Announcement PDF RECCE LTD ACN 124 849 065 PROSPECTUS For an offer of 25,000,000 Shares at an issue price of $0.20 per Share to raise $5,000,000. Lead Manager: State One Equities Pty Ltd IMPORTANT INFORMATION This is an important document that should be read in its entirety. If you do not understand it you should consult your professional advisers without delay. The Shares offered by this Prospectus should be considered highly speculative. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). CORPORATE DIRECTORY Directors Registered Office Graham Melrose Executive Chairman Level 2, 49 Oxford Close WEST LEEDERVILLE WA 6007 Michele Dilizia Executive Director Principal Place of Business James Graham Executive Director Ian Brown Independent, Non-Executive Director Dongke Zhang Independent, Non-Executive Director Suite 3, 3 Brodie Hall Drive Technology Park BENTLEY WA 6102 Telephone: +61 (8) 9253 9800 Email: peter.williams@recce.com.au Website: http://www.recce.com.au Other Place of Business Company Secretary Peter Williams Level 36, 1 Macquarie Place Gateway Tower SYDNEY NSW 2000 Proposed ASX Code Telephone: +61 (2) 8075 4707 RCE Lead Manager State One Equities Pty Ltd Australian Financial Services Licence 233129 Level 14, 172 St Georges Terrace State One House PERTH WA 6000 Telephone: 1300 651 898 Investigating Accountant BDO Corporate Finance (WA) Pty Ltd 38 Station Street SUBIACO WA 6008 and Level 5, 64 Clarence Street SYDNEY NSW 2000 Telephone: 1300 651 898 Email: Website: recce@stateone.com.au https://www.stateone.com.au Solicitors Patent Attorney Steinepreis Paganin Level 4, The Read Buildings 16 Milligan Street PERTH WA 6000 Phillips Ormonde Fitzpatrick 333 Collins Street MELBOURNE VIC 3000 This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). i Auditor Share Registry BDO Audit (WA) Pty Limited 38 Station Street SUBIACO WA 6008 Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace PERTH WA 6000 Telephone: +61 (8) 9323 2000 Facsimile: +61 (8) 9323 2033 This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). ii TABLE OF CONTENTS 1. IMPORTANT NOTICE ..................................................................................................... 1 2. INDICATIVE TIMETABLE* ............................................................................................... 4 3. CHAIRMAN’S LETTER ..................................................................................................... 5 4. INVESTMENT OVERVIEW ............................................................................................... 6 5. DETAILS OF THE OFFER ................................................................................................ 19 6. BUSINESS OVERVIEW .................................................................................................. 22 7. COMPANY OVERVIEW ............................................................................................... 41 8. FINANCIAL INFORMATION......................................................................................... 52 9. RISK FACTORS ............................................................................................................ 63 10. PATENT ATTORNEY’S REPORT ...................................................................................... 68 11. INVESTIGATING ACCOUNTANT’S REPORT ................................................................. 79 12. BOARD, MANAGEMENT AND CORPORATE GOVERNANCE ..................................... 85 13. ADDITIONAL INFORMATION ...................................................................................... 94 14. DIRECTORS’ AUTHORISATION .................................................................................. 104 15. GLOSSARY ................................................................................................................ 105 This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). iii 1. IMPORTANT NOTICE This Prospectus is dated 21 September 2015 and was lodged with the ASIC on that date. This Prospectus replaces a prospectus dated 1 September 2015 relating to the shares of Recce Ltd (Original Prospectus). The ASIC and its officers take no responsibility for the contents of this Prospectus or the merits of the investment to which this Prospectus relates. No Shares may be issued on the basis of this Prospectus later than 13 months after the date of the Original Prospectus. No person is authorised to give information or to make any representation in connection with this Prospectus, which is not contained in the Prospectus. Any information or representation not so contained may not be relied on as having been authorised by the Company in connection with this Prospectus. It is important that you read this Prospectus in its entirety and seek professional advice where necessary. The Shares that are the subject of this Prospectus should be considered highly speculative. 1.1 Replacement Prospectus The differences between this Prospectus and the Original Prospectus are: 1.2 (a) Confirmation that all tests and results of such testing referred to in this Prospectus were conducted and interpreted by Recce except tests involving mice which were conducted by independent laboratories with appropriate facilities and permissions (refer to Appendix 5 of Section 6); (b) Disclosure of source material for certain statements and quotes included in Section 6; (c) Disclosure of penalties imposed in July 2006 against Chemeq Ltd, an entity in which Dr Graham Melrose was a director at the time (refer to Section 7.8); and (d) Incorporation by reference of Recce’s audited financial statements for the financial years ended 30 June 2013, 30 June 2014 and 30 June 2015. Incorporation by reference Recce has lodged with ASIC and released to ASX the audited financial statements for the financial years ended 30 June 2013, 30 June 2014 and 30 June 2015 (Audited Financial Statements). These Audited Financial Statements are taken to be included in this Prospectus pursuant to section 712 of the Corporations Act. The Audited Financial Statements contain a Statement of Profit or Loss and Other Comprehensive Income, Statement of Financial Position, statement of significant accounting policies as well as a director’s declaration and an independent auditor’s report. The Company will provide a copy of the Audited Financial Statements free of charge to any person who requests a copy prior to the Closing Date. Further, an electronic version of the Audited Financial Statements can be downloaded from the Company’s announcements page (ASX code ‘RCE’) on the ASX website (www.asx.com.au) This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 1 1.3 Investment Advice This Prospectus does not provide investment advice and has been prepared without taking account of your financial objectives, financial situation or particular needs (including financial or taxation issues). You should seek professional investment advice before subscribing for Shares under this Prospectus. 1.4 Web Site – Electronic Prospectus A copy of this Prospectus can be downloaded from the website of the Company at http://www.recce.com.au and / or of the Lead Manager at https://www.stateone.com.au. If you are accessing the electronic version of this Prospectus for the purpose of making an investment in the Company, you must be an Australian resident and must only access this Prospectus from within Australia. There is no facility for the Offer to be accepted electronically or by applying online. Shares will not be issued under the electronic version of the Prospectus. The Corporations Act prohibits any person passing onto another person an Application Form unless it is attached to a hard copy of this Prospectus or it accompanies a complete and unaltered version of this Prospectus. You may obtain a hard copy of this Prospectus free of charge by contacting the Company or the Lead Manager. The Company reserves the right not to accept an Application Form from a person if it has reason to believe that when that person was given access to the Application Form, it was not provided together with the Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered. 1.5 Website No document or information included on Recce’s website is incorporated by reference into this Prospectus. 1.6 Forward-looking Statements This Prospectus contains forward-looking statements which are identified by words such as ‘may’, ‘could’, ‘believes’, ‘estimates’, ‘targets’, ‘expects’, or ‘intends’ and other similar words that involve risks and uncertainties. These statements are based on an assessment of present economic and operating conditions, and on a number of assumptions regarding future events and actions that, as at the date of this Prospectus, are expected to take place. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of the Company, the Directors and its management. Recce cannot and does not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this Prospectus will actually occur and investors are cautioned not to place undue reliance on these forward-looking statements. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 2 Recce has no intention to update or revise forward-looking statements, or to publish prospective financial information in the future, regardless of whether new information, future events or any other factors affect the information contained in this Prospectus, except where required by law. These forward looking statements are subject to various risk factors that could cause Recce’s actual results to differ materially from the results expressed or anticipated in these statements. These risk factors are set out in Sections 4.2 and 9. 1.7 Photographs and Diagrams Photographs used in this Prospectus which do not have descriptions are for illustration only and should not be interpreted to mean that any person shown endorses the Prospectus or its contents, or that the assets shown in them are owned by the Company. Diagrams used in this Prospectus are illustrative only and may not be drawn to scale. 1.8 Defined Terms Unless the contrary intention appears or the context otherwise requires, words and phrases contained in this Prospectus have the same meaning and interpretation as given in the Corporations Act and capitalised terms have the meaning given in the Glossary in Section 15. 1.9 Time All references to time in this Prospectus are references to Australian Western Standard Time. 1.10 Enquiries If you are in any doubt as to how to deal with any of the matters raised in this Prospectus, you should consult your broker or legal, financial or other professional adviser without delay. Should you have any questions about the Offer or how to accept the Offer, please call the Company Secretary, Peter Williams on +61 (8) 9253 9800 or Lead Manager (Alan Hill) at State One Equities Pty Ltd on +61 (8) 9288 3388. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 3 2. INDICATIVE TIMETABLE* Lodgement of Original Prospectus with the ASIC 1 September 2015 Lodgement of Replacement Prospectus with the ASIC 21 September 2015 Closing Date 14 October 2015 Issue of Shares and despatch of holding statements 19 October 2015 Expected date for quotation on ASX 26 October 2015 * The above dates are indicative only and may change without notice. The Company reserves the right to extend the Closing Date or close the Offer early without prior notice. The Company also reserves the right not to proceed with the Offer at any time before the issue of Shares to Applicants. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 4 3. CHAIRMAN’S LETTER Dear Investor On behalf of the Board of Directors of Recce Ltd, it is my privilege and pleasure to present this Prospectus for the Initial Public Offering of our Company. Recce is dedicated to the global welfare of mankind, by developing a way of targeting antibiotic-resistant bacteria – SUPERBUGS. Whilst investment in our Company is categorised as “Highly Speculative” the potential rewards from this possibility of successfully targeting the global health threat from superbugs are so large, they are difficult to comprehend. Recce is a world-leader in synthetic polymer-antibiotics. RECCE (brand) antibiotics are synthesised by a substantially patented - and potentially highly economic manufacturing process. The Company has a Board, and a technical team with relevant qualifications, complementary skills and business acumen to meet the Company’s immediate challenges. Recce is seeking to raise $5 million under this Offer, for use over 2 years – to allow it to undertake both the development of a production ‘model’, and the preclinical regulatory requirements of RECCE antibiotics designed for human use. On behalf of the Board of Directors, I commend this Offer to you and recommend that you read this Prospectus in full. I look forward to welcoming you as a supportive shareholder of Recce Ltd. Yours faithfully Dr Graham Melrose Executive Chairman Recce Ltd This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 5 4. INVESTMENT OVERVIEW 4.1 Investment Overview This section is a summary only, and not intended to provide full information for investors intending to apply for Shares offered pursuant to this Prospectus. This Prospectus should be read and considered in its entirety. Item A. Summary Further information Company Who is the issuer of this Prospectus? Recce Ltd (ACN 124 849 065). Who is the Company? The Company was incorporated on 11 April 2007 as a proprietary company limited by shares. Section 7 On 21 August 2015, the Company became a public company limited by shares. Recce has expertise in research and development of pharmaceutical drugs that kill germs. It has synthesised and patented RECCE antibiotics. The Company plans to undertake both the development of a production ‘model’, and the pre-clinical regulatory requirements of RECCE antibiotics designed for human use. Why are RECCE antibiotics important? Continued use of many of the existing antibiotics has led to antibiotic-resistant superbugs which are no longer killed by the antibiotics. This is a major, world health threat. Section 6 Laboratory experimentation indicates that RECCE antibiotics are effective in attacking a wide range of disease-causing Gram-positive and Gram-negative bacteria, and very importantly, superbugs of these bacteria – and exceptionally, RECCE antibiotics keep this capability, even after repeated use. Are RECCE antibiotics different from existing antibiotics? Yes. The molecular structure and the properties of the antibiotics – and the mechanism of killing superbugs by RECCE antibiotics are different to that of any existing antibiotics. Section 6 Are RECCE antibiotics patented? Yes. There are two families of intellectual property relating to RECCE antibiotics: Patent family 1 (expiry 2028). Granted/allowed in Australia, USA, Japan, Europe – pending in China; Section 6 and 10 This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 6 Item Summary Further information Patent family 2 (expiry 2034 – subject to grant). Three provisional patents have been filed in Australia. Both patent families are 100% owned by Recce. For further details in relation to the patents, please refer to the Patent Attorney’s Report at Section 10. Where are the Company’s facilities? Recce’s offices and laboratories are presently within the one building having a prominent site within Technology Park, Bentley, Western Australia. The facilities are adjacent to Curtin University, CSIRO laboratories, and Western Australian Government Agricultural Research Laboratories and within 10 km of the CBD of the city of Perth. Additionally, the Company has access to an office in both Sydney’s and Washington’s (USA) central business districts. Subject to entering necessary agreements and obtaining the necessary approvals, regulatory testing will be outsourced to specialist facilities, likely based in the USA. Does the Company collaborate with others? B. The Company will undertake a range of testing for regulatory purposes to further develop its technology and potential products, and for this reason anticipates frequent interactions with local and international contract research laboratories and technical consultants. Business Model How will the Company generate income? The Company’s ultimate focus is manufacturing active pharmaceutical ingredients of RECCE antibiotics, for Recce’s own use or possible sale to a leading global pharmaceutical company, for inclusion in their end-product medicine. Section 6 Manufacture of the Company’s antibiotics is potentially, exceptionally economic in comparison to present day antibiotics. What are the key business strategies of the Company? Recce is currently focused on scaling-up the manufacture of their unique antibiotics for future worldwide supply of pharmaceuticals. Section 6 The Company will seek to obtain regulatory approvals for the human health market by beginning the necessary US Food & Drug Authority (FDA) (and/or European Medicines Agency, European equivalent) processes. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 7 Item Summary Further information Immediately, the Company will seek to complete the early stages of pre-clinical trials. The Company is cognisant of the fact that the research and development of new medical products can take a long time and require significant expenditure. What are the key dependencies of the Company’s business model? The key factors that the Company will depend on to meet its objectives are: • The achievement of positive results in the testing phases of RECCE antibiotics; • The Company’s ability to obtain the necessary regulatory approvals required to conduct its proposed operations; and • C. Section 6 The successful further development of the RECCE antibiotics. Key Investment Highlights What are the key investment highlights? The Directors are of the view that the key Section 6 highlights of an investment in the Company include: (a) Timing is right. Developing antibiotics to kill superbugs is an increasingly necessary field of pharmaceutical science. This Offer provides investors with the opportunity to participate in targeting this urgent need; (b) Unique technology. Experimentation indicates broad spectrum RECCE antibiotics kill a wide range of disease causing Gram-positive bacteria, Gram-negative bacteria - and their superbug forms – and keep on killing them after repetitive use - unlike present-day antibiotics; (c) Recce wholly owns the capability and technology to make and administer the antibiotics; its intellectual property portfolio includes a suite of granted/allowed patents in countries having international marketimportance; (d) RECCE antibiotics are a new technology which, if developed for successful human use, gives the advantages of highly diversified product opportunities – all having established markets and needs. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 8 Item D. Summary Further information Key Risks What are the key risks of an investment in the Company? The business, assets and operations of the Section 4.2 Company, are subject to certain risk factors and 9 that have the potential to influence the operating and financial performance of the Company in the future. These risks can impact on the value of an investment in the Shares of the Company. The Directors aim to manage these risks by carefully planning the Company’s activities and implementing risk control measures. Some of the risks are, however, highly unpredictable and the extent to which the Board can effectively manage them is limited. Based on the information available, the key risk factors affecting the Company include: (a) Expenses and costs of trials and compliance with regulations; (b) High rate of failure for drug candidates proceeding through preclinical trials; (c) Serious adverse events or safety risks could require Recce to abandon developments, and to preclude, delay or limit approval of its products (d) Reliance on key personnel; (e) Where the RECCE antibiotic is manufactured for supply for human use, the Company will face an inherent risk of exposure to liability claims and regulatory actions; (f) The Company may be forced to litigate to enforce or defend its intellectual property rights; The Company may not be able to protect its proprietary technology in the marketplace; The Company may be unable to adequately prevent disclosure of intellectual properties, know-how and other proprietary information; and (g) (h) (i) Competitors may be more successful than the Company. These key risks are further explained in Section 4.2 below. For other industry and general investment risks, many of which are largely beyond the control of the Company and its Directors, please refer to Section 9. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 9 Item E. Summary Further information Directors and Key Management Personnel Who are the Directors? The Directors of the Company are as follows: (a) Graham Melrose (Executive Chairman); (b) Michele Dilizia (Executive Director); (c) (d) James Graham (Executive Director); Ian Brown (Independent, NonExecutive Director); and (e) Dongke Zhang (Independent, NonExecutive Director). Sections 7.8 and 7.13. The profiles of each of the Directors are set out in Section 7.8. Relevant interests of each of the above individuals are set out in Section 7.13. F. Financial Information What is the key financial information for the Company? Refer to the Investigating Accountant’s Report in Section 11 for a discussion in respect of the key financial information of the Company. Investors should note that past performance may not be a guide to future performance. Section 11 Historical Financial Performance of RECCE FY15 FY14 Section 8 Revenue $113,854 $97,142 Operating Loss ($450,166) ($272,416) Consolidated Pro-Forma Financial Position at 30 June 2015 TOTALS Full subscription How will the Company fund its activities? The funding for the Company’s activities over the next two years will be generated from a combination of the money raised under the Offer and existing cash reserves. Assets $4,986,581 Liabilities $272,471 Equity $4,714,110 Section 8 Section 7.2 Although adherence with forecast capital and expense costs is exceptionally difficult in the case of a company in the early stages of research and development, historically Recce has been very successful in achieving this by internal compensation of minor over-spending in some projects, by minor under-spending in others. It is projected that such achievements (and compensations) may continue over the next two years. In order for the Company to complete the proposed development of the RECCE This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 10 Item Summary Further information antibiotics the Company may need to undertake further capital raisings in the future (either debt or equity, as determined appropriate by the Board at the time) to fund these initiatives. Has the Company included forecast financial information in respect of its business? G. Given the current status of the Company’s operations and the need for regulatory approvals (the status and timing of which are inherently uncertain) the Directors do not consider it appropriate to forecast future earnings. Section 8 Any forecast or projection information would contain such a broad range of potential outcomes and possibilities that it is not possible to prepare a reliable best estimate forecast or projection on a reasonable basis. Offer What is the purpose of the Offer? The purpose of the Offer is to facilitate an application by the Company for admission of the Company to the Official List of ASX and position the Company to: (a) Fund the ongoing immediate working capital needs of the Company; (b) (c) Sections 5.4 and 7.2 Fund the on-going research and development of the RECCE antibiotics; and Advance the relevant regulatory approvals in respect of the RECCE antibiotics over the next twenty four months. On completion of the raising of $5,000,000 under the Offer, the Board believes the Company will have sufficient working capital to achieve these objectives. Specifically, the Company intends to apply funds raised from the Offer, together with existing cash reserves of the Company over the first two years following admission of the Company to the Official List of ASX in the manner set out in the table in Section 7.2. What is being offered and who is entitled to participate? The Offer is for 25,000,000 Shares at an issue price of $0.20 per Share to raise $5,000,000. Sections 5.1 and 5.6 The Offer is open to retail and sophisticated investors in Australia. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 11 Item Summary Further information Will I be guaranteed a minimum allocation under the Offer? The Company is not in a position to guarantee a minimum allocation of Shares under the Offer. Section 5.5 Is there an underwriter for the Offer? The Offer is not underwritten. Section 5.8 What will the Company’s capital structure look like after completion of the Offer? Section 7.3 Shares Performance Shares On issue at date of Prospectus 40,951,449 35,017,692 Issued under the Offer 25,000,000 Nil Lead Manager Fees* 1,500,000 Nil TOTAL 67,441,449 35,017,692 * The Lead Manager may elect to be issued Shares in satisfaction of some or all of its Fee. A maximum of 1,500,000 Shares would be issued if the full amount of the Fee was satisfied through the issue of Shares. What are the terms of the Shares offered under the Offer? A summary of the material rights and liabilities attaching to the Shares offered under the Offer is set out in Section 13.2. Section 13.2 What are the terms of the Performance Shares? A summary of the terms attaching to the Performance Shares is set out in Section 13.3. Section 13.3 Will any Shares be subject to escrow? Subject to the Company complying with Chapters 1 and 2 of the ASX Listing Rules and completing the Offer, certain existing Shares on issue may be classified by ASX as restricted securities and will be required to be held in escrow for up to 24 months from the date of Official Quotation. Section 7.5 During the period in which these Shares are prohibited from being transferred, trading in Shares may be less liquid which may impact on the ability of a Shareholder to dispose of his or her Shares in a timely manner. This is a replacement prospectus dated 21 September 2015. It replaces a prospectus dated 1 September 2015 relating to shares of Recce Ltd (ACN 124 849 065). 12 Item Will the Company’s securities be quoted? Summary Further information Application for quotation of all the Company’s Shares (including those to be issued under the Offer) was made to ASX no later than 7 days after the date of the Original Prospectus. If the Shares are not admitted to Official Quotation by ASX before the expiration of 3 months after the date of the Original Prospectus, or such period as varied by the ASIC, the Company will not issue any Shares and will repay all application monies for the Shares within the time prescribed under the Corporations Act, without interest. Section 5.4 The Performance Shares will not be quoted. What are the key dates of the Offer? The key dates of the Offer are set out in the indicative timetable in Section 2. Section 2 What is the minimum investment size under the Offer? Applications under the Offer must be for a minimum of $2,000 worth of Shares (10,000 Shares) and thereafter, in multiples of $1,000 worth of Shares (5,000 Shares). Section 5.3 Are there any conditions to the Offer? No, other than a minimum subscription of $5,000,000. Section 5.2 H. Use of proceeds How will the proceeds of the Offer be used? Together with existing cash reserves of the Company, the Offer proceeds will be used to fund: (a) (b) (c) (d) I. Sections 7.2 and 13.7 Expenses of the Offer; Developmen