RECCE PHARMACEUTICALS LTD — Interim / Quarterly Report 2018

Feb 27, 2018

RECCE PHARMACEUTICALS LTD

Appendix 4D

Current Reporting Period: 31 December 2017

Previous Reporting Period: 31 December 2016

Results for Announcement to the Market

		PercentageChange		$
Revenue from ordinary activities	-	0.0%	to	-
Loss from ordinary activities after taxattributable to members	down	21.6%	to	(1,044,076)
Net loss for the period attributable to members	down	21.6%	to	(1,044,076)

Brief explanation of Results

Operational Report

During the reporting period, Recce Pharmaceuticals Ltd (the "Company") and controlled entities (the "Group") have made significant progress. Some of the highlights for the period were as follows:

• US FDA granted Qualified Infectious Disease Product Designation ("QIDP"), a legal status under Generating Antibiotic Initiatives Now ("GAIN") Act - labelling RECCE® 327 for Fast Track regulatory process and 10 years of exclusivity post approval;
• New automated manufacturing facility in Sydney, producing at levels to support proposed Phase 1 and 2 clinical trials;
• Purchased Acquity UPLC - H Class equipment used to analyse the Group's led compound RECCE® 327;
• Launched a Share Purchase Plan to eligible shareholders with 5,408,487 new shares issued totalling to $946,500;
• The Australian Special Opportunity Fund LP ("ASOF") invested an additional $400,000 during the period and converted $100,000 of the convertible notes to equity in accordance with the Share Purchase and Convertible Security Agreement;
• Changed the name of the Company from Recce Ltd to Recce Pharmaceuticals Ltd;
• Appointed Alistair McKeough, from McKeough & Whittens Lawyers as independent consultant Company Secretary;
• Appointed Justin Reynolds of Pitcher Partners Sydney as independent consultant CFO; and
• Current focus is on progressing RECCE® 327 into human clinical trials in 2018.

Appendix 4D

Financial Report

The half-year operating loss has reduced to $1,044,076 (2016: loss of $1,332,540). The major item that impacted on the reduction of the loss was the receipt of a $426,927 R&D tax incentive during the period.

The R&D campaign for Investigational New Drug ("IND") status by the US FDA was largely finalised early in the period resulting in the overall decrease in laboratory costs by $162,818 compared to the prior half-year.

Other expenses increased by $216,857 which was primarily attributable to the increase in consultancy fees for legal, taxation and regulatory requirements. Finance costs increased by $16,989 due to the amortisation of the convertible notes and the impact of the early conversion of $100,000 of the convertible notes to equity.

The loss per share has decreased during the period to 1.28 cents (2016: 1.76 cents).

Dividends

	Amount per	Percentage
	Security	Franked
Final Dividend	Nil	N/A
Interim Dividend	Nil	N/A
Date the Dividend is Payable:	N/A	N/A
Record Date for determining entitlements to the Dividends:	N/A	N/A

The Company did not declare a dividend during the financial period and has not declared a dividend since the end of the financial period.

Net Tangible Assets per Security

As at 31 December 2017 (cents)	1.11
As at 31 December 2016 (cents)	2.90

The half report is based on accounts that have been subject to an audit review and there is no dispute or qualification with the auditors in relation to these accounts.

RECCE PHARMACEUTICALS LTD

(formerly RECCE LTD)

ABN 73 124 849 065

INTERIM REPORT

FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

PAGE

TABLE OF CONTENTS

1	Directors' Report	1
2	Auditor's Independence Declaration	5
3	Consolidated Statement of Profit or Loss and Other Comprehensive Income	6
4	Consolidated Statement of Financial Position	7
5	Consolidated Statement of Changes in Equity	8
6	Consolidated Statement of Cash Flows	9
7	Notes to the Consolidated Financial Statements	10
8	Declaration by Directors	20
9	Independent Auditor's Review Report	21

DIRECTORS' REPORT FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

The Directors present their report together with the interim consolidated financial report of Recce Pharmaceuticals Ltd (formerly Recce Ltd) (the "Company") and controlled entities (the "Group") for the half-year ended 31 December 2017.

Directors

The following persons held office as Directors of the Company during the half-year and up to the date of this report:

Dr Graham Melrose	Executive Chairman
Ms Michele Dilizia	Executive Director
Mr James Graham	Executive Director

Principal Activity

The Group is a drug discovery and development business commercialising a new class of synthetic antibiotics with broad spectrum activity designed to address the global health challenge of antibiotic resistant superbugs. Its patented lead candidate known as RECCE® 327 has been developed for the treatment of blood infections and sepsis derived from E. coli and S. aureus bacteria - including their superbug forms.

Review of Operations

On 7 July 2017, the Company issued a purchase order in relation to the purchase of an Acquity UPLC - H Class at $138,301. The equipment was used to analyse the Group's led compound RECCE® 327.

On 20 July 2017, the Company announced that its manufacturing facility in Sydney was producing at name-plate standard its antibiotic compounds at volumes in preparation for human clinical trials.

On 31 July 2017, the Company announced the following:

• it had positive data from additional pre-clinical studies which confirmed that RECCE® 327 was equally effective in killing Gram Positive and Gram Negative bacteria and their superbug form;
• that the preferred mode of delivery of RECCE® 327 was via an IV drip; and
• that independent experts had reviewed the Group's draft Investigational New Drug ("IND") and recommended that the Company should proceed to pre-IND meeting with the US Food and Drug Administration ("FDA").

On 27 September 2017, the Company launched a Share Purchase Plan which was offered to eligible shareholders for an opportunity to purchase up to $15,000 worth of new ordinary shares in the Company without brokerage or transaction costs. The Plan was limited to a maximum of 5,700,000 new shares.

DIRECTORS' REPORT FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

Review of Operations (Continued)

On 23 October 2017, the Company accepted applications from 171 registered shareholders totalling $946,500, equivalent to 5,408,487 new shares under the Share Purchase Plan.

On 16 November 2017, the Company announced that the US FDA has granted Qualified Infectious Disease Product ("QIDP") designation for its lead compound RECCE® 327. This designation is an important achievement in the regulatory path for RECCE® 327 with the FDA and has significant benefits to the Group's business.

On 21 November 2017, at the annual general meeting, the shareholders of the Company approved the change of name from Recce Ltd to Recce Pharmaceuticals Ltd.

On 29 November 2017, the Company announced that Mr Peter Williams was no longer the Company Secretary and CFO. Alistair McKeough from Whittens & McKeough Sydney has been appointed as the new independent Company Secretary whilst Mr Justin Reynolds from Pitcher Partners Sydney became the new independent consultant CFO.

During the period, the Australian Special Opportunity Fund LP ("ASOF") invested an additional $400,000 in four tranches and converted $100,000 of the convertible notes to equity in accordance with Share Purchase and Convertible Security Agreement signed on 16 June 2017.

On 15 February 2018, the Company announced the submission of additional data to the US FDA, including expanded pre-clinical data and a proposed Phase 1 clinical trial program for the company's lead compound RECCE® 327. The submission included a communication request, leveraging unique opportunities gained under RECCE® 327's Qualified Infectious Disease Product (QIDP) designation.

On 16 February 2018, the Company announced the results of a General Meeting, re-electing Michele Dilizia and James Graham unanimously on a show of hands.

Results of Operations

The half-year operating loss has reduced to $1,044,076 (2016: loss of $1,332,540). The major item that impacted on the reduction of the loss was the receipt of a $426,927 R&D tax incentive during the period.

The R&D campaign for IND status by the US FDA was largely finalised early in the period resulting in the overall decrease of laboratory costs by $162,818 compared to the prior half-year.

DIRECTORS' REPORT FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

Results of Operations (Continued)

Other expenses increased by $216,857 which was primarily attributable to the increase in consultancy fees for legal, taxation and regulatory requirements. Finance costs increased by $16,989 due to the amortisation of the convertible notes and the impact of the early conversion of $100,000 of the convertible notes to equity.

The loss per share has decreased during the period to 1.28 cents (2016: 1.76 cents).

The Group's current focus is on progressing RECCE® 327 into human clinical trials.

Events Subsequent to Reporting Period

On 15 January 2018, following the release of 42,810,081 unquoted ordinary shares from escrow, the Company sought for these shares to be quoted on the ASX. 34,928,832 of these shares were held by Executive Directors. As at 15 January 2018, the Company has 86,769,222 ordinary shares quoted on the ASX.

On 15 January 2018, the Company's 8,754,423 Class B, 8,754,423 Class C and 8,754,423 Class D performance shares were released from escrow. The Company will not seek quotation of these shares unless certain performance hurdles are achieved.

On 15 January 2018, the Company announced that it has been awarded to receive 43.5% rebates out of the $5,605,709 expenditure incurred by the Company from AusIndustry, a division of the Australian Government's Department of Industry, Innovation and Science. The 43.5% rebate applicable to Australian Research and Development, is now awarded to the Company to include its overseas advanced drug development for the financial years 30 June 2017, 30 June 2018 and 30 June 2019. As at the date of this report, the Company has incurred around $0.9 million of these expenditure.

On 17 January 2018 and 16 February 2018, the Company issued 654,022 ordinary shares with 130,804 options and 328,084 ordinary shares with 65,617 options to ASOF as part of its Share Purchase and Convertible Security Agreement signed by the Company and ASOF on 16 June 2017. The options will expire on 10 January 2021 and 13 February 2021, respectively.

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.

DIRECTORS' REPORT FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5.

This report is made in accordance with a resolution of the Board of Directors.

Dr Graham Melrose Executive Chairman

28 February 2018

38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia

DECLARATION OF INDEPENDENCE BY MATTHEW CUTT TO THE DIRECTORS OF RECCE PHARMACEUTICALS LTD

As lead auditor for the review of Recce Pharmaceuticals Ltd for the half-year ended 31 December 2017, 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 review; and
• 1. No contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Recce Pharmaceuticals Ltd and the entities it controlled during the period.

Matthew Cutt Director

BDO Audit (WA) Pty Ltd Perth, 28 February 2018

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 other than for the acts or omissions of financial services licensees

FOR THE HALF-YEAR ENDED 31 DECEMBER 2017 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

	Note	2017	2016
		$	$
Revenue		-	-
Other income
Research and Development ("R&D") tax incentive		426,927	-
Interest income		5,754	37,201
		432,681	37,201
Expenses
Laboratory expenses		(194,191)	(357,009)
Employee benefits expenses		(567,670)	(568,902)
Share based payments expense		-	(32,164)
Depreciation and amortisation expenses		(25,539)	(10,956)
Travel expenses		(83,924)	(28,313)
Patent related costs		(20,278)	(10,693)
Rental expenses		(79,244)	(89,639)
Finance costs		(18,719)	(1,730)
Other expenses		(487,192)	(270,335)
		(1,476,757)	(1,369,741)
Loss before income tax		(1,044,076)	(1,332,540)
Income tax expense		-	-
Loss for the period after income tax		(1,044,076)	(1,332,540)
Other comprehensive income		-	-
Total comprehensive loss for the period		(1,044,076)	(1,332,540)
		Cents	Cents
Loss per share:
Basic loss per share for the period	6	(1.28)	(1.76)
Diluted loss per share for the period	6	(1.28)	(1.76)
Dividends per share for the period	7	-	-

RECCE PHARMACEUTICALS LTD (formerly RECCE LTD) ABN 73 124 849 065

AS AT 31 DECEMBER 2017 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Note	31 December2017$	30 June2017$
ASSETS
CURRENT ASSETS
Cash and cash equivalents	8	1,136,811	1,090,438
Trade and other receivables		79,185	60,185
Other current assets		28,499	3,365
TOTAL CURRENT ASSETS		1,244,495	1,153,988
NON-CURRENT ASSETS
Plant and equipment	9	453,666	310,598
TOTAL NON-CURRENT ASSETS		453,666	310,598
TOTAL ASSETS		1,698,161	1,464,586
LIABILITIES
CURRENT LIABILITIES
Trade and Other Payables	10	433,974	530,475
Financial liabilities	11	20,014	-
Provisions for employee benefits		149,360	159,820
TOTAL CURRENT LIABILITIES		603,348	690,295
NON-CURRENT LIABILITIES
Financial liabilities	11	108,929	161,289
Provisions for employee benefits		26,466	22,858
TOTAL NON-CURRENT LIABILITIES		135,395	184,147
TOTAL LIABILITIES		738,743	874,442
NET ASSETS		959,418	590,144
EQUITY
Share capital	12	9,681,509	8,235,009
Reserves	13	1,500,022	1,533,172
Accumulated losses		(10,222,113)	(9,178,037)
TOTAL EQUITY		959,418	590,144

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER 2017

	ShareCapital	Reserves	AccumulatedLosses	Total
	$	$	$	$
BALANCE AT 1 JULY 2016	7,418,863	2,247,531	(6,152,533)	3,513,861
COMPREHENSIVE INCOME:
Loss for the period	-	-	(1,332,540)	(1,332,540)
Other comprehensive income	-	-	-	-
	-	-	(1,332,540)	(1,332,540)
TRANSACTIONS WITH OWNERS IN THEIR
CAPACITY AS OWNERS:
Conversion of performance shares	612,939	(612,939)	-	-
Issuance of shares	20,000	-	-	20,000
Share based payments	-	12,167	-	12,167
	632,939	(600,772)	-	32,167
BALANCE AT 31 DECEMBER 2016	8,051,802	1,646,759	(7,485,073)	2,213,488
BALANCE AT 1 JULY 2017	8,235,009	1,533,172	(9,178,037)	590,144
COMPREHENSIVE INCOME:
Loss for the period	-	-	(1,044,076)	(1,044,076)
Other comprehensive income	-	-	-	-
	-	-	(1,044,076)	(1,044,076)
TRANSACTIONS WITH OWNERS IN THEIR
CAPACITY AS OWNERS:
Issuance of shares	1,346,500	-	-	1,346,500
Conversion of convertible notes	100,000	(33,150)	-	66,850
	1,446,500	(33,150)	-	1,413,350
BALANCE AT 31 DECEMBER 2017	9,681,509	1,500,022	(10,222,113)	959,418

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER 2017

	2017	2016
	$	$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from Australian Taxation Office	426,927	-
Payments to suppliers and employees	(1,629,986)	(1,297,994)
Interest received	5,754	53,345
Interest and other costs of finance paid	(4,229)	(1,730)
NET CASH USED IN OPERATING ACTIVITIES	(1,201,534)	(1,246,379)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of financial assets	-	(26,022)
Purchases of plant and equipment	(168,607)	-
NET CASH USED IN INVESTING ACTIVITIES	(168,607)	(26,022)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans	34,310	-
Repayments of loans	(14,296)	(6,978)
Proceeds from issue of shares (net of costs)	1,396,500	-
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES	1,416,514	(6,978)
Net increase/(decrease) in cash and cash equivalents held	46,373	(1,279,379)
Cash and cash equivalent at the beginning of the period	1,090,438	3,591,382
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	1,136,811	2,312,003

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

NOTE 1: GENERAL INFORMATION

The condensed consolidated financial report of Recce Pharmaceuticals Ltd (formerly Recce Ltd) (the "Company") and its controlled entities (the "Group") for the half year ended 31 December 2017 was authorised for issue in accordance with a resolution of the Directors on 28 February 2018.

The Company is a company limited by shares incorporated and domiciled in Australia whose shares are publicly trade on the Australian Securities Exchange ("ASX").

On 21 November 2017, at the annual general meeting, the shareholders of the Company approved the change of name from Recce Ltd to Recce Pharmaceuticals Ltd.

NOTE 2: ACCOUNTING POLICIES

(a) Basis of preparation of the condensed consolidated financial report

These condensed consolidated financial statements are general purpose financial statements for the half year ended 31 December 2017 have been prepared in accordance with Australian Accounting Standards 134 Interim Financial Reporting and the Corporations Act 2001.

The half year condensed consolidated financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Company as the full financial report. Accordingly, the half-year condensed consolidated financial report should be read in conjunction with the annual report for the year ended 30 June 2017 and considered together with any public announcements made by the Company during the half year ended 31 December 2017 in accordance with the continuous disclosure obligations of the ASX Listing Rules and the Corporations Act 2001.

The accounting policies applied in these half year consolidated financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 30 June 2017.

Historical Cost Convention

The condensed consolidated financial statements have been prepared on an accrual basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

NOTE 2: ACCOUNTING POLICIES (CONTINUED)

(b) Adoption of new and revised standards

The Group has reviewed all of the new and revised standards and interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current half-year. The Group has also reviewed all standards and interpretations that have been issued but are not yet effective for the half-year ended 31 December 2017. As a result of this review, the Directors have determined that there is no material impact on the Group and, therefore no material change is necessary to Group accounting policies.

(c) Rounding of amounts to nearest dollar

In accordance with ASIC Corporations (Rounding of Financial/Directors' Reports) Instrument 2016/191, the amounts in the condensed consolidated financial report have been rounded to the nearest dollar.

NOTE 3: CRITICAL ACCOUNTING JUDGEMENTS AND SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the condensed consolidated financial statements requires management to make judgments, 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.

Recovery of deferred tax assets

Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. At 31 December 2017, no deferred tax assets on temporary differences and carry forward losses were recognised.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

NOTE 4: GOING CONCERN

For the period ended 31 December 2017, the Company recorded a loss of $1,044,076 (2016: $1,332,540) and had net cash outflows from operating activities of $1,201,534 (2016: $1,246,379). The ability of the Company to continue as a going concern and being able to continue to fund its operating activities is dependent on securing additional funding through share placements to new or existing investors together with continuous receipt of R&D tax rebate.

These conditions indicate a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The Directors believe there are sufficient funds to meet the Company's working capital requirements as at the date of this report. Based on the success of current progress in the Group, it is considered that re-financing through equity funds would be well supported. Subsequent to period end the Company expects to receive further funds via both equity and an R&D tax rebates.

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 cash flow projections that support the ability of the Company to continue as a going concern, subject to raising additional funds through equity as detailed above; and
• The Company continually receiving its Australian R&D tax rebates for R&D expenditure in Australia and overseas incurred by the Company as awarded by AusIndustry, a division of the Australian Government's Department of Industry, Innovation and Science on 15 January 2018. The use of these AusIndustry funds is restricted to R&D activities.

Should the Company 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 Company not continue as a going concern.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

NOTE 5: SEGMENT INFORMATION

(a) Reportable segments

The Directors have considered the requirements of AASB 8 Operating Segments and the internal reports that are reviewed by the chief operating decision maker (the Board of Directors) in allocating resources and have concluded that at this time there are no separate identifiable segments as the Group operates in only one business segment being research and development of pharmaceutical drugs. However, the Group operates in two geographic segment being Australia and USA.

(b) Segment results

The following is an analysis of the Group's results by reportable segments:

		Segment revenue andother incomefor the period		Segment loss after taxfor the period
	31 December	31 December	31 December	31 December
	2017	2016	2017	2016
	$	$	$	$
Australia	-	-	(482,783)	(317,611)
USA	-	-	(211,890)	(376,990)
Central Administration	432,681	37,201	(349,403)	(637,939)
	432,681	37,201	(1,044,076)	(1,332,540)

The accounting policies of the reportable segments are the same as the Group's accounting policies described in the Group's 30 June 2017 notes to the consolidated financial statements. 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

	Segment assets		Segment liabilities
		at end of the period		at end of the period
	31 December30 June2017	31 December	30 June
		2017	2017	2017
	$	$	$	$
Australia	365,605	220,139	-	-
USA	-	-	-	-
Central Administration	1,332,556	1,244,447	745,015	874,442
	1,698,161	1,464,586	745,015	874,442

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

NOTE 5: SEGMENT INFORMATION (CONTINUED)

(c) Segment net assets

	31 December2017$	30 June2017$
Australia	365,605	220,139
USA	-	-
Central Administration	587,541	370,005
	953,146	590,144
	31 December2017	31 December2016
	$	$

NOTE 6: LOSS PER SHARE

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

Loss for the period attributable to the members of the parent	(1,044,076)	(1,332,540)
Weighted average number of shares:Weighted average number of ordinary shares used in calculating basicloss per share	81,491,967	75,753,096
Effect of dilutive securities:Adjusted weighted average number of ordinary shares used incalculating diluted loss per share	-	-
	81,491,967	75,753,096
Loss per share (cents per share):Basic loss per share for the periodDiluted loss per share for the period	(1.28)(1.28)	(1.76)(1.76)

NOTE 7: DIVIDENDS PAID AND PROPOSED

The Company had not declared any dividends during and/or since the end of the half-year 31 December 2017 (31 December 2016: $nil).

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

	31 December2017$	30 June2017$
NOTE 8: CASH AND CASH EQUIVALENTS
Cash at bankCash on hand	1,136,2036081,136,811	1,089,9544841,090,438
NOTE 9: PLANT AND EQUIPMENT
NON-CURRENTLaboratory plant and equipment
At cost	412,976	247,376
Less accumulated depreciation	(47,371)	(27,237)
	365,605	220,139
Furniture, fittings and office equipment
At cost	56,914	53,907
Less accumulated depreciation	(22,974)	(19,123)
	33,940	34,784
Leasehold improvements
At cost	56,835	56,835
Less accumulated depreciation	(2,714)	(1,160)
	54,121	55,675
Total Plant and Equipment	453,666	310,598

Reconciliations

Movement in the carrying amounts of the plant and equipment between the beginning and the end of the current financial period.

	$
Opening balance, 1 July 2017	310,598
Additions	168,607
Depreciation expense	(25,539)
Ending balance, 31 December 2017	453,666

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

NOTE 10: TRADE AND OTHER PAYABLES	Note	31 December2017$	30 June2017$
CURRENT
Trade payables		63,808	255,353
Employee related payables		270,166	224,871
Sundry creditors		100,000	50,251
		433,974	530,475
NOTE 11: FINANCIAL LIABILITIES
CURRENT
Loans payable	(a)	20,014	-
NON-CURRENT
Convertible notes	(b)	108,929	161,289

• (a) The loans payable pertained to funding for the Directors and Officers insurance of the Company which is payable in 12 monthly instalments from August 2017.
• (b) The convertible notes pertained to the Share Purchase and Convertible Security Agreement signed on 16 June 2017 by the Company and Australian Special Opportunity Fund LP ("ASOF"). ASOF made an initial upfront investment of $300,000 by way of a $250,000 24-month interest free unsecured convertible security (with a face value of $300,000) and a $50,000 equity investment that was satisfied by the issue of ordinary shares.

ASOF has the discretion to convert the convertible notes into ordinary shares or use the Conversion Collateral Capitalisation Election based on a calculation model to determine the price at conversion.

In the instance where a Conversion Collateral Capitalisation Election has been made, the convertible notes will be converted by way of a reduction in the 476,000 Collateral Shares issued on 16 June 2017.

On 22 September 2017, ASOF exercised 40% of the convertible notes to be converted to 730,460 ordinary shares at 13.69 cents per share with a value of $100,000.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

				31 December2017$	30 June2017$
	NOTE 12: SHARE CAPITAL
(a)	Issued capital
	Issued and fully paid ordinary shares			9,681,509	8,235,009
(b)	Movements in ordinary shares on issue
		31 December 2017		30 June 2017
		No of shares	$	No of shares	$
	Opening balance	78,004,500	8,235,009	72,643,872	7,418,863
	Shares issued during the period:- shares issued through Share
	Purchase Plan1	5,408,487	946,500	-	-
	- shares issued to ASOF2	2,625,775	400,000	654,715	-
	- shares issued to employees	-	-	103,913	20,000
		8,034,262	1,346,500	758,628	20,000
	Conversions during the period:
	- Convertible notes2	730,460	100,000	-	-
	- Class A performance shares3	-	-	4,602,000	796,146
		730,460	100,000	4,602,000	796,146
	Total4	86,769,222	9,681,509	78,004,500	8,235,009

1 On 23 October 2017, the Company accepted applications from 171 registered shareholders under the Share Purchase Plan.

2 The issue of shares and conversion of convertible notes pertained to the Share Purchase and Convertible Security Agreement signed by the Company and ASOF on 16 June 2017, whereby the Company could receive over a 24-month period up to $6.05 million from ASOF, a US institutional investor.

3 The milestone attributable to the Class A Performance Shares was achieved on 16 February 2016 i.e. the 20 day VWAP was $0.30 or higher over 20 consecutive trading days. However, 4,602,000 Performance Shares granted to G Melrose could not be converted as a result of the application of section 606(1) of the Corporations Act 2001.

4 At 31 December 2017, 43,959,141 ordinary shares on issue were quoted in the ASX whilst 42,810,081 ordinary shares were unquoted and under escrow until 15 January 2018.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

NOTE 12: SHARE CAPITAL

(c) Options from shares issued

The Company issued the following options to ASOF as part of its Share Purchase and Convertible Security Agreement signed on 16 June 2017.

Particulars	Issue Date	ExerciseDate	ExercisePrice	31 December2017	30 June2017
			cents	No	No
Options	16-Jun-17	21-Jun-21	25.93	641,000	641,000
Tranche 1	19-Jul-17	19-Jul-20	21.71	59,880	-
Tranche 2	06-Sep-17	25-Aug-20	18.72	104,167	-
Tranche 3	29-Sep-17	29-Sep-20	17.80	109,569	-
Tranche 4	02-Nov-17	01-Nov-20	20.40	127,470	-
Tranche 5	01-Dec-17	30-Nov-20	20.96	124,069	-
				1,166,155	641,000
				31 December	30 June
				2017	2017
				$	$
NOTE 13: RESERVES
Performance shares reserve				1,444,481	1,444,481
Option reserve				55,541	88,691
				1,500,022	1,533,172

NOTE 14: COMMITMENTS AND CONTINGENCIES

The Group leases various premises under non-cancellation operating leases expiring between one and two years. All leases have annual CPI escalation clauses. Lease terms usually run for two years with a two-year renewal option.

The Group is not aware of any contingent liabilities or contingent assets as at 31 December 2017.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

NOTE 15: EVENTS SUBSEQUENT TO REPORTING PERIOD

On 15 January 2018, following the release of 42,810,081 unquoted ordinary shares from escrow, the Company sought for these shares to be quoted on the ASX. 34,928,832 of these shares were held by Executive Directors. As at 15 January 2018, the Company has 86,769,222 ordinary shares quoted on the ASX.

On 15 January 2018, the Company's 8,754,423 Class B, 8,754,423 Class C and 8,754,423 Class D performance shares were released from escrow. The Company will not seek quotation of these shares unless certain performance hurdles are achieved.

On 15 January 2018, the Company announced that it has been awarded to receive 43.5% rebates out of the $5,605,709 expenditure incurred by the Company from AusIndustry, a division of the Australian Government's Department of Industry, Innovation and Science. The 43.5% rebate applicable to Australian Research and Development, is now awarded to the Company to include its overseas advanced drug development for the financial years 30 June 2017, 30 June 2018 and 30 June 2019. As at the date of this report, the Company has incurred around $0.9 million of these expenditure.

On 17 January 2018 and 16 February 2018, the Company issued 654,022 ordinary shares with 130,804 options and 328,084 ordinary shares with 65,617 options to ASOF as part of its Share Purchase and Convertible Security Agreement signed by the Company and ASOF on 16 June 2017. The options will expire on 10 January 2021 and 13 February 2021, respectively.

Apart from the above, there has been no other matter or circumstance, which has arisen since 31 December 2017, which has significantly affected, or may significantly affect the state of affairs of the Group in subsequent financial years.

NOTE 16: KEY MANAGEMENT PERSONNEL (KMP) DISCLOSURES

Remuneration arrangements of KMP were disclosed in the annual financial report. On 29 November 2017, the Company announced that Mr Peter Williams was no longer the Company Secretary and CFO.

DIRECTORS' DECLARATION FOR THE HALF YEAR ENDED 31 DECEMEBER 2017

The Directors of the Company declare that:

• 1. The condensed consolidated financial statements and notes to the financial statements of the Group are in accordance with the Corporations Act 2001 and:
  • a. comply with Australian Accounting Standards AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 ; and
  • b. give a true and fair view of the consolidated financial position as at 31 December 2017 and of its performance for the half-year ended on that date.
• 1. In the Directors' opinion there are reasonable grounds to believe that the Company 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 pursuant to s.303(5) of the Corporations Act 2001 and is signed for and behalf of the Directors by:

Dr Graham Melrose Executive Chairman

28 February 2018

38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia

INDEPENDENT AUDITOR'S REVIEW REPORT

To the members of Recce Pharmaceuticals Ltd

Report on the Half-Year Financial Report

Conclusion

We have reviewed the half-year financial report of Recce Pharmaceuticals Ltd (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 31 December 2017, 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 halfyear then ended, notes comprising a statement of accounting policies and other explanatory information, and the directors' declaration.

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of the Group is not in accordance with the Corporations Act 2001 including:

• (i) Giving a true and fair view of the Group's financial position as at 31 December 2017 and of its financial performance for the half-year ended on that date; and
• (ii) Complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001.

Emphasis of matter – Material uncertainty relating to going concern

We draw attention to Note 4 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 conclusion is not modified in respect of this matter.

Directors' responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation of the half-year 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 half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including giving a true and fair view of the Group's financial position as at 31 December 2017 and its financial performance for the half-year ended on that date and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of the Group, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor's review report.

BDO Audit (WA) Pty Ltd

Matthew Cutt Director

Perth, 28 February 2018