018
$
–
686,622
1,300,533
(416,353)
(1,383,692)
–
(56,088)
(185,363)
(59,805)
(212,510)
(56,694)
(1,105,314)
(3,475,819)
(372,171)
(1,085,550)
(71,250)
(53,119)
(185,051)
(65,145)
(179,979)
(54,306)
(908,250)
(2,974,821)
(2,789,197)
(1,674,288)
–
–
(2,789,197)
(1,674,288)
–
–
(2,789,197)
(1,674,288)
Cents
Cents
(2.95)
(2.95)
–
(1.98)
(1.98)
–
The accompanying notes form part of these consolidated financial statements.
36
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
Consolidated Statement of
Financial Position
As at 30 June 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Other current assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Plant and equipment
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
Provisions for employee benefits
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Provisions for employee benefits
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Reserves
Accumulated losses
Note
2019
$
2018
$
10
11
12
13
14
15
15
16
17
403,384
36,517
13,200
453,101
469,083
469,083
679,719
20,957
7,821
708,497
435,240
435,240
922,184
1,143,737
320,522
737,408
215,410
1,273,340
54,448
54,448
229,404
2,859
184,128
416,391
32,431
32,431
1,327,788
448,822
(405,604)
694,915
11, 573, 369
1,662,549
10,031,509
1,515,731
(13,641,522)
(10,852,325)
TOTAL EQUITY/(DEFICIENCY OF NET ASSETS)
(405,604)
694,915
The accompanying notes form part of these consolidated financial statements.
37
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
Consolidated Statement of
Changes in Equity
For the year ended 30 June 2019
BALANCE AT 1 JULY 2017
8,235,009
1,533,172
(9,178,037)
590,144
Share
Capital
$
Reserves
$
Accumulated
Losses
$
Total
$
COMPREHENSIVE INCOME:
Loss for the year
Other comprehensive income
TRANSACTIONS WITH OWNERS IN THEIR
CAPACITY AS OWNERS:
Conversion of performance shares
Issuance of shares
Option issued related to convertible notes
Share-based payments
–
–
–
–
1,796,500
–
–
1,796,500
–
–
–
–
–
(88,691)
71,250
(17,441)
(1,674,288)
(1,674,288)
–
–
(1,674,288)
(1,674,288)
–
–
–
–
–
–
1,796,500
(88,691)
71,250
1,779,059
BALANCE AT 30 JUNE 2018
10,031,509
1,515,731
(10,852,325)
694,915
BALANCE AT 1 JULY 2018
10,031,509
1,515,731
(10,852,325)
694,915
COMPREHENSIVE INCOME:
Loss for the year
Other comprehensive income
TRANSACTIONS WITH OWNERS IN THEIR
CAPACITY AS OWNERS:
Conversion of performance shares
Issuance of shares
Options cost expense on placement
Conversion of convertible notes
Share-based payments
–
–
–
–
1,688,678
(146,818)
–
–
–
–
–
–
–
146,818
–
–
1,541,860
146,818
(2,789,197)
(2,789,197)
–
–
(2,789,197)
(2,789,197)
–
–
–
–
–
–
–
1,688,678
–
–
–
1,688,678
BALANCE AT 30 JUNE 2019
11,573,369
1,662,549
(13,641,522)
(405,604)
The accompanying notes form part of these consolidated financial statements.
38
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
Consolidated Statement of
Cash Flows
For the year ended 30 June 2019
Note
2019
$
2018
$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from Australian Taxation Office
Payments to suppliers and employees
Interest received
Interest and other costs of finance paid
NET CASH USED IN OPERATING ACTIVITIES
18(a)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant and equipment
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
Repayments of borrowings
Advances from a shareholder
Proceeds from issue of shares (net of costs)
NET CASH PROVIDED BY FINANCING ACTIVITIES
679,624
1,288,518
(3,242,059)
(3,028,564)
6,998
(56,694)
(2,612,131)
12,015
(4,286)
(1,732,317)
(89,931)
(89,931)
(177,761)
(177,761)
737,408
(2,859)
2,500
1,688,678
2,425,727
34,310
(31,451)
50,000
1,446,500
1,499,359
Net decrease in cash and cash equivalents held
(276,335)
(410,719)
Cash and cash equivalent at the beginning of the year
679,719
1,090,438
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
10
403,384
679,719
NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing activities
18(b)
–
–
300,000
300,000
The accompanying notes form part of these consolidated financial statements.
39
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
1: Corporate Information
The consolidated financial statements of Recce
Pharmaceuticals Ltd (formerly Recce Ltd) (‘the
Company’) and together with its controlled entities
(‘the Group’) for the year ended 30 June 2019.
The Company is a company limited by shares
incorporated in Australia whose shares are publicly
traded on the Australian Securities Exchange (ASX).
2: Significant Accounting Policies
(a) Basis of Preparation of the Financial Report
The consolidated financial statements are general
purpose financial statements which have been prepared
in accordance with Australian Accounting Standards,
other authoritative pronouncements of the Australian
Accounting Standards Board and the Corporations
Act 2001.
The financial statements comprise the consolidated
financial statements of the Group. For the purposes of
preparing the consolidated financial statements, the
Company is a for profit entity.
Accounting Standards include Australian Accounting
Standards. Compliance with Australian Accounting
Standards ensures that the consolidated financial
statements and notes of the Company and the
Group comply with International Financial Reporting
Standards (IFRS).
The consolidated financial statements have been
prepared in accordance with the significant accounting
policies disclosed below as adopted by the Group. Such
accounting policies are consistent with the previous year
unless stated otherwise.
The financial statements have been prepared on an
accrual basis and are based on historical costs, modified,
where applicable, by the measurement at fair value of
selected non-current assets, financial assets and financial
liabilities.
Historical cost is generally based on the fair values of the
consideration given in exchange for goods and services.
All amounts are presented in Australian dollars, unless
otherwise stated.
(b) Basis of Consolidation
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls
an entity when the Group is exposed to, or has rights
to, variable returns from its involvement with the entity
and has the ability to affect those returns through its
power to direct the activities of the entity. Subsidiaries
are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from
the date that control ceases.
Intercompany transactions, balances and unrealised
gains on transactions between the Group are eliminated.
Unrealised losses are also eliminated unless the
transaction provides evidence of the impairment of the
transferred asset. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency
with the policies adopted by the Group.
(c) Foreign Currency Translation
The individual financial statements of each Group entity
are presented in the currency of the primary economic
environment in which the entity operates (its functional
currency). For the purpose of the consolidated financial
statements, the results and financial position of the Group
are expressed in Australian dollars, which is the functional
currency of the Company and the presentation currency
for the consolidated financial statements.
Foreign currency transactions are translated into the
functional currency using 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 end of the reporting year.
Foreign exchange gains and losses resulting from settling
foreign currency transactions, as well as from restating
foreign currency denominated monetary assets and
liabilities, are recognised in profit or loss.
Foreign exchange gains and losses are presented in
profit or loss on a net basis within other income or other
expenses, unless they relate to borrowings, in which case
they are presented as part of finance costs.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when fair value was measured.
The functional currency of the subsidiaries is United
States Dollars and British Pounds. At the end of the
reporting year, the assets and liabilities of these overseas
subsidiaries are translated into the presentation currency
of Recce Pharmaceuticals Ltd at the closing rate at the
end of the reporting year and income and expenses are
translated at the weighted average exchange rates for the
year. All resulting exchange differences are recognised in
other comprehensive income as a separate component of
equity (foreign currency translation reserve). On disposal
of a foreign entity, the cumulative exchange differences
recognised in foreign currency translation reserves
relating to that particular foreign operation is recognised
in profit or loss.
(d) Revenue Recognition
Revenue is recognised at the fair value of consideration
received or receivable. Amounts disclosed as revenue
are net of returns, trade allowances and duties and
taxes paid. Refer to Note 2(v) for further detail.
40
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019 Interest Income
(f) Impairment of Assets
Revenue is recognised as interest accrues using the
effective interest method. The effective interest method
uses the effective interest rate which is the rate that
exactly discounts the estimated future cash receipts
over the expected life of the financial asset.
Research and Development (R&D) Tax Incentive
R&D tax incentives from the government are recognised
when received or when the right to receive payment is
established.
(e) Income Tax
The income tax expense for the year is the tax payable
on the current year's taxable income based on the
national income tax rate for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable
to temporary differences between the tax base of assets
and liabilities and their carrying amounts in the financial
statements, and to unused tax losses.
Deferred tax assets and liabilities are recognised for all
temporary differences, between carrying amounts of
assets and liabilities for financial reporting purposes
and their respective tax bases, at the tax rates expected
to apply when the assets are recovered or liabilities
settled, based on those tax rates which are enacted or
substantively enacted for each jurisdiction. Exceptions
are made for certain temporary differences arising on
initial recognition of an asset or a liability if they arose
in a transaction, other than a business combination,
that at the time of the transaction did not affect either
accounting profit or taxable profit.
Deferred tax assets are only recognised for deductible
temporary differences and unused tax losses if it is
probable that future taxable amounts will be available
to utilise those temporary differences and losses.
Deferred tax assets and liabilities are not recognised for
temporary differences between the carrying amount and
tax bases of investments in subsidiaries, associates and
joint ventures where the parent entity is able to control
the timing of the reversal of the temporary differences
and it is probable that the differences will not reverse in
the foreseeable future.
Current and deferred tax balances relating to amounts
recognised directly in other comprehensive income
and equity are also recognised directly in other
comprehensive income and equity, respectively.
The Company and its wholly-owned subsidiaries have
implemented the tax consolidation legislation for the
whole of the financial year. The Company is the head
entity in the tax consolidated group. These entities are
taxed as a single entity and deferred tax assets and
liabilities have been offset in these consolidated
financial statements.
At the end of each reporting year the Group assesses
whether there is any indication that individual assets are
impaired. Where impairment indicators exist, recoverable
amount is determined and impairment losses are
recognised in profit or loss where the asset's carrying
value exceeds its recoverable amount. Recoverable
amount is the higher of an asset's fair value less costs of
disposal and value in use. For the purpose of assessing
value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
(g) Cash and Cash Equivalents
For the purposes of the Statement of Cash Flows, cash
and cash equivalents includes cash on hand and at bank,
deposits held at call with financial institutions, other short
term, highly liquid investments with maturities of three
months or less, that are readily convertible to known
amounts of cash and which are subject to an insignificant
risk of changes in value and bank overdrafts.
(h) Fair Values
Fair values may be used for financial asset and liability
measurement as well as for sundry disclosures.
Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. It is based on the presumption that
the transaction takes place either in the principal market
for the asset or liability or, in the absence of a principal
market, in the most advantageous market. The principal
or most advantageous market must be accessible to, or
by, the Group.
Fair value is measured using the assumptions that market
participants would use when pricing the asset or liability,
assuming that market participants act in their best
economic interest.
The fair value measurement of a non-financial asset takes
into account the market participant's ability to generate
economic benefits by using the asset at its highest and
best use or by selling it to another market participant that
would use the asset at its highest and best use.
In measuring fair value, the group uses valuation
techniques that maximise the use of observable inputs
and minimise the use of unobservable inputs.
(i) Trade and Other Receivables
The Group makes use of a simplified approach in
accounting for trade and other receivables as well as
contract assets and records the loss allowance at the
amount equal to the expected lifetime credit losses. In
using this practical expedient, the Group uses its historical
experience, external indicators and forward looking
information to calculate the expected credit losses using
a provision matrix.
41
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 The Group has determined that the application of AASB
9’s impairment requirements does not have a material
impact on receivables.
(j) Plant and Equipment
All plant and equipment is stated at historical cost,
including costs directly attributable to bringing the
asset to the location and condition necessary for it to
be capable of operating in the manner intended by
management, less depreciation and any impairments.
Depreciation on other assets is calculated on a reducing
balance basis over the estimated useful life, or in the case
of leasehold improvements and certain leased plant and
equipment, the shorter lease term, as follows:
– Certain laboratory machinery
and equipment
– Office improvements
10 – 15 years
3 – 8 years
Each class of plant and equipment is stated at historical
cost, including costs directly attributable to bringing
the asset to the location and condition necessary for it
to be capable of operating in the manner intended by
management, less depreciation and any impairments.
Depreciation
Depreciation is calculated on a diminishing value basis
over the estimated useful life as follows:
Class of Fixed Asset
Depreciation Rate
– Laboratory machinery and
equipment
8% – 40%
– Office furniture and equipment
5% – 33%
– Computer equipment
– Library and website costs
33% – 67%
20% – 40%
The asset’s residual values and useful lives are reviewed
and adjusted, if appropriate, at the end of each
reporting year.
Gains and losses on disposals are calculated as the
difference between the net disposal proceeds and the
asset's carrying amount and are included in profit or
loss in the year that the item is derecognised.
(k) Research Expenditure
Research costs are expensed as incurred.
(l) Trade and Other Payables
Trade and other payables represent liabilities for goods
and services provided to the Group prior to the year end
and which are unpaid. These amounts are unsecured and
have 30-60 day payment terms. They are recognised
initially at fair value and subsequently measured at
amortised cost using the effective interest method.
(m) Borrowings
All loans and borrowings are initially recognised at fair
value, net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any difference
between the proceeds (net of transaction costs) and the
redemption amount is recognised in profit or loss over
the year of the loans and borrowings using the effective
interest method.
Borrowings are derecognised from the statement of
financial position when the obligation specified in the
contract has been discharged, cancelled or expires. The
difference between the carrying amount of the borrowing
derecognised and the consideration paid is recognised in
profit or loss as other income or finance costs.
All borrowings are classified as current liabilities unless
the Group has an unconditional right to defer settlement
of the liability for at least 12 months after the end of the
reporting year.
(n) Other Liabilities
Other liabilities comprises non-current amounts due to
related parties that do not bear interest and are repayable
within 366 days of the end of the reporting year. As these
are non-interest bearing, fair value at initial recognition
requires an adjustment to discount these loans using a
market-rate of interest for a similar instrument with a
similar credit rating (Group's incremental borrowing rate).
The discount is credited to profit or loss immediately and
amortised using the effective interest method.
(o) Employee Benefit Provisions
Short-term employee benefit obligations
Liabilities for wages and salaries, including non-monetary
benefits, annual leave and accumulating sick leave
expected to be settled wholly within 12 months after the
end of the reporting year are recognised in other liabilities
in respect of employees' services rendered up to the
end of the reporting year and are measured at amounts
expected to be paid when the liabilities are settled.
Liabilities for non-accumulating sick leave are recognised
when leave is taken and measured at the actual rates paid
or payable.
Other long-term employee benefits obligations
Liabilities for long service leave and annual leave are not
expected to be settled wholly within 12 months after the
end of the reporting year. They are recognised as part of
the provision for employee benefits and measured as the
present value of expected future payments to be made
in respect of services provided by employees to the end
of the reporting year. Consideration is given to expected
future salaries and wages levels, experience of employee
departures and years of service. Expected future
payments are discounted using Australian corporate
bond rates at the end of the reporting year with terms to
maturity and currency that match, as closely as possible,
the estimated future cash outflows.
42
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019 Regardless of when settlement is expected to occur,
liabilities for long service leave and annual leave
are presented as current liabilities in the statement
of financial position if the entity does not have an
unconditional right to defer settlement for at least
12 months after the end of the reporting year.
(p) Contributed Equity
Ordinary shares are classified as equity.
Costs directly attributable to the issue of new shares
are shown as a deduction from the equity proceeds,
net of any income tax benefit. Costs directly attributable
to the issue of new shares or options associated with
the acquisition of a business are included as part of
the purchase consideration.
(q) Share-Based Payments
The Group provides benefits to employees (including
Directors) of the Group in the form of share-based
payment transactions, whereby employees render
services in exchange for shares or options over shares
(‘equity-settled transactions’).
(r) Earnings/(Loss) Per Share
Basic earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing
the profit/(loss) attributable to owners of the Company,
adjusted for the after-tax effect of preference dividends
on preference shares classified as equity, by the weighted
average number of ordinary shares outstanding during
the financial year, adjusted for bonus elements in ordinary
shares during the year.
Diluted earnings/(loss) per share
Earnings/(loss) used to calculate diluted earnings/(loss)
per share are calculated by adjusting the basic earnings/
(loss) by the after-tax effect of dividends and interest
associated with dilutive potential ordinary shares. The
weighted average number of shares used is adjusted for
the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares.
(s) Goods and Services Tax (GST)
Revenues and expenses are recognised net of GST
except where GST incurred on a purchase of goods and
services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item.
Receivables and payables are stated with the amount of
GST included. The net amount of GST recoverable from,
or payable to, the taxation authority is included as part
of receivables or payables in the statement of financial
position.
Cash flows are included in the statement of cash flows
on a gross basis and the GST component of cash flows
arising from investing and financing activities, which is
recoverable from, or payable to, the taxation authority
are classified as operating cash flows.
Commitments and contingencies are disclosed net of
the amount of GST recoverable from, or payable to, the
taxation authority
(t) Leases
Leases where a significant portion of the risks and
rewards of ownership are not transferred to the Group
as lessee are classified as operating leases. Payments
made under operating leases (net of any incentives
received from the lessor) are charged to profit or loss
on a straight-line basis over the year of the lease.
(u) Convertible Notes and Embedded Derivatives
A convertible note was issued by the Group as part of
a share purchase agreement, which includes embedded
derivatives (option to convert the security to variable
number of shares in the Group). This convertible note
is initially recognised as financial liabilities at fair value.
On initial recognition, the fair value of the convertible
note and value of the equity components (options issued
at commencement of facility) will equate to the proceeds
received and subsequently the convertible note is
measured at amortised cost in each reporting year.
The movements are recognised on the profit or loss
as finance costs.
(v) Amendments to Accounting Standards and the
New Interpretation that are Mandatorily Effective
for the current year
A number of new or amended standards became
applicable for the current reporting year and Recce
Pharmaceuticals Ltd had to change its accounting
policies as a result of adopting the following standards:
– AASB 9 Financial Instruments, and
– AASB 15 Revenue from Contracts with Customers.
The new accounting policies are disclosed below.
There is no impact on the Company for the year ended
30 June 2019.
Changes in accounting policy
The Group has adopted all of the new and revised
Standards and Interpretations issued by the Australian
Accounting Standards Board (the AASB) that are relevant
to their operations and effective for the current year.
This note explains the impact of the adoption of AASB
9 Financial Instruments and AASB 15 Revenue from
Contracts with Customers on Recce Pharmaceutical
Ltd. financial statements and also discloses the new
accounting policies that have been applied from 1 July
2018, where they are different to those applied in prior
years.
43
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Except as noted below, the accounting policies adopted
are consistent with those of the previous financial year
and corresponding interim reporting year.
AASB 9 Financial Instruments
AASB 9 Financial Instruments replaces the provisions
of AASB 139 Financial Instruments: Recognition and
Measurement that relate to the recognition, classification
and measurement of financial assets and financial
liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting.
The adoption of AASB 9 Financial Instruments from
1 July 2018 did not give rise to any material transitional
adjustments. The new accounting policies (applicable
from 1 July 2018) are set out below.
In accordance with the transitional provisions in AASB
9(7.2.15) and (7.2.26), comparative figures have not been
restated.
Classification and measurement
Except for certain trade receivables the Group initially
measures a financial asset at its fair value plus, in the case
of a financial asset not at fair value through profit or loss,
transaction costs.
Under AASB 9 financial assets are subsequently
measured at fair value through profit or loss (FVPL),
amortised cost, or fair value through other comprehensive
income (FVOCI). The classification is based on two
criteria: the Group’s business model for managing the
assets; and whether the instruments’ contractual cash
flows represent ‘solely payments of principal and interest’
on the principal amount outstanding (the ‘SPPI criterion’).
Impairment
From 1 July 2018 the group assesses on a forward looking
basis the expected credit losses (ECLs) associated
with its debt instruments carried at amortised cost
and FVOCI. ECLs are based on the difference between
the contractual cash flows due in accordance with the
contract and all the cash flows that the Group expects
to receive. The shortfall is then discounted at an
approximation to the asset’s original effective
interest rate.
The Group assesses at each balance date whether there
is objective evidence that a financial asset or group
of financial assets is impaired. For trade and other
receivables, the Group applies the simplified approach
permitted by AASB 9, which requires expected lifetime
losses to be recognised from initial recognition of the
receivables. The expected credit losses on these financial
assets are estimated using a provision matrix based on
the Group’s historical credit loss experience.
AASB 15 Revenue from contracts with Customers
AASB 15 Revenue from contracts with Customers
replaces AASB 118 Revenue. AASB 15 was adopted by
the Group on 1 July 2018. AASB 15 provides a single,
principles-based five-step model to be applied to all
contracts with customers.
The Group has considered AASB 15 and deemed that
it had no impact on the Company.
The Group’s new revenue accounting policy is
detailed below:
Revenue is recognised when or as the Group transfers
control of goods or services to a customer at the
amount to which the Group expects to be entitled. If the
consideration promised includes a variable component,
the Group estimates the expected consideration for the
estimated impact of the variable component at the point
of recognition and re-estimated at every reporting year.
The adoption of these new accounting policies did not
have any effect on the financial position or performance
of the Company.
(w) Accounting Standards Issued But Not Yet Effective
The AASB has issued a number of new and amended
Accounting Standards and Interpretations that have
mandatory application dates for future reporting years,
some of which are relevant to the Group. The Group
has decided not to early adopt any of these new and
amended pronouncements.
At the date of authorisation of the consolidated financial
statements, the Standards and Interpretations that were
issued but not yet effective that are applicable to the
Group is summarised below. Their adoption may affect
the accounting for future transactions or arrangements.
– AASB 16: Leases (effective date to the Group on
financial year 2020).
AASB 16 will replace AASB 117: Leases and introduces a
single lessee accounting model that will require a lessee
to recognise right-of-use assets and lease liabilities for
all leases with a term of more than 12 months, unless
the underlying asset is of low value. Right-of-use
assets are initially measured at their cost and lease
liabilities are initially measured on a present value basis.
Subsequent to initial recognition:
• right-of-use assets are accounted for on a similar
basis to non-financial assets, whereby the right-of-
use asset is accounted for in accordance with a cost
model unless the underlying asset is accounted for
on a revaluation basis, in which case if the underlying
asset is:
(a) investment property, the lessee applies the fair
value model in AASB 140: Investment Property to
the right-of-use asset; or
44
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019 (b) property, plant or equipment, the lessee can
Share-based payment transactions
elect to apply the revaluation model in AASB 116:
Property, Plant and Equipment to all of the right-
of-use assets that relate to that class of property,
plant and equipment; and
• lease liabilities are accounted for on a similar basis as
other financial liabilities, whereby interest expense is
recognised in respect of the liability and the carrying
amount of the liability is reduced to reflect lease
payments made.
AASB 16 substantially carries forward the lessor
accounting requirements in AASB 117. Accordingly, under
AASB 16 a lessor would continue to classify its leases as
operating leases or finance leases subject to whether the
lease transfers to the lessee substantially all of the risks
and rewards incidental to ownership of the underlying
asset, and would account for each type of lease in a
manner consistent with the current approach under
AASB 117.
The Group is yet to undertake a detailed assessment of
the impact of AASB 16. However, based on the Group's
preliminary assessment, the Standard is not expected to
have a material impact on the transactions and balances
recognised in the financial statements when it is first
adopted for the year ending 30 June 2020.
(x) Rounding of Amounts to Nearest Dollar
In accordance with ASIC Corporations (Rounding of
Financial/Directors' Reports) Instrument 2016/191 , the
amounts in the consolidated financial statements have
been rounded to the nearest dollar.
(y) Critical Accounting Judgements and Key Sources
of Estimation Uncertainty
The preparation of the consolidated financial statements
requires management to make judgements, estimates
and assumptions that affect the reported amounts in
the consolidated financial statements. Management
continually evaluates its judgements and estimates in
relation to assets, liabilities, contingent liabilities, revenue
and expenses. Management bases its judgements,
estimates and assumptions on historical experience and
on other various factors, including expectations of future
events, management believes to be reasonable under
the circumstances. The resulting accounting judgements
and estimates will seldom equal the related actual results.
The judgements, estimates and assumptions that have
a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities (refer to
the respective notes) within the next financial year are
discussed below.
The Company measures the cost of equity-settled
transactions with employees by reference to the fair value
of the equity instruments at the date at which they are
granted. The fair value is determined by using either the
Trinomial or Black-Scholes model taking into account
the terms and conditions upon which the instruments
were granted. The accounting estimates and assumptions
relating to equity-settled share-based payments would
have no impact on the carrying amounts of assets and
liabilities within the next annual reporting year but may
impact profit or loss and equity.
Impairment of non-financial assets
The Company assesses impairment of non-financial
assets at each reporting date by evaluating conditions
specific to the Group and to the particular asset that
may lead to impairment. If an impairment trigger exists,
the recoverable amount of the asset is determined. This
involves fair value less costs of disposal or value-in-use
calculations, which incorporate a number of key estimates
and assumptions.
3: Going Concern
The financial report has been prepared on the going
concern basis, which contemplates the continuity of
normal business activity and the realisation of assets and
settlement of liabilities in the normal course of business.
The Group incurred a loss for the year ended 30 June
2019 of $2,789,197 (30 June 2018: $1,674,288) and net
cash outflows used in operating activities was $2,612,131
(30 June 2018: $1,732,317). At 30 June 2019 the group had
a working capital deficiency of $820,239 (30 June 2018:
Surplus of $292,106) and net liabilities of $405,604 (30
June 2018: net assets of $694,915).
The ability of the Group to continue as a going concern is
dependent on securing additional funding through share
placements to new or existing investors and continuing to
be eligible to receive R&D tax rebates. These conditions
indicate a material uncertainty that may cast significant
doubt about the Group’s ability to continue as a going
concern and, therefore, that it may be unable to realise its
assets and discharge its liabilities in the normal course of
business.
The directors believe that there are sufficient funds
available to continue to meet the Group’s working capital
requirements as at the date of this report and that
sufficient funds will be available to finance the operations
of the Group for the following reasons:
• The Directors of Recce Pharmaceuticals Limited have
assessed the likely cash flow for the 12 month period
from the date of signing this annual report and its
impact on the Group and believe there will be sufficient
funds to meet the Group’s working capital requirements
as at the date of this report.
45
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 • The Group has historically demonstrated its ability to
raise funds to satisfy its immediate cash requirements,
including raising $1,541,860 (after costs) during the year
ended 30 June 2019. The group is also planning to raise
further funds through the placement of ordinary shares
in the foreseeable future in addition to the $150,000
raised post year-end through the Controlled Placement
Deed with Acuity Capital (as disclosed in note 24).
• The Company received its R&D tax refund of $1,071,727
subsequent to year-end (as disclosed in note 24) and
the Directors of Recce have reason to believe that in
addition to the cash flow currently available, additional
funds from R&D tax rebates and R&D advance
payments via the Group’s agreement with Radium
Capital will be receipted in the foreseeable future.
• Active management of the current level of discretionary
expenditure based on the funds available to the Group
Should the Group not be able to continue as a going
concern, it may be required to realise its assets and
discharge its liabilities other than in the ordinary course of
business, and at amounts that differ from those stated in
the financial statements and that the financial report does
not include any adjustments relating to the recoverability
and classification of recorded asset amounts or liabilities
that might be necessary should the Group not continue
as a going concern.
46
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019 4: Segment Reporting
(a) Reportable segments
The Directors have considered the requirements of AASB 8 Operating Segments and the internal reports that are
reviewed by the chief operating decision maker (the Board of Directors) in allocating resources and have concluded
that at this time there are no separate identifiable segments as the Group operates in only one business segment being
research and development of pharmaceutical drugs. However, the Group operates in two geographic segment being
Australia and USA.
(b) Segment results
The following is an analysis of the Group’s results by reportable segments:
Australia
USA
Central Administration
Segment revenue and other
income for the year
Segment loss after tax
for the year
2019
$
570,537
116,085
–
2018
$
876,275
412,243
12,015
2019
$
(893,240)
(181,746)
(1,714,211)
2018
$
(145,230)
(68,323)
(1,460,735)
686,622
1,300,533
(2,789,197)
(1,674,288)
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in
Note 2. Segment loss represents the loss after tax incurred by each segment. This is the measure reported to the
Board of Directors for the purposes of resource allocation and assessment of segment performance.
(c) Segment assets and liabilities
Australia
USA
Central Administration
(d) Segment net assets
Australia
USA
Central Administration
Segment assets
at end of the financial year
Segment liabilities
at end of the financial year
2019
$
2018
$
440,223
384,503
–
481,961
922,184
–
759,234
1,143,737
2019
$
–
–
2018
$
–
–
1,327,788
1,327,788
448,822
448,822
2019
$
2018
$
440,223
384,503
–
(845,827)
(405,604)
–
310,412
694,915
47
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
2019
$
2018
$
–
–
679,624
6,998
686,622
1,288,518
12,015
1,300,533
1,231,798
107,263
22,018
22,543
70
1,042,077
94,330
9,573
(64,488)
4,058
1,383,692
1,085,550
–
55,634
1,060
56,694
38,722
8,395
7,508
396,395
48,481
128,200
54,665
14,571
117,599
290,778
1,105,314
50,020
2,520
1,766
54,306
35,782
8,758
15,540
421,547
34,776
141,401
71,285
9,938
–
169,223
908,250
5: Revenue and Other Income
Revenue
Other Income:
Research and Development (‘R&D’) tax incentive
Interest income
Total other income
6: Expenses
Employee Benefits Expenses:
Salaries and wages
Superannuation expenses
Long service leave expenses
Payroll taxes
Other employee related costs
Total finance costs
Finance Costs:
Fairvalue movement of convertible notes
Interest from short-term borrowings
Bank fees and charges
Total finance costs
Other Expenses:
Audit fees
Communication expenses
Computer maintenance and consumables
Consulting fees
Insurance expenses
Legal expenses
Listing and regulatory fees
Printing and stationery expenses
Roadshows and conferences
Sundry expenses
Total other expenses
48
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019
7: Auditor's Remuneration
During the year, the following fees were paid or payable for services to BDO Audit (WA) Pty Ltd (BDO) and its related
practices (also referred to hereafter as BDO, network firms of BDO and non BDO firms):
2019
$
2018
$
Audit services
– BDO for audit and review of the consolidated financial statements
8: Income Tax Expense
Loss before income tax
The prima facie tax on loss from ordinary activities before
income tax is reconciled to income tax as follows:
– Prima facie tax payable on loss from ordinary activities before
income tax at 27.5% (2018: 27.5%)
Add:
Non-allowable items:
– Share-based payments expense
– Expenses subject to R&D tax incentive
– Other non-allowable items
Less:
– Non assessable income
– Tax losses and deferred tax not recognised
38,722
38,722
35,782
35,782
(2,789,197)
(1,674,288)
(767,029)
(460,429)
–
677,529
49,586
(187,080)
226,994
19,594
495,027
26,202
(354,342)
273,948
Income tax attributable to the Group
–
–
Deferred tax attributable to the Group
Tax losses carried forward
Accruals and provisions
Blackhole expenses
Patents
1,041,836
1,794,001
87,658
66,100
–
60,507
41,931
10,710
1,195,594
1,907,149
The above deferred tax assets have not been brought to account as it is not probable within the immediate future
that tax profits will be available against which deductible temporary differences and tax losses can be utilised.
The Group's ability to use losses in the future is subject to the companies in the Group satisfying the relevant tax
authority's criteria for using these losses.
49
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
9: Loss Per Share
The following reflects the loss and share data used in the
calculations of basic and diluted losses per share:
Loss attributable to the members of the Company
(2,789,197)
(1,674,288)
2019
$
2018
$
Weighted average number of shares
Weighted average number of ordinary shares used in
calculating basic losses per share
Loss per share (cents per share):
Basic loss for the year attributable to the members of the Company
Diluted loss for the year attributable to the members of the Company
10: Cash and Cash Equivalents
Cash at bank
Cash on hand
No.
No.
94,473,428
94,473,428
84,724,249
84,724,249
(2.95)
(2.95)
2019
$
(1.98)
(1.98)
2018
$
403,286
98
403,384
679,677
42
679,719
Cash at bank and in hand bear floating interest rates between 1.50% and 2.65% depending on the amount on deposit.
Refer to Note 19 for additional risk exposure analysis.
11: Trade and Other Receivables
CURRENT
Net GST receivable
Refer to Note 19 for additional risk exposure analysis.
36,517
36,517
20,957
20,957
50
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019
12: Plant and Equipment
Laboratory machinery and equipment
– at cost
– accumulated depreciation
Office furniture and equipment
– at cost
– accumulated depreciation
Computer equipment
– at cost
– accumulated depreciation
Office improvements
– at capitalised cost
– accumulated depreciation
Library and website costs
– at cost
– accumulated depreciation/amortisation
Total plant and equipment
Reconciliations
2019
$
2018
$
504,074
(115,632)
388,442
420,258
(69,594)
350,664
27,753
(8,220)
19,533
28,845
(19,673)
9,172
56,835
(7,119)
49,716
7,176
(4,956)
2,220
27,609
(6,309)
21,300
24,000
(16,155)
7,845
56,835
(4,242)
52,593
7,176
(4,338)
2,838
469,083
435,240
Reconciliations of the carrying amounts of each class of plant and equipment at the beginning and end of the current
and previous financial year are set out below:
Laboratory
machinery
and
equipment
$
Office
furniture
and
equipment
$
Computer
equipment
Office
improve-
ments
$
$
Library
and
website
costs
$
Total
$
350,664
83,816
(46,038)
21,300
144
(1,911)
388,442
19,533
220,139
172,882
(42,357)
350,664
21,035
2,270
(2,005)
21,300
7,845
4,845
(3,518)
9,172
10,094
2,609
(4,858)
7,845
52,593
–
(2,877)
49,716
2,838
–
435,240
88,805
(618)
(54,962)
2,220
469,083
55,675
3,655
310,598
–
(3,082)
52,593
–
(817)
177,761
(53,119)
2,838
435,240
2019
Beginning of the year
Additions
Depreciation
End of the year
2018
Beginning of the year
Additions
Depreciation
End of the year
51
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
13: Trade and Other Payables
CURRENT
Unsecured liabilities
Trade payables
Employee related payables
Sundry creditors
14: Financial Liabilities
CURRENT
Loans payable
R&D advance
(a) Loans payable
Note
2019
$
2018
$
124,413
52,600
143,509
320,522
150,000
587,408
737,408
125,378
54,026
50,000
229,404
2,859
–
2,859
14(a)
14(a)
The prior year balance pertained to funding obtained by the Group which was payable in 12 monthly instalments
from August 2017. The loan was obtained to pay for the Directors and Officers insurance. The current year balance
comprises a short term unsecured loan by Dr. Graham Melrose at an interest rate of 5% per annum.
The R&D advance represents an amount payable to Radium Capital and will be offset against R&D refunds. Interest
is payable at the rate of 13.92% per annum.
15: Provisions for Employee Benefits
CURRENT
Unsecured liabilities
Annual leave
Personal leave
NON-CURRENT
Long service leave
Movement of long service leave provision:
At beginning of the year
Provisions made during the year
At end of the year
2019
$
2018
$
123,977
91,433
215,410
117,645
66,483
184,128
54,448
32,431
32,431
22,017
54,448
22,858
9,573
32,431
52
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019
16: Share Capital
2019
2018
No.
$
No.
$
Issued and fully paid ordinary shares
107,129,919
11,573,369
89,342,418
10,031,509
Collateral shares issued in trust3
(4,500,000)
–
–
–
102,629,919
11,573,369
89,342,418
10,031,509
Movements in ordinary shares on issue:
Opening balance
Shares issued during the year:
89,342,418
10,031,509
78,004,500
8,235,009
– shares issued through Share Purchase Plan1
– shares issued to ASOF2
–
–
– shares issued to employees/KMP
430,358
– shares issued in trust under Collateral
Placement Deed3
– new shares issued from placement4
4,500,000
12,857,143
17,787,501
–
–
–
–
1,541,860
1,541,860
5,408,487
3,607,881
946,500
550,000
–
–
–
–
–
–
9,016,368
1,496,500
Conversions during the year:
– Convertible notes2
– Class A performance shares
–
–
–
–
–
–
2,321,550
300,000
–
–
2,321,550
300,000
Total5
107,129,919
11,573,369
89,342,418
10,031,509
1 On 23 October 2017, the Company accepted applications from 171 registered shareholders under the Share Purchase Plan.
2 The issue of shares and conversion of convertible notes pertained to the Share Purchase and Convertible Security Agreement signed
by the Company and ASOF on 16 June 2017, whereby the Company could receive over a 24-month year up to $6.05 million from
ASOF, a US institutional investor.
3 The Company entered into a Controlled Placement Deed (‘CPD’) with Acuity Capital Investment Management Pty Ltd as trustee for
The Acuity Capital Holdings Trust (‘Acuity’). The CPD grants an option to Acuity to issue Recce shares at the discretion of Recce, and
which Acuity has the discretion to either accept or decline. Recce may at any time cancel the CPD and buy back the collateral shares
for no consideration. On 15 February 2019, 4,500,000 Ordinary shares were issued to Acuity Capital as collateral shares pursuant to
the Controlled Placement Deed, however as at 30 June 2019 none of the options available under this facility had been exercised, and
no accounting recognition is required.
4 On 15 February 2019, the Company issued 12,857,143 ordinary shares at 14 cents per ordinary share less costs.
5 At 30 June 2019, 107,129,919 ordinary shares on issue were quoted on the ASX.
53
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
Options from shares issued
The Company issued the following options to ASOF as part of its Share Purchase and Convertible Security Agreement
signed on 16 June 2017. Additionally, options were issued to DJ Carmichael Pty Limited for lead manager services in
relation to the current year share placement.
Particulars
Issue Date
Exercise Date
Exercise Price
cents
2019
No.
2018
No.
Options
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Tranche 7
Options¹
16-Jun-17
21-Jun-21
25.93
641,000
641,000
19-Jul-17
19-Jul-20
06-Sep-17
25-Aug-20
29-Sep-17
29-Sep-20
02-Nov-17
01-Nov-20
01-Dec-17
30-Nov-20
17-Jan-18
10-Jan-21
16-Feb-18
13-Feb-21
15-Feb-19
15-Feb-23
21.71
18.72
17.80
20.40
20.96
19.88
19.81
16.80
59,880
104,167
109,569
127,470
124,069
130,804
65,617
1,800,000
59,880
104,167
109,569
127,470
124,069
130,804
65,617
–
3,162,576
1,362,576
1 On 15 February 2019, the Company issued 1,800,000 options to DJ Carmichael Pty Limited relating to the February 2019 capital
raising. The unlisted options will be issued for $0.168 per option. The total expense recognised for the options issued was $146,818
and has been recognised in equity as a share issue cost during the 30 June 2019 financial year.
17: Reserves
Performance shares reserve
Share-based payments reserve
Options reserve
(a) Performance shares reserve
Note
17(a)
17(b)
17(c)
2019
$
2018
$
1,444,481
71,250
146,818
1,662,549
1,444,481
71,250
–
1,515,731
The performance shares reserve is used to recognise the fair value of Performance Shares issued to Executives and
Non-Executive Directors.
Movements of performance shares reserve:
At beginning of year
Conversion to ordinary shares (refer to Note 14)
At end of year
(b) Share-based payments reserve
1,444,481
1,444,481
–
–
1,444,481
1,444,481
The share-based payments reserve is used to recognise the fair value of ordinary shares to be issued to Non-Executive
Directors after completion of 12 months service.
Movements of share-based payments reserve:
At beginning of year
Reversals
Additions¹
At end of year
1 Refer to Note 20.
54
71,250
–
–
71,250
–
–
71,250
71,250
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019
Note
2019
$
2018
$
(C) Options reserve
The options reserve is used to recognise the fair vale of options issued.
Movements of options reserve:
At beginning of year
Options issued to lead manager2
At end of year
2 Refer to Note 16.
18: Cash Flow Information
(a) Reconciliation of loss after income tax to net cash flow from operating activities:
–
146,818
146,818
88,691
(88,691)
–
2019
$
2018
$
Loss for the year
Adjustments and non-cash items:
– Depreciation and amortisation
– Interest amortisation of convertible notes
– Share-based payments expense
Change in operating assets and liabilities
– Decrease/(Increase) in trade and other receivables
– (Increase)/Decrease in other current assets
– (Decrease)/Increase in trade and other payables
– Increase in provisions for employee benefits
Net cash outflow from operating activities
(b) Non-cash investing and financing activities:
– Investing activities
– Financing activities
Conversion of convertible notes to ordinary shares
(2,789,197)
(1,674,288)
56,088
–
–
(15,560)
(5,379)
88,618
53,299
53,119
50,020
71,250
39,228
(4,456)
(301,071)
33,881
(2,612,131)
(1,732,317)
–
–
–
–
300,000
300,000
55
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
19: Financial Risk Management
The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest
rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of
the financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The
Group uses different methods to measure and manage different types of risks to which it is exposed. These include
monitoring levels of exposure to interest rate and foreign exchange risk and assessments of markets forecasts for
interest rate and foreign exchange prices. Liquidity risk is monitored through the development of future cash flow
forecasts.
Risk management is carried out by Management and overseen by the Board of Directors.
The main risk arising for the Group are foreign exchange risk, interest rate risk, credit risk and liquidity risk. The carrying
values of the Group's financial instruments are as follows:
Financial Assets
At amortised cost
Cash and cash equivalents
Trade and other receivables
Financial Liabilities
At amortised cost
Trade payables and sundry creditors
Loans payable
R&D Advance
Net exposure
(a) Market Risk
(i) Foreign exchange risk
2019
$
2018
$
403,384
36,517
439,901
267,922
150,000
587,408
1,005,330
679,719
20,957
700,676
175,378
2,859
–
178,237
(565,429)
522,439
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the US dollar.
Foreign exchange risk arises from future commercial transactions denominated in a currency that is not the Group's
functional currency. Over the next 12 months the Group will enter into contracts with various research organisations in
the USA to perform numerous laboratory tests as well as use the services of an expert consultant in the USA that will
result in approximately US$3.3 million in expenditure.
(i) Interest Rate Risk
The Group is exposed to interest rate risk due to variable interest being earned on its interest-bearing bank accounts.
At the end of the reporting year, the Group had the following interest-bearing financial instruments:
Cash and cash equivalents
1.53%
403,286
2.56%
679,677
2019
2018
Weighted
average
Balance
$
Weighted
average
Balance
$
56
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019
(b) Credit Risk
Credit risk is the risk of financial loss to the Group if a counter party to a financial instrument fails to meet its
contractual obligations. During the year credit risk has principally arisen from the financial assets of the Group,
which comprises cash and cash equivalents and trade and other receivables. The Group's exposure to credit risk
arises from potential default of the counter party, with the maximum exposure equal to the carrying amount of
the instruments.
The carrying amount of financial assets included in the Consolidated Statement of Financial Position represents
the Group's maximum exposure to credit risk in relation to those assets. The Group does not held any credit derivatives
to offset its credit exposure. The Group trades only with recognised, credit worthy third parties and such collateral
is not requested nor is it the Group's policy to securities its trade and other receivables. Receivable balances are
monitored on an ongoing basis with the result that the Group does not have a significant exposure to bad debts.
The Group has no significant concentrations of credit risk within the Group except for the following:
Cash held with BankWest Bank
Rating
AA-
2019
$
2018
$
403,286
679,677
The Group's primary banker is BankWest. The Board considers the use of this financial institutions, which has a rating
of AA- from Standards and Poors, to be sufficient in the management of credit risk with regards to these funds.
(c) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an
adequate amount of committed credit facilities to meet obligations when due and to close out market positions.
The Directors and Management monitor the cash outflow of the Group on an on-going basis against budget and
the maturity profiles of financial assets and liabilities to manage its liquidity risk.
The financial liabilities the Group had at reporting date were trade payables incurred in the normal course of the
business. Trade payables were non-interest bearing and were deducted within the normal 30-60 day term of
creditor payments.
The table below reflects the respective undiscounted cash flows for financial liabilities existing at end of
reporting year:
Contractual maturities of
financial liabilities
<6
months
>6 – 12
months
>12 months
30 June 2019
Trade payables
Employee related payables
Sundry creditors
Loan payable
R&D Advance
30 June 2018
Trade payables
Employee related payables
Sundry creditors
Loan payable
$
124,413
52,600
143,509
150,000
587,408
1,057,930
125,378
54,026
50,000
2,859
232,263
$
–
–
–
–
–
–
–
–
–
–
–
Total
contractual
cash flows
$
Carrying
amount
$
124,413
52,600
143,509
150,000
124,413
52,600
143,509
150,000
587,408
587,408
$
–
–
–
–
–
–
1,057,930
1,057,930
–
–
–
–
–
125,378
54,026
50,000
125,378
54,026
50,000
2,859
2,859
232,263
232,263
At 30 June 2019, the Group had sufficient cash to meet the financial liabilities as and when they are due and payable.
57
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
(d) Fair Value Hierarchy
AASB 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
(i) Level 1 – the instrument has quoted prices (unadjusted) in active markets for identical assets and liabilities;
(ii) Level 2 – a valuation technique using inputs other than quoted prices within Level 1 that are observable for the
financial instrument, either directly (ie as prices), or indirectly (ie derived from prices); or
(iii) Level 3 – a valuation technique using inputs that are not based on observable market data (unobservable inputs).
Valuation Techniques to Derive Level 3 Fair Values
Convertible security at fair value through profit or loss
The fair value of the convertible security is determined based on the accretion of its carrying amount recognised at
inception up to its face value by taking into account the discount on the conversion of the shares in the future and
share price. During the financial year, the security was converted to equity.
20: Share-Based Payments
Share-based payments expense recognised during the financial year:
Shares issued to Key Management Personnel (KMP)¹
Shares issued to KMP as 'sign-on' bonus²
2019
$
2018
$
–
–
–
25,000
46,250
71,250
1 The amount pertained to the entitlement of the Executives of the Company, J Ward and A Kollaras as part of their compensation.
The shares were not issued as at 30 June 2018 totaling to 142,857 shares valued at $0.175 per share. The shares were ultimately
issued on 15 February 2019.
2 Pertained to a sign-on bonus to J Prendergast after joining as a Non-Executive Director of the Company. The allocation of 250,000
shares was subject to shareholder approval at the Annual General Meeting held on 29 November 2018. The shares were ultimately
issued on 15 February 2019.
On 15 February 2019, the Company issued 1,800,000 unlisted options for services provided under the DJ Carmichael
mandate relating to the February 2019 capital raising. The unlisted options will be issued for $0.168 per option. The
total expense recognised for the options was $146,818 and has been recognised in equity as a share issue cost during
the 30 June 2019 financial year.
21: Related Party Transactions
Parent entity
The ultimate parent entity within the Group is Recce Pharmaceuticals Ltd.
Subsidiaries
Interests in subsidiaries are disclosed in Note 23.
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Termination payments
Share-based payments
2019
$
887,764
130,859
–
–
2018
$
836,678
108,341
21,263
71,250
1,018,623
1,037,532
The following transactions occurred with related parties:
Superannuation contributions
Contributions to superannuation funds on behalf of employees
130,859
108,341
At 30 June 2019, Dr Graham Melrose had lent the company $150,000 (2018: $nil). Any other loans during the year had
been repaid by balance date. Interest paid or payable to Dr Melrose for the year ended 30 June 2019 totalled $8,854.52
(2018: $nil). Mr James Graham also advanced funds to the Company during the year ended 30 June 2019 which were
fully repaid at year end. Interest paid to Mr Graham totalled $424.66 (2018: $nil).
58
There were no other related party transactions during the financial year.
RECCE PHARMACEUTICALS ANNUAL REPORT 2019Notes to the Consolidated Financial StatementsFor the year ended 30 June 2019
22: Parent Entity Information
The following information relates to the parent entity, Recce Pharmaceuticals Ltd, as at 30 June 2019. The information
presented hereto has been prepared using accounting policies consistent with those presented in Note 2.
(a) Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Share capital
Reserves
Accumulated losses
Net Asset/(Liabilities)
2019
$
453,101
469,083
922,184
1,273,340
54,448
1,327,788
11,573,369
1,662,549
2018
$
708,497
435,240
1,143,737
416,391
32,431
448,822
10,031,509
1,515,731
(13,641,522)
(10,852,325)
(405,604)
694,915
(b) Summarised consolidated statement of profit or loss and other comprehensive income
Loss for the year
Other comprehensive income
Total comprehensive loss for the year
(2,789,197)
(1,674,288)
–
–
(2,789,197)
(1,674,288)
The parent entity has no contingent liabilities as at 30 June 2019.
23: Interest in Subsidiaries
Country of Incorporation
Parent entity
Recce Pharmaceuticals Ltd
Australia
Subsidiaries
Recce (USA) LLP
Recce (UK) Limited
United States
United Kingdom
24: Events Subsequent to Reporting Period
Subsequent to year end:
Percentage Owned
2019
%
–
100
100
2018
%
–
100
100
John Prendergast was appointed Chairman and Justin Ward was appointed a director.
The Company also received a further R&D advance from Radium Capital in the amount of $262,462.
The Company received its R&D tax refund in the amount of $1,071,727 and repaid its loan plus interest to Radium
Capital of $908,054.
The Company placed $150,000 under its controlled Placement Agreement with Acuity Capital. This will result in the
issue of 750,000 ordinary shares being issued at $0.20.
The Company entered into a number of unsecured, short term loans with Australian based sophisticated investors.
The total amount of these loans was $350,000 at an interest rate of 3.71%. The loans and interest are repayable
following completion of a capital raising by the Company or within 6 weeks of the advance date, whichever is earlier.
Other than the above, no matters or circumstances have arisen since the end of the financial year, which significantly
affected, or may significantly affect, the operations of the Group, the results of those operations, or state of affairs of
the Group in future financial years.
59
RECCE PHARMACEUTICALS ANNUAL REPORT 2019
Directors’ Declaration
The Directors of the Company declare that:
1. The consolidated financial statements comprising the consolidated statement of profit or loss and other
comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity,
consolidated statement of cash flows and accompanying notes, as set out on pages 36 to 59, are in accordance
with the Corporations Act 2001 , including:
a. complying with Accounting Standards and the Corporations Regulations 2001 ; and other mandatory reporting
requirements; and
b. give a true and fair view of the financial position as at 30 June 2019 and of the performance for the year
ended on that date of the Group;
2. The Non-Executive Chairman and Chief Financial Officer have each declared that:
a. the financial records of the Company for the financial year have been properly maintained in accordance with
section 286 of the Corporations Act 2001 ;
b. The financial statements and notes for the financial year comply with the Accounting Standards; and
c. The financial statements and notes for the financial year give a true and fair view;
3. In the Director’s opinion there are reasonable grounds to believe that the Group will be able to pay its debts
as and when they become due and payable
This declaration is made in accordance with a resolution of the Board of Directors.
John Prendergast
Chairman
27 September 2019
60
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Independent Auditor’s Report
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
38 Station Street
Subiaco, WA 6008
PO Box 700 West Perth WA 6872
Australia
INDEPENDENT AUDITOR'S REPORT
To the members of Recce Pharmaceuticals Ltd
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Recce Pharmaceutical Ltd (the Company) and its subsidiaries
(the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
of changes in equity and the consolidated statement of cash flows for the year then ended, and notes
to the financial report, including a summary of significant accounting policies and the directors’
declaration.
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Act 2001, including:
(i)
Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its
financial performance for the year ended on that date; and
(ii)
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Material uncertainty related to going concern
We draw attention to Note 3 in the financial report which describes the events and/or conditions which
give rise to the existence of a material uncertainty that may cast significant doubt about the group’s
ability to continue as a going concern and therefore the group may be unable to realise its assets and
discharge its liabilities in the normal course of business. Our opinion is not modified in respect of this
matter.
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275,
an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and
form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.
61
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 Independent Auditor’s Report Continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. In addition to the matter described in the Material uncertainty
related to going concern section, we have determined the matters described below to be the key audit
matters to be communicated in our report.
We have not identified any key audit matters for Recce Pharmaceuticals Ltd.
Other information
The directors are responsible for the other information. The other information comprises the
information in the Group’s annual report for the year ended 30 June 2019, but does not include the
financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
62
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 14 to 22 of the Annual report for the year
ended 30 June 2019.
In our opinion, the Remuneration Report of Recce Pharmaceuticals Ltd, for the year ended 30 June
2019, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.
BDO Audit (WA) Pty Ltd
Neil Smith
Director
Perth, 27 September 2019
63
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 ASX Additional Information
Shareholder Information as at 19 September 2019
Additional information required by the Australian Securities Exchange listing rules and not shown elsewhere in this
report is as follows:
(a) Distribution of equity securities (as at 19 September 2019)
The number of shareholders, option holders and performance right holders by size of holding are:
Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Number of Shareholders
Number of Shares
% Issued Share Capital
32
229
225
637
125
1,248
4,946
791,602
2,005,657
24,501,261
79,826,453
107,129,919
0.00
0.74
1.87
22.87
74.51
100.00
Option Holders
Number of Shares
% Issued Share Capital
0
0
0
0
2
2
0
0
0
0
3,162,576
3,162,576
0.00
0.00
0.00
0.00
100.00
100.00
Performance Right Holders
Number of Shares
% Issued Share Capital
0
0
0
0
10
10
0
0
0
0
26,263,269
26,263,269
0.00
0.00
0.00
0.00
100.00
100.00
64
RECCE PHARMACEUTICALS ANNUAL REPORT 2019 (b) Twenty largest shareholders (as at 19 September 2019)
The names of the twenty largest holders of quoted shares are:
Name
1 Mr Graham Melrose & Ms Olga Melrose
2 Ross Gustafson
3 Mr James Graham
4 J P Morgan Nominees Australia Pty Limited
5 Acuity Capital Investment Management Pty Ltd
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