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Nanollose LimitedANNUAL REPORT 2020
ASX:RCE
CONTENTS
1 HIGHLIGHTS
2 MESSAGE FROM THE CHAIRMAN
4 COMPANY PROFILE
10 BOARD OF DIRECTORS &
KEY MANAGEMENT PERSONNEL
11 FINANCIAL REPORT
69 CORPORATE DIRECTORY
Recce Pharmaceuticals is pioneering the development and
commercialisation of New Classes of Synthetic Anti-Infectives
designed to address the urgent global health problems of antibiotic
resistant superbugs and emerging viral pathogens. Recce’s anti-
infective pipeline is unique and comprised of two broad-spectrum
synthetic polymer antibiotics, RECCE® 327 and RECCE® 435, as well as
a synthetic anti-infective for viral infections, RECCE® 529. All RECCE®
compounds contain a unique mechanism of action against hyper-
mutation on bacteria and viruses, respectively.
RECCE® 327 is the Company’s lead drug candidate and has been
developed for the treatment of blood infections and sepsis derived
from E. coli and S. aureus bacteria – including their superbug forms.
The FDA has awarded RECCE® 327 Qualified Infectious Disease
Product designation under the Generating Antibiotic Initiatives Now
(GAIN) Act – labelling it for Fast Track Designation, plus 10 years of
market exclusivity post approval. Recce wholly owns its automated
manufacturing facility and anti-infective pipeline. Its business is the
unique capabilities of RECCE® technologies targeting synergistic,
unmet medical needs.
HIGHLIGHTS
Commercial
Regulatory
Clinical
500% increase in production
and robust operational
outputs;
Board appointment of U.S.
based, NYSE, and NASDAQ
Director Dr John Prendergast
to Independent Chair, and
Dr Justin Ward appointed to
Board as Executive Director;
Delivered opening Research
and Development (R&D)
Address at 2019 World
Antimicrobial Resistance
(AMR) Congress;
Raised approximately
AU$6.76m at 0.26 per share
from sophisticated and
institutional investors.
RECCE® 327 permitted for
supply to Australian medical
practitioners in defined
circumstances under the
TGA SAS;
European Patent Office
(EPO) has granted 15 claims
covering family two patent –
copolymer for use in a method
of treatment of a parenteral
infection;
Japan Patent Office (JPO)
has granted 12 claims covering
family two patient – copolymer
for use in a method of
treatment of a parenteral
infection.
Positive safety studies
indicated 24-hour dosing up
to 80x efficacious dose well
tolerated in rats and dogs.
Findings suggest a wide
therapeutic dosing window;
Positive data demonstrated
broad efficacy against MRSA,
E. coli in kidney and urinary
tract infections (UTIs), and
Neisseria gonorrhoeae;
Antiviral applications with
positive data against Influenza
A – RECCE® 327 showed
significant dose-dependent
decrease in viral load in the
lungs compared to approved
antiviral drug ribavirin;
First-in-human Phase I clinical
trial agreement signed with
leading clinical research
organisation Parexel.
1
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 MESSAGE FROM THE CHAIRMAN
We are pleased to share our achievements over the past year and
update you on our strategic goals and objectives for the coming year.
During the reporting period, Recce Pharmaceuticals has continued to make
solid advances solid advances on the development of our revolutionary
broad-spectrum synthetic antibiotic platform designed to help address
the unmet global health threat from antibiotic resistant superbugs.
A key development towards this
goal was the signing of a formal
agreement to start the Phase I first-
in-human clinical trial of our lead
compound, RECCE® 327, formulated
using synthetic polymer technology
to treat blood infections and sepsis.
With RECCE® 327 set to enter human
clinical trials in Australia, we have
also allocated additional resources
to expand the clinical pipeline.
Our initial focus is sepsis,
septicaemia or otherwise known
as blood poisoning; however, we
are also actively pursuing several
additional applications for our unique
technology. Each of these indications
are potential high-volume, high-
demand, multi-billion-dollar markets.
Promising results from initial animal
studies assessing the use of RECCE®
327 as a potential treatment for
kidney and urinary tract infections,
influenza, gonorrhoea, and skin
burns has created interest among
the medical community and patients
with recurring or difficult to treat
infections.
The insights gained from each of
these programs continue to inform
our efforts and strategies for major
markets.
Protecting our technology is of the
utmost importance. Our extensive
and growing library of patent
applications ensure our intellectual
property rights are protected. This
covers our innovations, not just in
manufacturing but also in the use of
our lead compound for a range of
therapeutic applications including
its methods of administration in
diverse clinical settings.
We are excited at the prospects for
the Company’s therapeutic pipeline
during the coming year and look
forward to providing updates on
their progress.
Presentations
While the global SARS-CoV-2
pandemic has limited our ability to
travel and meet face-to-face with
industry stakeholders, the board
and management have spent a
considerable time over the second
half of the year presenting and
engaging virtually with investors,
medical professionals and clinical
partners.
Dr John Prendergast
Non-Executive Chairman
2
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 “We truly believe in the ability of our
new classes of anti-infectives to transform
the treatment of many diseases.”
mechanism of action against hyper-
mutation of both bacteria and viruses
which provide new hope for the
millions of patients who today have
few or no treatment options left.
As always, we thank you for your
continued valued support and
investment in Recce Pharmaceuticals
throughout the financial year.
Dr John Prendergast
Non-Executive Chairman
Our goal in these virtual discussions
has been to sustain interest in our
expanding pipeline through continual
communication aimed at establishing
and retaining partnerships essential
to our growth.
These initiatives are highlighted
by our opening address and
presentation to the World
Antimicrobial Resistance Congress
and the simultaneous publication
of a detailed white paper outlining
the potential applications for our
unique synthetic antibiotics. The
presentation and paper were both
well received and provided significant
momentum to our ongoing industry
engagement program.
During the reporting period we
successfully raised AU $6.76 million
to fund our programs and ensure
a solid footing as we expand
our technical and commercial
capabilities, collaborations and
clinical programs in Australia and
globally.
Outlook
Our growing portfolio of synthetic
anti-infectives are targeting major
infections where the therapeutic
need is greatest and where
the current standard of care
often fails to improve patient
outcomes. This includes ESKAPE
pathogens (Enterococcus faecium,
Staphylococcus aureus, Klebsiella
pneumoniae, Acinetobacter
baumannii, Pseudomonas aeruginosa,
and Enterobacter species) which
are the leading cause of hospital-
acquired infections – most of which
are drug-resistant.
Establishing our leading anti-
infective product portfolio has been
possible through the passion of key
opinion leaders, supporting external
stakeholders and the foresight and
dedication of our team.
In addition, we are deeply grateful
for the support of our shareholders
and our institutional investors whose
continued confidence has provided
us with sufficient capital to enable
successful execution of our clinical
and business operations.
We truly believe in the ability of our
new classes of anti-infectives to
transform the treatment of many
diseases and address the global
health threat of antibiotic resistance.
Our compounds have a unique
3
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
COMPANY PROFILE
The reporting period saw the Company achieve an array of developmental milestones. Our lead candidate
RECCE® 327 continued to demonstrate efficacy against a range of Gram-positive and Gram-negative bacterial
pathogens. Studies continued to indicate RECCE® 327 to have a unique ability to cause bacterial cell lysis
without undue inhibition of healthy cells. RECCE® 327, the compound of primary focus for the reporting period,
continued in the drug development pathway, indicating great promise for a new class of broad-spectrum
synthetic antibiotics designed to address the urgent global health threat posed by antibiotic resistance.
Bacterial Load on Wound
Wound Healing
Methicillin-Resistant Staphylococcus aureus (MRSA)
Methicillin-Resistant Staphylococcus aureus (MRSA)
6
Methicillin-Resistant Staphylococcus Aureus (MRSA)
3
Staphylococcus aureus (S. aureus) are common bacteria that spread rapidly in healthcare
facilities and the community. Methicillin-Resistant S. aureus (MRSA) can cause difficult-to
treat staph infections due to resistance to some antibiotics.
5
4
b
a
w
S
/
U
F
C
0
1
g
o
L
t
n
e
m
t
a
e
r
T
o
N
.
9
6
5
–
1
Y
A
D
.
1
4
5
–
4
Y
A
D
FACTS: MRSA
MRSA
)
n
i
t
e
c
y
m
a
r
F
(
n
i
c
y
m
a
r
f
o
S
is a major nosocomial
pathogen worldwide1
4
8
5
–
1
Y
A
D
7
8
4
–
.
.
1.5
Up to 74%
)
%
(
n
o
i
t
c
a
of worldwide S. aureus
r
t
n
infections are MRSA2
o
C
e
g
a
t
n
e
c
r
e
P
*
9
5
4
–
0
.
.
0
8
5
–
Attributed to
A$2.5bn
)
n
i
t
e
c
y
m
a
r
F
to healthcare costs in US3
(
n
i
c
y
m
a
r
f
o
S
–
4
Y
A
D
*
6
4
2
.
t
n
e
m
t
a
e
r
T
o
N
.
6
8
0
–
4
Y
A
D
*
6
5
2
.
–
4
Y
A
D
E
C
C
E
R
1 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5596608/
2 https://ccforum.biomedcentral.com/articles/10.1186/s13054-017-1801-3#ref-CR22
4
4
3 Ref CDC report – https://www.cdc.gov/drugresistance/pdf/threats-report/2019-ar-threats-report-508.pdf
1
Y
Y
Y
Dollar amount is in USD but converted to AUD
A
A
A
D
D
D
E
C
C
E
R
In a study against the MRSA superbug, rats with topical burns treated with RECCE® 327 demonstrated compelling
in-vivo antibacterial activity. The results showed that RECCE® 327 was effective in reducing bacterial load in wounds
and showed enhanced wound contraction compared to the best-in-class treatment – Soframycin.
Bacterial Load on Wound
Wound Healing
Methicillin-Resistant
Staphylococcus aureus (MRSA)
Methicillin-Resistant
Staphylococcus aureus (MRSA)
6
5
4
B
A
W
S
/
U
F
C
0
1
G
O
L
DAY 1
5.84
DAY 1
5.80
DAY 1
5.69
DAY 4
5.41
DAY 4
4.87
DAY 4
4.59*
E
C
C
E
R
3
I
)
%
(
N
O
T
C
A
R
T
N
O
C
E
G
A
T
N
E
C
R
E
P
1.5
0
DAY 4
0.86
DAY 4
2.56**
DAY 4
2.46**
GROUP 1
Burn wound with
infection, no treatment
– sterile topical saline,
once daily.
GROUP 2
Burn wound with
infection + Market drug –
Soframycin, twice daily.
GROUP 3
Burn wound with
infection + RECCE® 327 –
topical once daily.
NO
TREATMENT
SOFRAMYCIN
(FRAMYCETIN)
RECCE
NO
TREATMENT
SOFRAMYCIN
(FRAMYCETIN)
RECCE
RECCE® 327 mg/kg dosing is based upon ‘total administered solution’. A significant proportion of RECCE® 327 administered solution
quoted includes inactive components such as diluent/water and stabilising medium. The Active Pharmaceutical Ingredient (API) as
is sometimes the quoted mg/kg of the comparative product/s, likely to dramatically benefit by way of reduction to the otherwise
stated RECCE® figure.
*Significantly lower than Day 1.
**Significantly different from vehicle control.
Trial conducted by independent clinical research organization.
4
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
A further study was undertaken against MRSA, which showed significant in-vivo antibacterial activity in rats with
topical burns treated with RECCE® 327. RECCE® 327 continued to show efficacy at different dose levels with significant
reduction in bacterial count in the infected wound when compared to the vehicle control (p<0.05). In this study
Soframycin was applied twice daily at optimum therapeutic dose whereas a once daily application of RECCE® 327
demonstrated antibacterial efficacy reinforcing that RECCE® 327 may be a more potent antibiotic without additional
toxicity considerations associated with similar doses of Soframycin. As dosage increased from 10mg to 100mg,
there was a further 13.28% decrease in bacterial load.
Study 2 – Wound Infection
Methicillin-Resistant Staphylococcus aureus (MRSA)
Study 2 – Wound Infection
7
Methicillin-Resistant Staphylococcus aureus (MRSA)
7
5
5
3
DAY 1
6.00
DAY 1
6.00
DAY 1
6.05
DAY 1
6.05
DAY 4
5.07
DAY 4
5.07
DAY 1
6.17
DAY 1
6.17
DAY 1
6.09
DAY 1
6.09
DAY 4
4.23*
DAY 4
4.29*
DAY 4
4.09*
NO
TREATMENT
4.23*
SOFRAMYCIN (30MG)
(FRAMYCETIN)
4.29*
RECCE (10MG)
DAY 4
DAY 4
DAY 4
RECCE (50MG)
4.09*
DAY 1
6.15
DAY 1
6.15
DAY 4
3.72*
RECCE (100MG)
DAY 4
3.72*
13.28%
decrease
as dosage
increases
13.28%
decrease
as dosage
increases
*Significantly different from day 1 Pl [p<0.05].
3
RECCE® 327 mg/kg dosing is based upon ‘total administered solution’. A significant proportion of RECCE® 327 administered solution quoted includes inactive
RECCE (50MG)
components such as diluent/water and stabilising medium. The Active Pharmaceutical Ingredient (API) as is sometimes the quoted mg/kg of the comparative
product/s, likely to dramatically benefit by way of reduction to the otherwise stated RECCE® figure.
SOFRAMYCIN (30MG)
(FRAMYCETIN)
NO
TREATMENT
RECCE (100MG)
RECCE (10MG)
)
8
=
N
(
)
D
S
±
N
)
A
8
E
=
M
N
(
(
)
D
S
±
N
A
E
M
(
B
A
W
S
/
U
F
C
0
1
B
G
A
O
W
L
S
/
U
F
C
0
1
G
O
L
*Significantly different from day 1 Pl [p<0.05].
Study 2 – Wound Contraction
RECCE® 327 was further assessed in a wound contraction study, demonstrating significant dose-dependent wound
healing activity when compared to the vehicle control (p<0.05). Additionally, RECCE® 327 was 180% more effective
in wound healing as the dose escalated in comparison to the group that received no treatment.
RECCE® 327 mg/kg dosing is based upon ‘total administered solution’. A significant proportion of RECCE® 327 administered solution quoted includes inactive
components such as diluent/water and stabilising medium. The Active Pharmaceutical Ingredient (API) as is sometimes the quoted mg/kg of the comparative
product/s, likely to dramatically benefit by way of reduction to the otherwise stated RECCE® figure.
Methicillin-Resistant Staphylococcus aureus (MRSA)
Study 2 – Wound Contraction
3
Methicillin-Resistant Staphylococcus aureus (MRSA)
3
1.5
1.5
0
DAY 4
0.96
DAY 4
0.96
NO
TREATMENT
DAY 4
2.17*
DAY 4
2.17*
DAY 4
1.89*
DAY 4
1.89*
DAY 4
2.55*
DAY 4
2.55*
DAY 4
2.69*
DAY 4
2.69*
Wound healing
increases
180%
as dose
Wound healing
escalates
increases
180%
as dose
escalates
I
I
D
N
U
O
W
D
E
T
C
D
E
N
F
U
N
O
W
N
D
D
E
A
T
O
C
L
E
L
F
A
N
R
N
E
T
D
C
A
A
O
B
L
L
A
R
E
T
C
A
B
I
I
I
I
I
I
N
O
T
C
A
R
T
N
O
N
C
O
D
T
N
C
U
A
O
R
W
T
N
E
O
G
C
A
T
D
N
N
E
U
C
O
R
W
E
P
E
G
A
T
N
E
C
R
E
P
)
8
=
N
(
)
D
S
±
N
)
A
8
E
=
M
N
(
(
)
D
S
±
N
A
E
M
(
SOFRAMYCIN (30MG)
(FRAMYCETIN)
RECCE (10MG)
RECCE (50MG)
RECCE (100MG)
*Significantly different from day 1 Pl [p<0.05].
0
RECCE® 327 mg/kg dosing is based upon ‘total administered solution’. A significant proportion of RECCE® 327 administered solution quoted includes inactive
components such as diluent/water and stabilising medium. The Active Pharmaceutical Ingredient (API) as is sometimes the quoted mg/kg of the comparative
product/s, likely to dramatically benefit by way of reduction to the otherwise stated RECCE® figure.
SOFRAMYCIN (30MG)
(FRAMYCETIN)
NO
TREATMENT
RECCE (100MG)
RECCE (50MG)
RECCE (10MG)
*Significantly different from day 1 Pl [p<0.05].
RECCE® 327 mg/kg dosing is based upon ‘total administered solution’. A significant proportion of RECCE® 327 administered solution quoted includes inactive
components such as diluent/water and stabilising medium. The Active Pharmaceutical Ingredient (API) as is sometimes the quoted mg/kg of the comparative
product/s, likely to dramatically benefit by way of reduction to the otherwise stated RECCE® figure.
This additional antibacterial efficacy data will be presented to a leading, teaching Australian hospital for their
anticipated collapsed Phase Ia/b topical study considerations.
5
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
COMPANY PROFILE CONTINUED
Kidney/Urinary Tract Infection
A urinary tract infection (UTI) is caused by micro-organisms, usually a bacterium called
Escherichia coli (E. coli).
FACTS: Kidney and UTI infections
90%
85%
of kidney infections are
caused by E. coli1
of all UTI’s are
caused by E. coli2
Nearly 25%
of all sepsis cases in adults
result following a UTI3
1 https://my.clevelandclinic.org/health/diseases/15456-kidney-infection-pyelonephritis#:~:text=A%20bacteria%20called%20Escherichia%20
Coli,the%20bladder%20to%20the%20kidneys.
2 https://wwwnc.cdc.gov/eid/article/18/3/11-1099_article
3 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5119864/#:~:text=Approximately%2025%25%20of%20all%20adult,%2C%20%26%20
Naber%2C%202007).
In another study, an independent research organisation further tested RECCE® 327 in a rat infection model for the
treatment of kidney and UTIs caused by E. coli, which can often progress to sepsis. The data demonstrated RECCE® 327
could potentially form a part of a broader anti-infective treatment model in pre-sepsis.
Efficacy of RECCE® 327
Kidneys
Bladder
5.64 ± 0.34
5.44 ± 0.18
6
5
4
I
Y
E
N
D
K
G
/
U
F
C
0
1
G
O
L
)
D
S
±
N
A
E
M
(
8.91 ± 0.45
9
8
7
6
R
E
D
D
A
L
B
G
/
U
F
C
0
1
G
O
L
)
D
S
±
N
A
E
M
(
4.56 ± 0.37*
7.88 ± 0.57*
6.69 ± 0.45*
E. COLI
VEHICLE CONTROL
RECCE (50MG/KG)
IV 24TH INFUSION
RECCE (500MG/KG)
IV 24TH INFUSION
E. COLI
VEHICLE CONTROL
RECCE (50MG/KG)
IV 24TH INFUSION
RECCE (500MG/KG)
IV 24TH INFUSION
*(p<0.05) significantly different different from vehicle control.
RECCE® 327 mg/kg dosing is based upon ‘total administered solution’. A significant proportion of RECCE® 327 administered solution quoted includes inactive
components such as diluent/water and stabilising medium. The Active Pharmaceutical Ingredient (API) as is sometimes the quoted mg/kg of the comparative
product/s, likely to dramatically benefit by way of reduction to the otherwise stated RECCE® figure.
Worldwide, UTIs’
prevalence was estimated
to be around 150 million
persons per year1
UTIs can spread
from the kidneys,
going on to cause sepsis and
septic shock, leading to death.
More than half the cases of so
called ‘urosepsis’ among older
adults are caused by a UTI.2
In particular patients in hospital
or nursing home settings
with indwelling urethral catheters,
ureteric stents, nephrostomy tubes,
neurogenic bladder, cystocele, or
vesicoureteral reflux are at a higher risk
for developing urosepsis. These patients
in long-term-care facilities are especially
at a higher risk of developing infections
from drug-resistant organisms making
them harder to treat.3
1 https://www.hindawi.com/journals/jdr/2016/6573215/
2 https://www.sepsis.org/sepsisand/urinary-tract-infections/
3 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2840933/
6
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
Positive Data from Safety Studies
Neisseria gonorrhoeae (N. gonorrhoeae) causes gonorrhoea, a sexually transmitted disease
that can result in life-threatening ectopic pregnancy, infertility and can increase the risk
of contracting HIV. N. gonorrhoeae is a species of Gram-negative bacteria and the second
most common sexually transmitted infection globally. The World Health Organisation lists
N. gonorrhoeae as a priority pathogen on its list of antibiotic resistant bacteria that pose
the greatest threat to human health.
FACTS: N. gonorrhoeae
550,000
estimated drug resistant
infections each year in
the USA1
Globally,
78 million
people are estimated to
be infected each year2
A$185.9m
annual discounted
lifetime direct medical
costs3
1 https://www.who.int/news-room/detail/27-02-2017-who-publishes-list-of-bacteria-for-which-new-antibiotics-are-urgently-needed
2 https://www.cdc.gov/drugresistance/pdf/threats-report/2019-ar-threats-report-508.pdf
3 https://www.who.int/news-room/detail/07-07-2017-antibiotic-resistant-gonorrhoea-on-the-rise-new-drugs-needed
RECCE® 327 has shown significant in-vivo antibacterial activity against N. gonorrhoeae in a study conducted in
mice. The study was carried out by an independent contract research organisation to assess dose dependency of
RECCE® 327 and in-vivo antibacterial activity against N. gonorrhoeae. The data demonstrated a promising dose-
dependent decrease in bacterial load in infection as compared to the vehicle control and approved therapy. In this
study Meropenem, a broad spectrum carbapenem antibiotic, was used at its optimum dose as the recognised efficacy
model. In practice however, Meropenem’s high rates of bacterial resistance have recently led to restriction of its use
strictly reserved for infections caused by resistant organisms.4
4 https://ohiostate.pressbooks.pub/osuvmcabxuse/chapter/abx_meropenem-companion/
Efficacy of RECCE® 327
Against N. Gonorrhoeae in Mice
6
5
4
3
2
I
D
A
O
L
A
R
E
T
C
A
B
L
M
/
U
F
C
0
1
G
O
L
5.62 ± 0.46
4.90 ± 0.47*
4.08 ± 0.76*
3.95 ± 0.45*
43%
decrease in
bacterial count
as dose
escalates
2.77 ± 0.34*
VEHICLE INFECTED
CONTROL
INFECTED CONTROL +
MEROPENEM (50MG)
RECCE (50MG/KG)
RECCE (500MG/KG)
RECCE (1,000MG/KG)
MEAN ± SD (LOG 10CFU/ML)
*(p<0.05) significantly different from vehicle control.
RECCE® 327 mg/kg dosing is based upon ‘total administered solution’. A significant proportion of RECCE® 327 administered solution quoted includes inactive
components such as diluent/water and stabilising medium. The Active Pharmaceutical Ingredient (API) as is sometimes the quoted mg/kg of the comparative
product/s, likely to dramatically benefit by way of reduction to the otherwise stated RECCE® figure.
7
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
COMPANY PROFILE CONTINUED
RECCE viral capabilities
Influenza A is a highly contagious respiratory illness and may be cause by infection with a
virus; it is often called the flu. There are three types of Influenza virus: A, B and C. Influenza A
is more serious than B and C and is the only type known to cause widespread outbreaks.
FACTS: Influenza A
The Centre for Disease
Control estimates Influenza
has resulted in between
9m-45m
illnesses annually
in the USA since 20101
Between
Estimated
140,000-
810,000
hospitalizations annually
in the USA since 20101
45,000,000
USA Influenza
Burden 2017-20181
1 https://www.cdc.gov/flu/about/burden/index.html#:~:text=CDC%20estimates%20that%20influenza%20has,61%2C000%20deaths%20
annually%20since%202010.
In addition to demonstrating capability against different types of bacteria, Recce’s ‘master key’ synthetic anti-infective
compound exhibited efficacy against the Influenza A virus in mice. RECCE® 327 showed significant and dose-dependent
decrease in the viral growth rate and viral load in lungs for mice infected with Influenza A following treatment with
RECCE® 327, compared to the control group, and a group treated with an approved antiviral drug. As dosage increased
from 500mg/kg to 1,000mg/kg, the viral count fell below the limit of quantitation (BLOQ) on Days 4 and 6 post-infection.
Efficacy of RECCE® 327
Against Influenza A Lung Infection in Mice
Group
Day 1
Day 6
% Change
VEHICLE
CONTROL
RIBAVARIN
66MG/KG
RECCE®327
500MG/KG
RECCE®327
1,000MG/KG
4.38
5.32
+19.308%
4.29
4.16
-3.08%
4.39
4.09
-7.08%
4.39
BLOQ*
-100%
5.5
5.0
4.5
4.0
0
)
D
S
±
N
A
E
M
(
G
N
U
L
G
/
D
A
O
L
L
A
R
V
0
1
I
G
O
L
1
DAYS POST INFECTION
2
*BLOQ – Below Limit of Quantitation.
BLOQ*
BLOQ*
3
4
5
6
RECCE® 327 mg/kg dosing is based upon ‘total administered solution’. A significant proportion
of RECCE® 327 administered solution quoted includes inactive components such as diluent/
water and stabilising medium. The Active Pharmaceutical Ingredient (API) as is sometimes
the quoted mg/kg of the comparative product/s, likely to dramatically benefit by way of
reduction to the otherwise stated RECCE® figure.
The Company has formed a new Compound RECCE® 529, focused on viral indications following background anti-viral
research. Claims to RECCE® 529 have been lodged in a provisional Patent Family 4 submission and are expected to be
built upon as independent COVID study data becomes available.
8
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
Recce Pharmaceuticals on the world stage
Throughout the year, we presented across several media platforms,
conferences and investor events. We have been working closely with a global
specialist public relations agency focused on life science and medical technology –
LifeSci Communications. Our international profile among stakeholders has grown
substantially, with a number of world-leading pharmaceutical companies in
routine correspondence as to the Company and its anti-infective technology.
The outcomes to date have seen our strategy, investment
case and product candidates profiled in a range of
leading media platforms such as Drug Discovery News,
Empowered Patient podcast, Genetic Engineering and
Biotechnology News, Pharma Technology Focus and
U.S. based ABC TV, among others.
On a national scale, we have worked with media and
investor relations companies such as Wholesale Investor,
Ausbiz, Proactive Investor, Spark Plus, Finance News
Network and more. Notably, the company attended and
presented at the World Anti-Microbial Resistance (AMR)
Congress in Washington, D.C. – the largest commercially
focused conference exclusively focused on AMR.
The 2019 conference engaged more than 600 attendees
from over 40 countries, which included key stakeholders
from the pharma and biotech industry, who are involved
in the development of AMR drugs and diagnostics.
The Company will virtually attend the 2020 World
AMR congress and deliver the Opening R&D Address
highlighting why Synthetic Antibiotics are the new
approach the world needs.
Post AMR Congress in 2019, the Company was a Host
Sponsor at The Economist’s Antimicrobial Resistance
Summit Asia. Executive Director Michele Dilizia sat
on the industry panel discussion titled Innovation
and R&D from lab to hospital.
The event convened experts from government, industry,
and academia, where AMR is elevated from an issue
receiving attention by a narrow group of concerned
scientists and politicians to a mainstream policy priority
for governments worldwide.
9
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 BOARD OF DIRECTORS AND KEY MANAGEMENT PERSONNEL
Dr John Prendergast
Chairman (Non-Executive)
BSc (Hons), MSc (UNSW), PhD (UNSW), CSS (HU)
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.
Appointed – 9 July 2019.
Dr Alan Dunton
Non-Executive Director
BSc (BioChem) Hons, M.D. (NYU)
US based, Director of Palatin Technologies.
Over three decades of senior pharmaceutical
experience incl. President and MD of Janssen
Research Foundation (J&J Research).
Dr Dunton has advanced a number of
blockbuster antibiotics through regulatory
review and commercialization at fortune 500
companies including J&J and Roche.
Appointed – 14 July 2020.
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.
Appointed Chief Executive Officer August 2020.
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.
Appointed – 9 July 2019.
Alistair McKeough
Company Secretary (Automic Group)
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.
Dr Graham Melrose
Executive Director and
Chief Research Officer
BSc (Hons), PhD, MBA, FRACI, CChem, FAICD
Founder and inventor. Former Executive
Director and Head of Research at Johnson
& Johnson (Aust) in Sydney, with global
responsibilities, particularly in Asia-Pacific.
Dr Melrose resigned post FY19/20 – 3 July 2020.
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.
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.
Entered into a consultancy agreement – 1 August 2019.
Dr David Bowers
Chair of the Clinical Advisory
Committee
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.
Justin Reynolds
Chief Financial Officer (Pitcher
Partners Sydney)
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.
10
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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 2020
12 DIRECTORS’ REPORT
26 AUDITOR'S INDEPENDENCE DECLARATION
27 CORPORATE GOVERNANCE STATEMENT
38 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
39 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
40 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
41 CONSOLIDATED STATEMENT OF CASH FLOWS
42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
62 DIRECTORS’ DECLARATION
63 INDEPENDENT AUDITOR’S REPORT
67 ASX ADDITIONAL INFORMATION
11
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Your Directors present their report on Recce
Pharmaceuticals Ltd (the ‘Company’) and
controlled entities (the ‘Group’) for the year
ended 30 June 2020.
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 (appointed 9 July 2019)
Dr Graham Melrose (resigned 3 July 2020)
Ms Michele Dilizia
Mr James Graham
Dr Justin Ward (appointed 9 July 2019)
Dr Alan Dunton (appointed 14 July 2020)
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; and Lead Director of Heat Biologics,
Inc. (NASDAQ: HTBX).
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)
12
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
Ms Michele Dilizia
Director (Executive)
Qualifications
BSc (Med Sci), Grad Dip Bus (Mkting), BA (Journ),
GAICD, Member 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
3,141,273 Ordinary Shares
577,212 Class B 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
Dr Graham Melrose
Director (Executive) – resigned 3 July 2020
Qualifications
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
36,450,003 Ordinary Shares*
6,075,000 Class B 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
13
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 Mr James Graham
Director (Executive)
Qualifications
Dr Justin Ward
Director (Executive) – appointed 9 July 2019
Qualifications
BCom (Entrepreneurship), GAICD
BSc (Chem), PhD (Chem), MRACI, Chartered Chemist
Experience
Experience
Mr Graham is Executive Director of the Company
Mr Graham has a background in marketing, business
development and commercialisation of early stage
technology with global potential.
Mr Graham continues to work closely with the growth
and direction of Company, routinely investing alongside
shareholders in capital rounds to date.
Interest in Shares
Direct ownership
2,258,313 Ordinary Shares
389,712 Class B Performance Shares
389,712 Class D Performance Shares
Indirect ownership
2,787,500 Ordinary Shares
356,250 Class B 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 qualified chemist with specialisation in
pharmaceutical quality management and product
development.
Before Recce Pharmaceuticals, he held a technical
speciality 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
158,966 Ordinary Shares
Indirect ownership
0 Ordinary 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
14
RECCE PHARMACEUTICALS ANNUAL REPORT 2020DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2020 Dr Alan Dunton
Director (Non-Executive) – appointed 14 July 2020
Qualifications
M.D. New York University School of Medicine
B.S. Biochemistry. (Magna cum laude) State University
School of New York at Buffalo
Experience
Dr Dunton has held leadership positions at various
biotechnology and pharmaceutical companies
including serving as president and chief executive
officer at Panacos Pharmaceuticals, Inc., Metaphore
Pharmaceuticals, Inc., and chief operating officer at
Emisphere Technologies, Inc.
Dr Dunton served in several positions at Johnson and
Johnson including president and managing director at the
Janssen Research Foundation where he was responsible
for leading over 2,000 professionals worldwide and
prior to this as vice president of global clinical research
and development at the R.W. Johnson Pharmaceutical
Research Institute.
Dr Dunton earned his medical degree from New York
University School of Medicine following his bachelor’s
degree in biochemistry from the State University of
New York at Buffalo. Dr Dunton then completed his
fellowship in clinical pharmacology at New York Hospital/
Cornell University Medical Center and, in 1987, was
awarded The Nellie Westerman Prize from the American
Federation for Clinical Research (AFCR) for his work in
medical ethics.
Interest in Shares
Direct ownership
10,000 Ordinary Shares
Indirect ownership
Nil Ordinary Shares
Special Responsibilities
Nil
Directorships held in other listed entities during
the last three years
Palatin Technologies, Inc. (NYSE: PTN)
Oragenics, Inc. (NYSE: OGEN)
CorMedix, Inc. (NYSE: GRMD)
Regeneus Ltd (ASX: RGS)
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.
Mr 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 applied
his exceptional back 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 associated
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.
15
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 Review of Operations
On 9 July 2019, the Company announced that Dr John
Prendergast had been appointed to Independent Chair
with founder Dr Graham Melrose stepping back from the
role of Executive Chair to Executive Director and Chief
Research Officer. In addition, the Company’s Principle
Chemist, Dr Justin Ward, was appointed to the Board
as Executive Director.
On 1 August 2019, the Company announced that it was
to deliver an Opening R&D Address at the World Anti-
Microbial Resistance (AMR) Congress in Washington
D.C., to be held 7-8 November 2019.
On 8 August 2019, the Company announced that
the European Patent Office had granted its patent
applications for wholly owned RECCE® antibiotics,
including lead compound RECCE® 327 furthering
marketing/manufacturing monopolies and expanding
clinical indications. The patent family titled ‘Copolymer
for use in a method of treatment of a parenteral infection’,
is a second family of 15 claims, all of which were granted
by the European Patent Office.
On 26 August 2019, the Company announced advances
in scaled manufacture and drug quality following positive
Food and Drug Administration (FDA) feedback to its
Chemistry, Manufacturing, and Controls (CMC) data pack.
On 30 August 2019, the Company announced a
successful grant application as 1 of 5 Industrial Partners
in collaboration with 16 University and Public Health
Organisations, to establish a National Anti-Microbial
Resistant (AMR) Research Hub (the Hub) in Sydney,
Australia to combat antimicrobial resistance.
On 18 September 2019, the Company announced the
cash receipt of A$163,672 Research and Development
Tax Incentive rebate from the Australian Tax Office for
the year ending 30 June 2020. The gross Research and
Development Tax Incentive rebate before the repayment
of R&D advances and interest was $1,071,727.
On 20 September 2019, the Company announced that
the Japan Patent Office (JPO) had Granted a second
patent for wholly owned RECCE® antibiotics, including
lead compound RECCE® 327, furthering marketing/
manufacturing monopolies and expanding clinical
indications. This second patent family, titled ‘Copolymer
for use in a method of treatment of a parenteral infection’,
contains 13 claims and relates to methods of manufacture,
administration and application to treat a broad range of
common human infections, providing Recce intellectual
property protection to November 2035.
On 10 October 2019, the Company announced it had
raised $6,768,444 (before costs) in a placement to
institutional, professional and sophisticated investors that
resulted in 26,032,478 fully paid ordinary shares being
issued at A$0.26 per share.
On 23 October 2019, the Company announced that
it had published a white paper providing pre-clinical
and experimental data on its new synthetic antibiotics
and outlining the market need, its anticipated market
positioning and development strategy.
On 8 November 2019, the Company delivered the Opening
R&D Address on ‘How synthetic antibiotic development
can change the antibiotic treatment model’ at the World
Anti-Microbial Resistance Congress in Washington.
On 27 November 2019, the Company reported positive
data in a rat topical burns model from an assessment
of its lead compound RECCE® 327 in addressing the
unmet medical needs of burns treatment and associated
difficulties in wound closure. The study was undertaken
in co-operation with an established Australian teaching
hospital, by an independent Contract Research
Organisation (CRO). Top line results showed significant
in vivo antibacterial activity against Methicillin-Resistant
Staphylococcus aureus (MRSA – superbug) in rats with
topical burns: RECCE® 327 reduced bacterial load and
enhanced wound closure. A separate human skin model
showed the antibiotic was non-irritating, even at high
concentrations.
On 10 February 2020, the Company announced
successful in-vivo Toxicity (Safety) studies in small and
large animal species, conducted by an industry leading
independent research laboratory, has further reinforced
indications of a wide therapeutic window.
On 14 February 2020, the Company announced positive
efficacy data in a rat infection model for its RECCE® 327
antibiotic in the treatment of Kidney and Urinary Tract
Infections (UTIs) caused by Escherichia coli (E. Coli),
which can often progress to sepsis.
On 8 April 2020, the Company announced it had
formalised a Phase I clinical trial agreement to conduct a
first-in-human study of its lead compound RECCE® 327 in
40 healthy subjects. The Phase I clinical study of RECCE®
327 will be conducted at a specialised clinical trial facility
in Australia, independent of the hospital system. This
initiative seeks to ensure continuity of the independent
study and not add to infectious disease pressures for
beds around the country. The first patients in this study
are expected to be dosed in the second half of 2020.
On 20 April 2020, the Company announced positive
efficacy data showing significant in vivo anti-viral activity
against the Influenza A virus in mice treated with its lead
compound RECCE® 327.
On 23 April 2020, the Company announced positive data
showing significant in-vivo antibacterial activity against
Methicillin-Resistant Staphylococcus aureus (MRSA
superbug) in rats with topical burns treated with its lead
compound RECCE® 327.
16
RECCE PHARMACEUTICALS ANNUAL REPORT 2020DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2020 On 4 May 2020, the Company announced positive
efficacy showing significant antibacterial activity against
Neisseria gonorrhoeae bacteria in mice treated with its
lead compound RECCE® 327.
On 26 June 2020, the Company announced that the
milestone associated with 7,398,174 of the Company’s
Class C unquoted Performance Shares had been
achieved.
Results of Operations
The operating loss has increased to $4,316,737 (2019:
loss of $2,789,197) as a result of the increased focus on
its R&D activities. The annual loss was after a R&D tax
incentive of $1,071,727 (2019: $679,624).
The loss per share has increased during the year to
3.39 cents (2019: 2.95 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 2,500,000
(2019: 1,800,000) options to acquire ordinary shares
in the Company at various exercise prices and dates
as disclosed in Note 18 to the consolidated financial
statements. 1,963,736 options were exercised for
$558,653 during the financial year (2019: nil).
Significant Changes in State of Affairs
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:
– Dr Graham Melrose resigned as a Director and
Chief Research Officer effective 3 July 2020
– Mr Alan W Dunton was appointed as a Non-Executive
Director effective 9 July 2020
– The conversion of 7,398,174 Class C Performance
Shares and 698,840 Unlisted Options, with varying
exercise prices and expiry dates resulted in the issue
of 8,090,714 ordinary fully paid shares
– The milestones associated with 7,398,174 of the
Company’s Class D unquoted Performance Shares
was achieved. The Company will seek quotation for
7,398,174 fully paid ordinary shares
Judgement has been exercised in considering the impacts
that the Coronavirus (COVID-19) pandemic has had, or
may have, on the Group based on known information.
This consideration extends to the nature of the products
and services offered, customers, supply chain, staffing
and geographic regions in which the Group operates.
Other than as addressed in specific notes, there does not
currently appear to be either any significant impact upon
the financial statements or any significant uncertainties
with respect to events or conditions which may impact
the consolidated entity unfavourably as at the reporting
date or subsequently as a result of the Coronavirus
(COVID-19) pandemic.
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.
17
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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 2020:
(i) Directors
Dr John Prendergast Non-Executive Chairman
Dr Graham Melrose
(appointed 9 July 2019)
Executive Director
(resigned 3 July 2020)
Ms Michele Dilizia
Executive Director
Mr James Graham
Executive Director
Mr Justin Ward
Dr Alan Dunton
Executive Director
(appointed 9 July 2019)
Non-Executive Director
(appointed 14 July 2020)
(ii) Key Management Personnel
Mr Arthur Kollaras1
Principal Engineer
1 Entered into a consultancy agreement with the Company
effective 1 August 2019.
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
benefit of the Group. The principles underpinning the
Group’s remuneration policy are that:
– Reward reflects the competitive global market in
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
– Where appropriate senior managers may receive a
component of their remuneration in equity securities
to align their interests with those of the shareholders.
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 right scheme, with
any option/performance rights issues generally
being made in accordance with thresholds set in
18
RECCE PHARMACEUTICALS ANNUAL REPORT 2020DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2020 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 approved 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.
19
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 (B) Executive Service Agreements
Name
Base Salary
Dr John Prendergast $120,000 pa
Dr Graham Melrose
$220,000 pa
Ms Michele Dilizia
$170,000 pa
Mr James Graham
$170,000 pa
Mr Justin Ward¹
Mr Arthur Kollaras²
–
–
Performance-
Based Incentives
Term
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
Notice Period
3 months
3 months
3 months
3 months
4 weeks
4 weeks
1 Entered into an employment agreement with the Company effective 1 January 2020. Remunerated at $170 per hour plus 9.5%
Superannuation based on a one-day per week basis. Overtime pay of $250 per hour plus 9.5% Superannuation.
2 Entered into a consultancy agreement with the Company effective 1 August 2019. Remunerated at the rate of $450 per hour.
(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 2020
Name
Directors
G Melrose
M Dilizia
J Graham
J Prendergast
J Ward
Executives
A Kollaras1
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
177,500
186,646
120,000
144,989
29,356
23,010
11,544
–
5,714
153,774
–
1,002,909
69,624
20,900
16,862
17,731
–
13,774
1,540
70,808
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
270,256
217,373
215,921
120,000
10,000
174,477
9,999
165,313
19,999 1,163,340
–
–
–
–
–
–
1 Entered into a consultancy agreement with the Company effective 1 August 2019.
Year ended 30 June 2019
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
$
Name
Directors
G Melrose1
220,000
23,533
M Dilizia
J Graham
J Prendergast2
Executives
J Ward3
A Kollaras
155,000
155,000
50,000
133,723
174,041
887,764
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.
20
RECCE PHARMACEUTICALS ANNUAL REPORT 2020DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2020 (D) Share-Based Remuneration
Year Ended 30 June 2020
(i) Issue of ordinary shares
The following shares were issued on 19 December 2019 after approval at the Annual General Meeting on November
2019 as part of remuneration under a share-based payment.
Name
Executives
J Ward
A Kollaras¹
Shares issued
No.
$
43,478
44,444
87,922
10,000
9,999
19,999
1 Entered into a consultancy agreement with the Company effective 1 August 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 2020.
(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 2020.
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
Director – Non-Executive
J Prendergast
Executives
J Ward1
A Kollaras
1 Appointed a director 9 July 2019.
(ii) Issue of options
Shares to be issued
No.
$
250,000
46,250
57,143
85,714
392,858
10,000
15,000
71,250
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.
21
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 Details of Performance Shares issued
There were no new performance shares on issue for the year ended 30 June 2020 and 2019.
A summary of performance shares on issue is as follows:
Name
Directors
G Melrose
M Dilizia
J Graham
Value per performance share
Performance Shares
Class B
Class C
Class D
6,075,000
6,075,000
6,075,000
577,212
745,962
7,398,174
$0.201
577,212
745,962
7,398,174
$0.111²
577,212
745,962
7,398,174
$0.054²
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.
2 The Class C and Class D performance shares were expensed in full during the 30 June 2016 financial year.
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 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
Probability of reaching milestone
0%
N/A
N/A
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 2020 held by the Directors of the
Company and other KMP of the Group, including their personally related parties, are set out below.
Name
Directors
G Melrose
M Dilizia
J Graham
J Prendergast
Executives
J Ward
A Kollaras
Balance at
1 July 2019
Net Change
Other2
Share-based
Payment1
Balance at Date
of Resignation
Balance at
30 June 2020
30,375,003
2,886,061
4,299,851
250,000
115,488
22,711
–
(322,000)
192,307
–
–
–
37,949,114
(129,693)
–
–
–
–
43,478
44,444
87,922
–
–
–
–
–
–
–
30,375,003
2,564,061
4,492,158
250,000
158,966
67,155
37,907,343
1 Issued 19 December 2019.
2 Ms Michele Dilizia sold on-market 322,000 shares between 2 and 8 August 2019. Mr James Graham acquired 192,307 shares through
participation in the share placement in October 2019.
22
RECCE PHARMACEUTICALS ANNUAL REPORT 2020DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2020 (b) Performance Shares
The movement of the numbers of performance shares in the Company for the year ended 30 June 2020 held by the
Directors of the Company and other KMP of the Group, including their personally related parties, are set out below.
Name
Directors
G Melrose
M Dilizia
J Graham
J Prendergast
Executives
J Ward
A Kollaras
Balance at
1 July 2019
Granted
Lapsed
Unexercised
Balance at Date
of Resignation
Balance at
30 June 2020
18,225,000
1,731,636
2,237,886
–
–
–
22,194,522
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,225,000
1,731,636
2,237,886
–
–
–
22,194,522
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.
Performance Shares Outstanding at 30 June 2020
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 The Class B performance shares convert into fully paid ordinary shares on the achievement of the milestone whereby the Company
is awarded the US Food and Drug Administration (FDA) Investigational Drug (IND) status (or European equivalent – European
Medicines Agency (EMEA)) on or before 19 August 2020.
For remuneration purposes the value is the number of performance shares granted, multiplied by the share price at date of grant.
As at 30 June 2020, these performance shares have not converted into fully paid ordinary shares and each performance share
was valued at $0.20 based on a share price at grant date. At 30 June 2020, no expense has been recognised in respect of these
performance shares as a 0% probability has been assigned to meeting the milestone.
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
6,075,000
577,212
745,962
7,398,174
1 The milestone associated with Class C Performance Shares was achieved during the year ended 30 June 2020 i.e. the volume weighted
average price of Shares as traded on ASX over 20 consecutive trading days on which the Shares are traded was not less than $.60.
Accordingly, the shares were eligible to be converted to ordinary shares during the year but were converted on 9 July 2020.
23
RECCE PHARMACEUTICALS ANNUAL REPORT 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 expense on the Class C and D Performance shares were recognised during the year
ended 30 June 2016.
(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
The prior year unsecured loan outstanding of $150,000 from Dr Graham Melrose was repaid during the financial
year in full. 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 2020 totalled $5,732.88 (2019: $8,854.52).
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.
At the Annual General Meeting held in November 2019, the Company received a ‘Yes’ vote of more than 96.3% on its
Remuneration Report for the 2019 financial year. The group did not receive any specific remuneration related feedback
from shareholders at that meeting.
END OF REMUNERATION REPORT (AUDITED)
24
RECCE PHARMACEUTICALS ANNUAL REPORT 2020DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2020 Meetings of Directors
During the financial year, 12 meetings of Directors (including committees of Directors) were held. Attendances by each
Director during the year were as follows:
Directors’ Meetings
Audit & Risk
Management Committee
Nomination &
Remuneration Committee
Committee Meetings
A
8
8
8
8
8
B
8
8
8
8
8
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
Dr Justin Ward
A = Number of meetings eligible to attend
B = Number of meetings 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 2020 has been received and can be found
on page 26.
Signed in accordance with a resolution of the Board of Directors.
Dr John Prendergast
Non-Executive Chairman
28 August 2020
25
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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 2020, 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, 28 August 2020
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.
26
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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 27 August 2020 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 elect Dr Alan Dunton
(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 2020.
27
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
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:
(i). to set measurable objectives for achieving
gender diversity; and
(ii). 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:
(i) 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
(ii) 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 2020, 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)
33% of the Group’s entire workforce (including
Board members) were female and 67% were
male.
28
RECCE PHARMACEUTICALS ANNUAL REPORT 2020CORPORATE 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 2020, 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 2021.
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 2020,
such a review was conducted by the Board of
the Company. At the date of this report, the
Nomination and Remuneration committee is
in the process of completing such as review.
29
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
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 Alan Dunton as Chair of the Committee.
The Committee has three members. Since
the appointment of Dr Alan Dunton to the
committees on 14 July 2020 two of the three
committee members are independent, non-
executive directors. The attendance at each
committee meeting is disclosed in section
25 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
YES
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, knowledge, experience,
independence and diversity 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
YES
Board to be Independent Directors;
(b) if a Director has an interest, position,
YES
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
(c) the length of service of each Director.
YES
(a) Dr John Prendergast and Dr Alan Dunton
(appointed 14 July 2020), are the only
Directors of the Company considered
independent.
(b) Dr John Prendergast and Dr Alan Dunton
(appointed 14 July 2020), are the only
two Directors of the Company considered
independent, have 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.
30
RECCE PHARMACEUTICALS ANNUAL REPORT 2020CORPORATE 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 two are considered to be independent,
being Dr John Prendergast and Dr Alan Dunton
(appointed 14 July 2020).
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 Ms Dilizia,
Mr Graham Dr Ward, Dr Prendergast and Dr
Dunton 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.
31
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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 Dunton, an
Independent Director of the Company, as Chair of
the Committee. Since the appointment of Dr Alan
Dunton to the committees on 14 July 2020 two of
the three committee members are independent,
non-executive directors. The attendance at each
committee meeting is disclosed in section 25 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
YES
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
(b) if it does not have an audit committee, 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.
YES
YES
YES
YES
N/A
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.
32
RECCE PHARMACEUTICALS ANNUAL REPORT 2020CORPORATE 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
25 November 2019 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.
33
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
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
The Company has established an Audit and Risk
Management Committee with Dr Dunton, an
independent Director of the Company, as Chair of
the Committee. Since the appointment of Dr Alan
Dunton to the committees on 14 July 2020 two of
the three committee members are independent,
non-executive directors. The attendance at each
committee meeting is disclosed in section 25 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.
YES
YES
YES
YES
YES
(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.
34
RECCE PHARMACEUTICALS ANNUAL REPORT 2020CORPORATE 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.
35
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
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 Dunton, an
independent Director of the Company, as Chair of
the Committee. Since the appointment of Dr Alan
Dunton to the committees on 14 July 2020 two of
the three committee members are independent,
non-executive directors. The attendance at each
committee meeting is disclosed in section 25 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.
YES
YES
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.
36
RECCE PHARMACEUTICALS ANNUAL REPORT 2020CORPORATE 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.
37
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF
PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2020
OTHER INCOME
EXPENSES
Laboratory expenses
Employee benefits expenses
Share-based payments expense
Depreciation and amortisation expenses
Travel expenses
Patent related costs
Rental outgoings expenses
Finance costs
Other expenses
Amortisation: Leases
Interest expense: Leases
LOSS BEFORE INCOME TAX
Income tax expense
LOSS FOR THE YEAR
Note
5
2020
$
2019
$
1,147,530
686,622
6
22
12
6
6
13
8
(1,985,286)
(1,478,668)
(55,204)
(50,711)
(191,488)
(85,620)
(52,780)
(45,847)
(416,353)
(1,383,692)
–
(54,962)
(185,363)
(59,805)
(212,510)
(56,694)
(1,357,960)
(1,106,440)
(150,107)
(10,596)
–
–
(5,464,267)
(3,475,819)
(4,316,737)
(2,789,197)
–
–
(4,316,737)
(2,789,197)
Other comprehensive income for the year
–
–
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
(4,316,737)
(2,789,197)
LOSS PER SHARE ATTRIBUTABLE TO THE OWNERS OF RECCE PHARMACEUTICALS:
Basic loss per share for the year
Diluted loss per share for the year
9
9
(3.39)
(3.39)
(2.95)
(2.95)
Cents
Cents
The accompanying notes form part of these consolidated financial statements.
38
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 30 JUNE 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Other current assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Plant and equipment
Right of use asset
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
Provisions for employee benefits
Lease Liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Provisions for employee benefits
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS/(LIABILITIES)
EQUITY
Share capital
Reserves
Accumulated losses
Note
10
11
12
13
14
15
16
17
16
18
19
30 June
2020
$
2,682,192
41,364
15,848
2,739,404
424,316
80,387
504,703
30 June
2019
$
403,384
36,517
13,200
453,101
469,083
–
469,083
3,244,107
922,184
495,499
–
306,492
83,235
885,226
46,301
46,301
320,522
737,408
215,410
–
1,273,340
54,448
54,448
931,527
1,327,788
2,312,580
(405,604)
18,466,336
1,804,503
11,573,369
1,662,549
(17,958,259)
(13,641,522)
TOTAL EQUITY/(DEFICIENCY OF NET ASSETS)
2,312,580
(405,604)
The accompanying notes form part of these consolidated financial statements.
39
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
Share
Capital
$
Reserves
$
Accumulated
Losses
$
Total
$
BALANCE AT 1 JULY 2018
10,031,509
1,515,731
(10,852,325)
694,915
COMPREHENSIVE INCOME:
Loss for the year
Other comprehensive loss
TRANSACTIONS WITH OWNERS IN THEIR
CAPACITY AS OWNERS:
Conversion of performance shares
Issuance of shares
–
–
–
–
1,688,678
–
–
–
–
–
Options cost expenses on placement
(146,818)
146,818
Conversion of convertible notes
Share-based payments
–
–
–
–
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)
BALANCE AT 1 JULY 2019
11,573,369
1,662,549
(13,641,522)
(405,604)
COMPREHENSIVE INCOME:
Loss for the year
Other comprehensive loss
–
–
–
TRANSACTIONS WITH OWNERS IN THEIR
CAPACITY AS OWNERS:
Issuance of shares (net of cash-settled share issue costs)
6,271,063
Issuance of shares – Acuity Placement Deed
150,000
–
–
–
–
–
Options issued to lead manager as capital raising cost
(426,407)
426,407
Conversion of options into ordinary shares
Share-based payments
Transfer from reserves to share capital
558,653
55,204
–
–
284,454
(284,454)
6,892,967
141,953
(4,316,737)
(4,316,737)
–
–
(4,316,737)
(4,316,737)
–
-
–
–
–
–
–
6,271,063
150,000
–
558,653
55,204
–
7,034,920
BALANCE AT 30 JUNE 2020
18,466,336
1,804,503
(17,958,259)
2,312,580
The accompanying notes form part of these consolidated financial statements.
40
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF
CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2020
Note
2020
$
2019
$
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
20
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
Repayment of lease liabilities
Proceed from issues of shares (net of cash costs)
NET CASH PROVIDED BY FINANCING ACTIVITIES
15
15
13
1,284,670
(5,061,480)
25,803
(56,443)
(3,807,450)
679,624
(3,242,059)
6,998
(56,694)
(2,612,131)
(5,944)
(5,944)
(89,931)
(89,931)
612,463
(1,349,870)
–
(150,107)
6,979,716
6,092,202
737,408
(2,859)
2,500
–
1,688,678
2,425,727
Net increase/decrease in cash and cash equivalents held
2,278,808
(276,335)
Cash and cash equivalent at the beginning of the year
403,384
679,719
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
10
2,682,192
403,384
The accompanying notes form part of these consolidated financial statements.
41
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
1: Corporate Information
The consolidated financial statements of Recce
Pharmaceuticals Ltd (‘the Company’) together with
its controlled entities (‘the Group’) for the year ended
30 June 2020.
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) New or amended Accounting Standards and
Interpretations adopted
The Company has adopted all of the new or amended
Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board ('AASB') that
are mandatory for the current reporting period.
Any new or amended Accounting Standards or
Interpretations that are not yet mandatory have not
been early adopted.
The following is a reconciliation of non-cancellable
operating lease commitments disclosed at the end of
the prior reporting period (i.e., at 30 June 2019) to the
aggregate carrying amount of lease liabilities recognised
at the date of the initial application (i.e., at 1 July 2019):
Aggregate on non-cancellable operating
lease commitments at 30 June 2019
Less: impact of discounting lease payment
to their present value at 1 July 2019
Carrying amount of lease liabilities
recognised at 1 July 2019
$
243,198
(12,703)
230,495
Further detail of the Group's accounting policy for leases,
for the year ended 30 June 2020, is as follows:
At the commencement date of a lease (other than leases
of 12-months or less and leases of low value assets), the
Group recognises a lease asset representing its right to
use the underlying asset and a lease liability representing
its obligation to make lease payments.
The following Accounting Standards and Interpretations
are most relevant to the consolidated entity:
Lease assets
AASB 16 Leases
The Company has adopted AASB 16 from 1 July 2019.
The standard replaces AASB 117 'Leases' and for lessees
eliminates the classifications of operating leases and
finance leases. Except for short-term leases and leases of
low-value assets, right-of-use assets and corresponding
lease liabilities are recognised in the statement of
financial position. Straight-line operating lease expense
recognition is replaced with a depreciation charge for
the right-of-use assets (included in operating costs) and
an interest expense on the recognised lease liabilities
(included in finance costs). In the earlier periods of the
lease, the expenses associated with the lease under
AASB 16 will be higher when compared to lease
expenses under AASB 117.
For classification within the statement of cash flows, the
interest portion is disclosed in operating activities and
the principal portion of the lease payments are separately
disclosed in financing activities. For lessor accounting,
the standard does not substantially change how a lessor
accounts for leases.
The impact on the financial performance and position
of the Company from the adoption of this Accounting
Standard is detailed below.
The application of AASB 16 resulted in the recognition
of right-of-use assets with an aggregate carrying amount
of $230,495 (referred to in these financial statements as
‘Right of Use Assets’) and corresponding lease liabilities
with an aggregate carrying amount of $230,495. The
weighted average incremental borrowing rate applied
in the calculation of the initial carrying amount of lease
liabilities was 7.03%.
Lease assets are initially recognised at cost, comprising
the amount of the initial measurement of the lease
liability, any lease payments made at or before at or
before the commencement date of the lease, less any
lease incentive received, any initial direct costs incurred
by the Group, and an estimate of costs to be incurred by
the Group in dismantling and removing the underlying
asset, restoring the site on which it is located or restoring
the underlying asset to the condition required by the
terms and conditions of the lease, unless those costs
are incurred to produce inventories.
Subsequent to initial recognition, lease assets are
measured at cost (adjusted for any remeasurement
of the associated lease liability). Lease accumulated
depreciation and any accumulated impairment loss.
Lease assets are depreciated over the shorter of the
lease term and the estimated useful life of the underlying
asset, consistent with the estimated consumption of the
economic benefit embodied in the underlying asset.
Lease liabilities
Lease liabilities are initially recognised at the present
value of the future lease payment (i.e. the lease payments
that are unpaid at the commencement date of the lease).
These payments are discounted using the interest rate
implicit in the lease, if that rate can be readily determined,
or otherwise using the Group's incremental borrowing
rate.
Subsequent to initial recognition, lease assets are
measured at the present value of the remaining lease
payments (i.e. the lease payments that are unpaid at the
reporting date). Interest expense on lease liabilities is
recognised in profit or loss (presented as a component
42
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020
of finance costs). Lease liabilities are remeasured to
reflect changes to lease terms, changes to lease and any
lease modifications not accounted for as separate leases.
Variable lease payments not included in the measurement
of lease liabilities are recognised as an expenses when
incurred.
Leases of 12-months or less and leases of low value assets
Lease payments made in relation to leases of 12-months
or less and leases of low value assets (for which a lease
asset and a lease liability has not been recognised) are
recognised as an expenses on a straight-line basis over
the lease term.
(b) 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 consolidated financial statements have been
prepared on an accrual basis and are based on historical
costs, except for the Consolidated Statement of Cash
Flows.
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.
(c) 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.
(d) 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.
(d) Foreign Currency Translation (Continued)
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.
(e) Revenue Recognition
Interest Income
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.
43
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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.
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.
(f) 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.
(g) Impairment of Non-Financial Assets
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
(h) 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.
(i) 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.
(j) 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.
The Group has determined that the application of AASB
9 – Financial Instrument's impairment requirements does
not have a material impact on receivables.
(k) 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.
44
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020 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 assets’ 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
assets' carrying amount and are included in profit or loss
in the year that the item is derecognised.
(l) Research Expenditure
Research costs are expensed as incurred.
(m) 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.
(n) 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.
(o) 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.
(p) 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.
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.
45
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 (q) 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.
(r) Share-Based Payments
Equity-settled and cash-settled share-based
compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or
options over shares, that are provided to employees
in exchange for the rendering of services. Cash-settled
transactions are awards of cash for the exchange of
services, where the amount of cash is determined by
reference to the share price.
The cost of equity-settled transactions are measured
at fair value on grant date. Fair value is independently
determined using either the Binomial or Black-Scholes
option pricing model that takes into account the exercise
price, the term of the option, the impact of dilution, the
share price at grant date and expected price volatility of
the underlying share, the expected dividend yield and the
risk free interest rate for the term of the option, together
with non-vesting conditions that do not determine
whether the consolidated entity receives the services
that entitle the employees to receive payment. No
account is taken of any other vesting conditions.
The cost of equity-settled transactions are recognised as
an expense with a corresponding increase in equity over
the vesting period. The cumulative charge to profit or
loss is calculated based on the grant date fair value of the
award, the best estimate of the number of awards that
are likely to vest and the expired portion of the vesting
period. The amount recognised in profit or loss for the
period is the cumulative amount calculated at each
reporting date less amounts already recognised
in previous periods.
The cost of cash-settled transactions is initially, and at
each reporting date until vested, determined by applying
either the Binomial or Black- Scholes option pricing
model, taking into consideration the terms and conditions
on which the award was granted. The cumulative
charge to profit or loss until settlement of the liability
is calculated as follows:
– during the vesting period, the liability at each
reporting date is the fair value of the award at that
date multiplied by the expired portion of the vesting
period.
– from the end of the vesting period until settlement
of the award, the liability is the full fair value of the
liability at the reporting date.
All changes in the liability are recognised in profit or
loss. The ultimate cost of cash-settled transactions
is the cash paid to settle the liability.
Market conditions are taken into consideration in
determining fair value. Therefore any awards subject
to market conditions are considered to vest irrespective
of whether or not that market condition has been met,
provided all other conditions are satisfied.
If equity-settled awards are modified, as a minimum
an expense is recognised as if the modification has
not been made. An additional expense is recognised,
over the remaining vesting period, for any modification
that increases the total fair value of the share-based
compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the
consolidated entity or employee, the failure to satisfy
the condition is treated as a cancellation. If the condition
is not within the control of the consolidated entity or
employee and is not satisfied during the vesting period,
any remaining expense for the award is recognised
over the remaining vesting period, unless the award is
forfeited.
If equity-settled awards are cancelled, it is treated as
if it has vested on the date of cancellation, and any
remaining expense is recognised immediately. If a new
replacement award is substituted for the cancelled award,
the cancelled and new award is treated as if they were a
modification.
(s) 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.
(t) 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.
46
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020 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.
(u) 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 the new and amended
pronouncements.
(v) 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.
(w) 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.
Share-based payment transactions
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.
Performance Shares
The Class B performance shares convert into fully paid
ordinary shares on the achievement of the milestone
whereby the Company is awarded the US Food and Drug
Administration (FDA) Investigational Drug (IND) status
(or European equivalent – European Medicines Agency
(EMEA)) on or before 19 August 2020.
For remuneration purposes the value is the number of
performance shares granted, multiplied by the share
price at date of grant. As at 30 June 2020, these
performance shares have not converted into fully paid
ordinary shares and each performance share was valued
at $0.20 based on a share price at grant date. At 30 June
2020, no expense has been recognised in respect of
these performance shares as a 0% probability has been
assigned to meeting the milestone.
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.
Lease term
The lease term is a significant component in the
measurement of both the right-of-use asset and
lease liability. Judgement is exercised in determining
whether there is reasonable certainty that an option to
extend the lease or purchase the underlying asset will
be exercised, or an option to terminate the lease will
not be exercised, when ascertaining the periods to be
included in the lease term. In determining the lease term,
all facts and circumstances that create an economical
incentive to exercise an extension option, or not to
exercise a termination option, are considered at the lease
commencement date. Factors considered may include
the importance of the asset to the consolidated entity's
operations; comparison of terms and conditions to
prevailing market rates; incurrence of significant penalties;
existence of significant leasehold improvements; and the
costs and disruption to replace the asset. The Company
reassesses whether it is reasonably certain to exercise an
extension option, or not exercise a termination option,
if there is a significant event or significant change in
circumstances.
Recovery of deferred tax assets
The deferred tax assets as calculated under Note 8 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.
47
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 The financial statements have been prepared on the basis
that the Group is a going concern, which contemplates
the continuity of normal business activity, realisation of
assets and settlement of liabilities in the normal course
of business for the following reasons:
– The Directors have prepared cashflow projections
that support the ability of the Company to continue
as a going concern, subject to raising additional funds
through equity or other means as detailed above
– The Company continually receiving its Australian
R&D tax rebates for R&D expenditure in Australia and
overseas incurred by the Company
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.
Coronavirus (COVID-19) pandemic
Judgement has been exercised in considering the impacts
that the Coronavirus (COVID-19) pandemic has had, or
may have, on the Group based on known information.
This consideration extends to the nature of the products
and services offered, customers, supply chain, staffing
and geographic regions in which the Group operates.
Other than as addressed in specific notes, there does not
currently appear to be either any significant impact upon
the financial statements or any significant uncertainties
with respect to events or conditions which may impact
the consolidated entity unfavourably as at the reporting
date or subsequently as a result of the Coronavirus
(COVID-19) pandemic.
3: Going Concern
For the year ended 30 June 2020, the Group recorded
a loss of $4,316,737 and had net cash outflows from
operating activities of $3,807,450. The ability of the
Group to continue as a going concern and being able to
continue to fund its operating activities is dependent on
securing additional funding through a share placement
to new or existing investors and financial support through
short-term loans, together with continuous receipt of
the R&D tax rebate.
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 there will be sufficient funds to
meet the Company’s working capital requirements.
Based on the success of current progress in the Group,
it is considered that re-financing through equity funds
would be well supported. Additional funds will be raised
via share placements and/or other financing options as
required.
48
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020 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 three geographic segment being
Australia, UK and USA.
(b) Segment results
The following is an analysis of the Group’s results by reportable segments:
Australia
USA
UK
Central Administration
Segment revenue and other
income for the year
Segment loss after tax
for the year
2020
$
798,666
348,095
769
–
2019
$
570,537
116,085
–
–
2020
$
(1,470,517)
(640,917)
(1,416)
2019
$
(893,240)
(181,746)
–
(2,203,886)
(1,714,211)
1,147,530
686,622
(4,316,736)
(2,789,197)
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
Segment assets
at end of the financial year
Segment liabilities
at end of the financial year
2020
$
2019
$
398,271
440,223
–
–
2020
$
–
–
2019
$
–
–
Central Administration
2,845,835
481,961
931,527
1,327,788
UK
–
–
–
–
3,244,107
922,184
931,527
1,327,788
(d) Segment net assets/(liabilities)
Australia
USA
Central Administration
UK
2020
$
2019
$
398,271
440,223
–
–
1,914,309
(845,827)
–
–
2,312,580
(405,604)
49
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
2020
$
2019
$
1,071,727
25,803
50,000
1,147,530
1,328,040
99,576
21,209
29,843
–
679,624
6,998
–
686,622
1,231,798
107,263
22,018
22,543
70
1,478,668
1,383,692
44,448
1,399
45,847
46,197
8,225
28,165
231,743
61,877
106,176
65,219
36,537
115,274
658,547
1,357,960
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
5: Revenue and Other Income
Other Income:
Research and Development (‘R&D’) tax incentive
Interest income
Other 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 employee benefit expenses
Finance Costs:
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
50
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020
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):
Audit services
– BDO for audit and review of the consolidated financial statements
46,197
38,722
2020
$
2019
$
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% (2019: 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
(4,316,737)
(2,789,197)
(1,187,103)
(767,029)
15,181
1,171,418
29,437
(308,475)
279,542
–
677,529
49,586
(187,080)
226,994
Income tax attributable to the Group
–
–
Deferred tax attributable to the Group
Tax losses carried forward
Accruals and provisions
Blackhole expenses
Patents
2,545,594
105,304
144,327
–
1,041,836
87,658
66,100
–
2,795,225
1,195,594
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.
51
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
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
(4,316,737)
(2,789,197)
2020
$
2019
$
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.
127,208,104
127,208,104
94,473,428
94,473,428
(3.39)
(3.39)
2020
$
(2.95)
(2.95)
2019
$
2,682,152
40
2,682,192
403,286
98
403,384
Cash at bank and in hand bear floating interest rates between 0.51% and 1.30% depending on the amount on deposit.
Refer to Note 21 for additional risk exposure analysis.
11: Trade and Other Receivables
CURRENT
Sundry debtors
Net GST receivable
Refer to Note 21 for additional risk exposure analysis.
5,378
35,986
41,364
–
36,517
36,517
52
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020
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 cost
– accumulated depreciation
Library
– at cost
– accumulated depreciation/amortisation
Website Development
– at cost
– accumulated depreciation/amortisation
Total plant and equipment
Reconciliations
2020
$
2019
$
507,449
(157,857)
349,592
28,537
(10,020)
18,517
30,630
(23,195)
7,435
56,835
(9,808)
47,027
4,379
(2,726)
1,653
2,797
(2,705)
92
504,074
(115,632)
388,442
27,753
(8,220)
19,533
28,845
(19,673)
9,172
56,835
(7,119)
49,716
4,379
(2,313)
2,066
2,797
(2,643)
154
424,316
469,083
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
improvements
$
$
Library and
website
costs
$
Total
$
2020
Beginning of the year
Additions
Depreciation
End of the year
2019
Beginning of the year
Additions
Depreciation
End of the year
388,442
3,375
(42,225)
349,592
350,664
83,816
(46,038)
19,533
784
(1,800)
18,517
21,300
144
(1,911)
9,172
1,785
(3,522)
7,435
7,845
4,845
(3,518)
49,716
2,220
469,083
–
(2,689)
47,027
–
(475)
1,745
5,944
(50,711)
424,316
52,593
–
2,838
–
435,240
88,805
(2,877)
(618)
(54,962)
388,442
19,533
9,172
3949,716
2,220
469,083
53
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
13: Right of Use Assets
Land and buildings – right-of-use
Less: Accumulated amortisation
2020
$
2019
$
230,495
(150,107)
80,387
–
–
–
Right-of-use assets relate to the adoption of AASB 16: Leases on 1 July 2019. Refer to Note 2(a) for further information.
The Company leases land and buildings for its offices under agreements of between one to five years. On renewal, the
terms of the leases are renegotiated.
14: Trade and Other Payables
CURRENT
Unsecured liabilities
Trade payables
Employee related payables
Sundry creditors
15: Financial Liabilities
CURRENT
Loans payable
R&D advance
(a) Loans payable
159,486
101,940
234,073
495,499
2020
$
–
–
–
124,413
52,600
143,509
320,522
2019
$
150,000
587,408
737,408
Note
15(a)
15(a)
The prior year balance comprises a short-term unsecured loan provided by Dr Graham Melrose at an interest rate of
5% per annum. The amount was repaid in full on 16 October 2019.
The prior year R&D advance represents an amount payable to Radium Capital and was offset against R&D refunds
received during the current year.
The total proceeds from borrowings received during the year of $612,462 as reflected in the statement of cash flows
is made up of $262,462 from Radium Capital and $350,000 in other loans.
The total borrowings repaid during the year of $1,349,870 as reflected in the statement of cash flows is made up of
$849,870 to Radium Capital, $150,000 to Dr Graham Melrose and $350,000 in other loans.
16: Provisions for Employee Benefits
CURRENT
Unsecured liabilities
Annual leave
Sick leave
Long service leave
NON-CURRENT
Long service leave
54
139,804
137,332
29,356
306,492
123,977
91,433
–
215,410
46,301
54,448
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020
17: Lease Liabilities
CURRENT
Lease liability
18: Share Capital
Movements in ordinary shares on issue:
Opening balance
Shares issued during the year:
2020
$
2019
$
83,235
–
2020
2019
No.
$
No.
$
107,129,919
11,573,369 89,342,418
10,031,509
– shares issued to consultants/KMP (Note 22)
195,655
55,204
430,358
– Acuity Placement Deed¹
750,000
150,000 4,500,000
–
–
– new shares issued from placement (net capital raising costs)²
26,032,477
5,844,656
12,857,143
1,541,860
– new shares issued on options exercised³
1,963,736
558,653
–
–
– Transfer from reserves to share capital (Note 19)
28,941,868
6,608,513
17,787,501
1,541,860
–
–
284,454
284,454
–
–
–
–
Total4
136,071,787
18,466,336
107,129,919
11,573,369
1 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 was required. During financial year ended 30 June 2020, 750,000 ordinary shares were issued at 20 cents per share.
2 On 10 October 2019, the Company issued 26,032,477 ordinary shares raising $6,768,444 (before capital raising costs). Total capital
raising costs were $923,788 comprising cash component of $497,381 and options fee component of $426,407 (refer Note 22).
3 1,963,736 ordinary shares were issued on exercise of options, 104,167 at 18.72 cents, 109,569 at 17.80 cents, 500,000 at 25.93 cents
and 1,250,000 at 31.20 cents.
4 At 30 June 2020, 136,071,787 ordinary shares on issue were quoted on the ASX.
Options from shares issued
The following options remain outstanding at each respective balance date:
Particulars
Issue Date
Exercise Date
Exercise Price
cents
Options
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Tranche 7
Options
Options1
16-Jun-17
19-Jul-17
21-Jun-21
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
16-Feb-18
15-Feb-19
13-Dec-19
10-Jan-21
13-Feb-21
15-Feb-23
19-Feb-23
25.93
21.71
18.72
17.80
20.40
20.96
19.88
19.81
16.80
31.20
2020
No.
141,000
59,880
–
–
127,470
124,069
130,804
65,617
2019
No.
641,000
59,880
104,167
109,569
127,470
124,069
130,804
65,617
1,800,000
1,800,000
1,250,000
–
3,698,840
3,162,576
1 On 13 December 2019, the Company issued 2,500,000 options to Shaw and Partners Limited relating to the fee payable as corporate
advisor to the Company for the placement announced by the Company on 10 October 2019. The unlisted options were issued for
$0.312 per option. The total expense recognised for the options issued was $426,407 and has been recognised in equity as a share
issue cost during the 30 June 2020 financial year. 1,250,000 options were exercised on 27 February 2020.
55
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
19: Reserves
Performance shares reserve
Share-based payments reserve
Options reserve
(a) Performance shares reserve
Note
19(a)
19(b)
19(c)
2020
$
2019
$
1,444,481
–
360,022
1,804,503
1,444,481
71,250
146,818
1,662,549
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
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 other share-based payments for which
ordinary shares are yet to be issued.
Movements of share-based payments reserve:
At beginning of year
Transfer from reserve to share capital on issuance
of ordinary shares
At end of year
(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 manager1
Transfer from reserve to share capital on issuance
of ordinary shares
At end of year
71,250
(71,250)
–
146,818
426,407
(213,203)
360,022
71,250
–
71,250
–
146,818
–
146,818
1 Refer to Note 18. Transfers between equity and reserve accounts during the year total $284,454.
56
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020
20: Cash Flow Information
Reconciliation of loss after income tax to net cash flow from operating activities:
Loss for the year
Adjustments and non-cash items:
– Depreciation and amortisation
– Share-based payments expense
– Accounting for lease assets and liabilities
Change in operating assets and liabilities
– Increase in trade and other receivables
– Increase in other current assets
– Increase in trade and other payables
– Increase in provisions for employee benefits
Net cash outflow from operating activities
Non-cash investing and financing activities:
2020
$
2019
$
(4,316,737)
(2,789,197)
50,711
55,204
150,107
(4,847)
(2,648)
177,825
82,935
56,088
–
(15,560)
(5,379)
88,618
53,299
(3,807,450)
(2,612,131)
Non-cash investing and financing activities disclosed in other notes are:
– Capital raising costs of $426,407 settled via share-based payment (Note 18).
21: 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 risks 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
2020
$
2019
$
2,682,192
41,364
2,723,556
393,559
–
–
403,384
36,517
439,901
267,922
150,000
587,408
393,559
1,005,330
Derivatives are only used for economic hedging purposes and not as speculative investments. However, where
derivatives do not meet the hedging criteria, they are classified as 'held for trading' accounting purposes.
57
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
(a) Market Risk
(i) Foreign exchange risk
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 and Canada to perform numerous laboratory tests as well as use the services of an expert consultant that will
result in approximately US$1.5 million & CDN$0.5 million in expenditure.
(ii) 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:
2020
2019
Weighted
average
Balance
$
Weighted
average
Balance
$
Cash and cash equivalents
1.03%
2,682,152
1.53%
403,286
(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
Cash held with National Australian Bank
Cash held with ME Bank
Cash held with American Express
Rating
AA-
AA-
BBB
N/A
2020
$
2,162,547
250,021
250,529
19,055
2,682,152
2019
$
403,286
–
–
–
403,286
The Group's primary banker is BankWest. The Board considers the use of this financial institution, 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, employee related payables, sundry
creditors, loan payables, R&D advance and lease liability 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.
58
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020
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 2020
Trade payables
Employee related payables
Sundry creditors
Lease liability
30 June 2019
Trade payables
Employee related payables
Sundry creditors
Loan payable
R&D Advance
$
159,486
101,940
234,073
83,235
578,734
124,413
52,600
143,509
150,000
587,408
1,057,930
$
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
Total
contractual
cash flows
$
Carrying
amount
$
159,486
101,940
234,073
159,486
101,940
234,073
83,235
83,235
578,734
578,734
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
At 30 June 2020, the Group had sufficient cash to meet the financial liabilities as and when they are due and payables.
(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 (i.e. as prices), or indirectly (i.e. derived from prices); or
(iii) Level 3 – a valuation technique using inputs that are not based on observable market data (unobservable inputs).
22: Share-Based Payments
Share-based payments expense recognised during the financial year:
Issue of 44,444 shares to Arthur Kollaras¹
Issue of 43,478 shares to Justin Ward¹
Issue of 107,733 shares to Spark Plus²
Total share-based payments recognised through P&L
Issue of 2,500,000 Corporate Advisor Options
Total share-based payments recognised through equity
2020
$
2019
$
9,999
10,000
35,205
55,204
426,407
426,407
–
–
–
–
–
–
1 The amount pertained to the entitlement of the Executives of the Company, J Ward and A Kollaras as part of their compensation.
43,478 and 44,444 shares were issued at 23 cent and 22.5 cents respectively. The allocation of shares was by shareholders at the
Annual General Meeting held on 29 November 2019.
2 Pertained to consideration for services rendered by Spark Plus. The allocation of 107,733 shares was approved by
shareholders at the Annual General Meeting held on 25 November 2019.
59
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
23: Related Party Transactions
Parent entity
The ultimate parent entity within the Group is Recce Pharmaceuticals Ltd.
Subsidiaries
Interests in subsidiaries are disclosed in Note 25.
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Termination payments
Share-based payments
2020
$
1,002,909
140,432
–
19,999
1,163,340
2019
$
887,764
130,859
–
–
1,018,623
The following transactions occurred with related parties:
Superannuation contributions
Contributions to superannuation funds on behalf of employees
70,808
79,588
The prior year unsecured loan outstanding of $150,000 from Dr Graham Melrose was repaid during the financial year
in full. Any other loans during the year were repaid by balance date. Interest paid or payable to Dr Melrose for the year
ended 30 June 2020 totalled $5,732.88 (2019: $8,854.52).
There were no other related party transactions during the financial year.
24: Parent Entity Information
The following information relates to the parent entity, Recce Pharmaceuticals Ltd, as at 30 June 2020. 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 Assets/(Liabilities)
2020
$
2,739,404
504,703
3,244,107
885,226
46,301
931,527
18,466,336
1,804,503
(17,958,259)
2,312,580
2019
$
453,101
469,083
922,184
1,273,340
54,448
1,327,788
11,573,369
1,662,549
(13,641,522)
(405,604)
(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
(4,316,737)
(2,789,197)
–
–
(4,316,737)
(2,789,197)
The parent entity has no contingent liabilities as at 30 June 2020.
60
RECCE PHARMACEUTICALS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2020
25: Interest in Subsidiaries
Country of Incorporation
Parent entity
Recce Pharmaceuticals Ltd
Australia
Subsidiaries
Recce (USA) LLP
Recce (UK) Limited
United States
United Kingdom
26: Events Subsequent to Reporting Period
Subsequent to year end:
Percentage Owned
2020
%
–
100
100
2019
%
–
100
100
– Dr Graham Melrose resigned as a Director and Chief Research Officer effective 3 July 2020
– Mr Alan W Dunton was appointed as a Non-Executive Director effective 9 July 2020
– The conversion of 7,398,174 Class C Performance Shares and 698,840 Unlisted Options, with varying exercise
prices and expiry dates resulted in the issue of 8,090,714 ordinary fully paid shares
– The milestones associated with 7,398,174 of the Company’s Class D unquoted Performance Shares was achieved.
The Company will seek quotation for 7,398,174 fully paid ordinary shares
Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or
may have, on the Group based on known information. This consideration extends to the nature of the products and
services offered, customers, supply chain, staffing and geographic regions in which the Group operates. Other than
as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial
statements or any significant uncertainties with respect to events or conditions which may impact the consolidated
entity unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic.
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.
27: Contingent Liabilities
On 20 August 2015 the Company issued 8,754,423 Class C Performance Shares and 8,754,423 Class D Performance
Shares to directors and key management personnel of the Company. On 26 June 2020 the Company announced
that milestones for conversion of 7,398,174 of the Class C Performance Shares into fully paid ordinary shares had
been achieved, but that the Company had determined that the remaining 1,356,249 Class C Performance Shares were
ineligible for conversion. On 17 August 2020 the Company announced that milestones for conversion of 7,398,174 of the
Class D Performance Shares into fully paid ordinary shares had been achieved, but that the Company had determined
that the remaining 1,356,249 Class D Performance Shares were ineligible for conversion.
The holders of the 1,356,249 Class C Performance Shares and 1,356,249 Class D Performance Shares that the Company
determined to be ineligible contest the Company’s decision of ineligibility for conversion and have commenced
proceedings, seeking orders that the Class C Performance Shares held by them be converted into fully paid ordinary
shares in the Company. If those holders are successful in that litigation then the Company expects that it will be
ordered to convert the 1,356,249 Class C Performance Shares and 1,356,249 Class D Performance Shares held by
them into fully paid ordinary shares in the Company.
61
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
DIRECTOR’S 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 38 to 61, 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 2020 and of the performance for the year
ended on that date of the Group;
2. The 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 Directors’ 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
Non-Executive Chairman
28 August 2020
62
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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 Pharmaceuticals Ltd (the Company) and its subsidiaries
(the Group), which comprises the consolidated statement of financial position as at 30 June 2020, 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 2020 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 (including Independence Standards) (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.
63
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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.
Accounting of share-based payments
Key audit matter
How the matter was addressed in our audit
During the financial year ended 30 June 2020,
the Group issued equity instruments, in the
form of shares and options to key
management personnel and other consultants
as detailed in Note 2(w) and Note 22.
The Group performed valuations of the
options and recorded the related share-based
payment expense or share capital costs in
accordance with the relevant accounting
standard.
Due to the judgemental estimates used in
determining the value of the fair value of the
share-based payments, we consider the
accounting for the share-based payments to
be a key audit matter.
Our audit procedures in respect of this area
included but were not limited to the following:
•
•
•
•
•
•
•
•
Reviewing relevant supporting documentation
to obtain an understanding of the contractual
nature and terms and conditions of the share-
based payment arrangements;
Reviewing market announcements made by the
entity and board minutes to ensure all new
share-based payments granted during the year
have been accounted for;
Holding discussion with management to
understand the share-based payment
transactions in place;
Reviewing management’s determination of the
fair value of the share-based payments
granted, considering the appropriateness of
the valuation models used and assessing the
valuation inputs;
Assessing management’s determination of
achieving non-market vesting conditions of the
performance shares issued in prior periods;
Involving our internal valuation specialists to
assess the assumptions and inputs used in the
valuation;
Assessing the allocation of the share-based
payment expense over management's expected
vesting period; and
Assessing the adequacy of the disclosure in
Note 2(w), Note 19 and Note 22 in the financial
report.
64
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 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 2020, 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.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf
This description forms part of our auditor’s report.
65
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 INDEPENDENT AUDITOR’S REPORT CONTINUED
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 18 to 24 of the directors’ report for the
year ended 30 June 2020.
In our opinion, the Remuneration Report of Recce Pharmaceuticals Ltd, for the year ended 30 June
2020, 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, 28 August 2020
66
RECCE PHARMACEUTICALS ANNUAL REPORT 2020 ASX ADDITIONAL INFORMATION
Shareholder Information as at 29 July 2020
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 29 July 2020)
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
578
894
414
882
182
2,950
358,638
2,523,160
3,492,290
30,462,915
107,331,798
144,168,801
0.25
1.75
2.42
21.13
74.45
100.00
Option Holders
Number of Options
% Issued Share Capital
–
–
2
10
5
17
–
–
14,200
463,400
2,522,400
3,000,000
–
–
0.47
15.45
84.08
100.00
Performance Right Holders
Number of Shares
% Issued Share Capital
–
–
–
–
10
10
–
–
–
–
18,865,095
18,865,095
–
–
–
–
100.00
100.00
67
RECCE PHARMACEUTICALS ANNUAL REPORT 2020
ASX ADDITIONAL INFORMATION CONTINUED
(b) Twenty largest shareholders (as at 29 July 2020)
The names of the twenty largest holders of quoted shares are:
Name
1 Mr Graham Melrose & Ms Olga Melrose
2 Mr Ross Gustafson
3 Mr James Graham
4 Acuity Capital Investment Management Pty Ltd
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