ENTERA BIO LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

AS OF MARCH 31, 2019

ENTERA BIO LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

AS OF MARCH 31, 2019

TABLE OF CONTENTS

	Page

CONDENSED CONSOLIDTED FINANCIAL STATEMENTS (Unaudited) – U.S DOLLARS IN THOUSANDS ($):
Condensed consolidated statements of financial position	2
Condensed consolidated statements of comprehensive loss	3
Condensed consolidated statements of changes in shareholders' equity (capital deficiency)	4
Condensed consolidated statements of cash flows	5-6
Notes to the condensed consolidated financial statements	7-13

ENTERA BIO LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

(UNAUDITED)

	March 31			December 31
	2019			2018
	U.S. dollars in thousands
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents		5,517			7,506
Short-term bank deposits		4,038			4,015
Accounts receivable		-			725
Other current assets		609			220
TOTAL CURRENT ASSETS		10,164			12,466
NON-CURRENT ASSETS:
Property and equipment		244			224
Right to use assets		361			-
Intangible assets		636			651
TOTAL NON-CURRENT ASSETS		1,241			875
TOTAL ASSETS		11,405			13,341
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Accounts payable:
Trade		799			473
Other		1,017			1,090
Lease liabilities		159			-
Contract liabilities		225			225
TOTAL CURRENT LIABILITIES		2,200			1,788
NON-CURRENT LIABILITIES:
Warrants to purchase ordinary shares		1,260			1,372
Lease liabilities		216			-
Severance pay obligations, net		67			65
TOTAL NON-CURRENT LIABILITIES		1,543			1,437
TOTAL LIABILITIES		3,743			3,225
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Ordinary Shares, NIS 0.0000769 par value:
Authorized - as of March 31, 2019 and December 31, 2018, 140,010,000 shares; issued and outstanding: as of March 31, 2019, and December 31, 2018 - 11,459,780 shares,		*			*
Accumulated other comprehensive income		41			41
Other reserves		13,560			13,019
Additional paid in capital		49,173			49,173
Accumulated deficit		(55,112	)		(52,117	)
TOTAL SHAREHOLDERS' EQUITY		7,662			10,116
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		11,405			13,341

* Represents an amount less than one thousand US dollars.

The accompanying notes are an integral part of the condensed consolidated financial statements.

ENTERA BIO LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	Three months ended
	March 31
	2019			2018
	U.S. dollars in thousands
RESEARCH AND DEVELOPMENT EXPENSES, net		2,035			2,893
GENERAL AND ADMINISTRATIVE EXPENSES		1,056			1,263
OPERATING LOSS		3,091			4,156
FINANCIAL EXPENSES (INCOME):
Income from change in fair value of financial liabilities at fair value		(112	)		(20	)
Other financial expenses, net		16			20
FINANCIAL INCOME, net		(96	)		-
NET COMPREHENSIVE LOSS FOR THE PERIOD		2,995			4,156

	U.S. dollars
LOSS PER ORDINARY SHARE* -
Basic and diluted		0.26	0.93
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING* -
Basic and diluted		11,459,780	4,490,720

* Corresponding figures were retroactively adjusted due to ordinary shares split.

The accompanying notes are an integral part of the condensed consolidated financial statements.

ENTERA BIO LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS' EQUITY (CHANGES IN CAPITAL DEFICIENCY)

(UNAUDITED)

	Number of Ordinary Shares		Ordinary Shares-Amount		Accumulated other comprehensive income		Other reserve			Additional paid in capital		Accumulated deficit			Total
			U.S dollars in thousands
BALANCE AT JANUARY 1, 2018		4,490,720		*		41		7,361			2,853		(41,813	)		(31,558	)
CHANGES FOR THREE MONTHS ENDED MARCH 31, 2018:
Net loss for the period		-		-		-		-			-		(4,156	)		(4,156	)
Share-based compensation		-		-		-		1,221			-					1,221
Reclassification of capital contribution from controlling shareholder		-		-		-		(51	)		51		-			-
Reclassification due to share-based compensation forfeited		-		-		-		(11	)		11		-			-
BALANCE AT MARCH 31, 2018		4,490,720		*		41		8,520			2,915		(45,969	)		(34,493	)

BALANCE AT JANUARY 1, 2019	11,459,780	*	41	13,019	49,173	(52,117	)	10,116
CHANGES FOR THREE MONTHS ENDED MARCH 31, 2019:
Net loss for the period	-	-	-	-	-	(2,995	)	(2,995	)
Share-based compensation	-	-	-	541	-	-		541
BALANCE AT MARCH 31, 2019	11,459,780	*	41	13,560	49,173	(55,112	)	7,662

The accompanying notes are an integral part of the condensed consolidated financial statements.

ENTERA BIO LTD.

CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENTS

(UNAUDITED)

	Three months ended March 31
	2019			2018
	(Unaudited)
	U.S dollars in thousands
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss for the period		(2,995	)		(4,156	)
Adjustments required to reflect net cash
used in operating activities (see appendix A)		1,062			1,689
Net cash used in operating activities		(1,933	)		(2,467	)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(33	)		(47	)
Net cash used in investing activities		(33	)		(47	)

CASH FLOWS USED IN FINANCING ACTIVITIES:
Principle element of lease payments		(23	)		-
Net cash used in financing activities		(23	)		-

NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,989	)		(2,514	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR		7,506			11,746
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD		5,517			9,232

The accompanying notes are an integral part of the condensed consolidated financial statements.

ENTERA BIO LTD.

CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENTS

(UNAUDITED)

	Three months ended March 31
	2019			2018
	(Unaudited)
	U.S dollars in thousands
APPENDIX A:
Adjustments required to reflect net cash used in operating activities:
Depreciation and amortization		56			20
Income from change in fair value of financial liabilities at fair value		(112	)		(20	)
Financial expenses (income)		(2	)		31
Changes in severance pay		2			-
Share-based compensation		541			1,221
		485			1,252
Changes in working capital:
Decrease in accounts receivables		725			-
Decrease (increase) in other current assets		(389	)		30
Increase (decrease) in accounts payable and accruals:
Trade		326			77
Other		(73	)		361
		589			468
Cash used for operating activities -
Interest paid		(12	)		(31	)
		1,062			1,689

The accompanying notes are an integral part of the condensed consolidated financial statements.

ENTERA BIO LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - GENERAL INFORMATION:

General:

Entera Bio Ltd. (collectively with its subsidiary, the "Company") was incorporated on September 30, 2009 and commenced operation on June 1, 2010. On January 8, 2018, the Company incorporated Entera Bio Inc., a fully owned subsidiary based in Delaware USA. The Company is a clinical-stage biopharmaceutical company, focused on the development and commercialization of orally delivered large molecule therapeutics for use in orphan indications and other areas with significant unmet medical needs. Currently the Company is focused on the development of oral capsules for the treatment of osteoporosis and hypoparathyroidism . Our lead oral PTH product candidates are EB613 for the treatment of osteoporosis and EB612 for the treatment of hypoparathyroidism.

Initial Public Offering (IPO)–

The Company filed final prospectus with the Securities and Exchange Commission ("SEC") which became effective on June 27, 2018. On July 2, 2018 the Company Completed the IPO in the Nasdaq Capital Market (the “Nasdaq”).

Since the Company is engaged in research and development activities, it has not derived significant income from its activities and has incurred accumulated losses in the amount of $55,112 thousand through March 31, 2019 and cash outflows from operating activities. The Company's management is of the opinion that its available funds as of March 31, 2019 will not allow the Company to execute its development plans in the next twelve months. These factors raise substantial doubt as to the Company's ability to continue as a going concern.

Management is in the process of evaluating various financing alternatives in the public or private equity markets, debt financings, government grants or through license of the company's technology to additional external parties through partnerships or research collaborations as the Company will need to finance future research and development activities, general and administrative expenses and working capital through fund raising. However, there is no certainty about the Company's ability to obtain such funding.

The financial information has been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. If the Company does not raise the requisite funds, it will need to curtail or cease operations. These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.

On December 10, 2018, the Company entered into a research collaboration and license agreement (the “Amgen Agreement”) with Amgen Inc. (“Amgen”) in inflammatory disease and other serious illnesses. Pursuant to the Amgen Agreement, the Company and Amgen will use the Company’s proprietary drug delivery platform to develop oral formulations for one preclinical large molecule program that Amgen has selected. Amgen also has options to select up to two additional programs to include in the collaboration. Amgen is responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the programs.

ENTERA BIO LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - GENERAL INFORMATION (Cont.):

The Company granted Amgen an exclusive, worldwide, sublicenseable license under certain of its intellectual property relating to its drug delivery technology to develop, manufacture and commercialize the applicable products. The Company will retain all intellectual property rights to its drug delivery technology, and Amgen will retain all rights to its large molecules and any subsequent improvements, and ownership of certain intellectual property developed through the performance of the collaboration is to be determined by U.S. patent law.

Pursuant to the terms of the Amgen Agreement, Amgen is required to make aggregate payments of up to $270 million upon achievement of various clinical and commercial milestones or its exercise of options to select additional two programs to include in the collaboration, as well as tiered royalty payments ranging from the low to mid-single digits based on the level of Amgen’s net sales of the applicable products. Amgen is required to pay for the initial program $450,000 for the second year of preclinical services to be provided by the Company, and must reimburse the Company for further expenses as shall be agreed between the parties. In January 2019, as required by the Amgen Agreement, Amgen paid the Company a non-refundable and non-creditable initial technology access fee of $725,000.

As of December 31, 2018, the company recognized $500,000 in revenue. The company will recognize the remaining $225,000 received from Amgen according to the input method. During the three months ended March 31, 2019, the company did not record any additional revenues.

Amgen’s obligation to pay royalties with respect to a product in a particular country commences upon the first commercial sale of such product in such country and expires on a country-by-country and product-by-product basis on the later of (a) the date on which the sale of the product is no longer covered by a valid claim of a patent licensed to Amgen under the Amgen Agreement, and (b) the tenth anniversary of the first commercial sale of such product in such country.

The term of the Amgen Agreement commenced on December 10, 2018, and unless earlier terminated, shall continue in full force and effect, on a product-by-product basis, until expiration of the last-to-expire royalty term with respect to such product.

Loss per common share

Basic and diluted loss per share are computed by dividing the loss for the period by the weighted average number of ordinary shares outstanding for each period.

All outstanding options and warrants have been excluded from the calculation of the diluted loss per share for the three months ended March 31, 2019 since their effect was anti-dilutive. The total number of ordinary shares which were excluded from the calculation of diluted loss per share was 5,857,338 for the three months ended March 31, 2019.

ENTERA BIO LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - GENERAL INFORMATION (Cont.):

All outstanding options, warrants, 2012 Convertible Loan and preferred shares have been excluded from the calculation of the diluted loss per share for the three months ended March 31, 2018 since their effect was anti-dilutive. The total number of ordinary shares which were excluded from the calculation of diluted loss per share was 10,054,200 for the three months ended March 31, 2018.

Approval of financial statements

These financial statements were approved by the Company's Board of Directors on June 24, 2019.

NOTE 2 - BASIS OF PREPARATION

The Company’s condensed consolidated interim financial statements as of March 31, 2019 and for the three months then ended (the “interim financial statements”) have been prepared in accordance with International Accounting Standard No. 34, “Interim Financial Reporting” (“IAS 34”). These interim financial statements, which are unaudited, do not include all disclosures necessary for a complete presentation of financial position, comprehensive loss, changes in shareholders' equity and cash flows in conformity with generally accepted accounting principles. The condensed consolidated interim financial statements should be read in conjunction with the Company’s annual financial statements as of December 31, 2018 and for the year then ended and their accompanying notes, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.

The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period.

The accounting policies and calculation methods applied in the preparation of the interim financial statements are consistent with those applied in the preparation of the annual financial statements as of December 31, 2018 and for the year then ended.

ENTERA BIO LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Newly issued and recently adopted Accounting Pronouncements

IFRS 16, "Leases"

Adjustments recognized on adoption of IFRS 16

The Company has adopted IFRS 16 retrospectively from January 1, 2019 but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as “operating leases” under the principles of IAS 17, “Leases.” These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019, which was 16% The remeasurements to the lease liabilities were recognized as adjustments to the related right-of-use assets immediately after the date of initial application. The associated right-of-use assets for facility leases were measured on a retrospective adjusted basis.

Following is the composition of right-of-use assets by type:

	January 1, 2019		March 31, 2019
Facility		151		347
Vehicles		15		14
Total right-of-use asset		166		361

The following table summarize the contractual obligations:

	Payments due by period
	Total		Less than 1 year		1 - 3 years
	(In thousands)
Operating leases for facility and vehicles as of December 31, 2018	$	123	$	87	$	36
Operating leases for facility and vehicles as of March 31, 2019	$	458	$	171	$	287

ENTERA BIO LTD.

NOTES TO CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(UNAUDITED)

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (Cont.):

Practical expedients applied on adoption of IFRS 16

In applying IFRS 16 for the first time, the Company had used the following practical expedients permitted by the standard:

Use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

Reliance on previous assessments on whether leases are onerous;

Exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application;

Use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Company has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Company relied on its assessment made applying IAS 17 and IFRIC 4, “Determining whether an Arrangement contains a Lease.”

Other information relating to IFRS 16

In January 2019, the Company entered into a new lease agreement for the building it uses in consideration of approximately additional $94 thousand per year. The new lease started in February 2019. The annual lease consideration is in total amount of $156 thousand.

As part of the new agreement, the whole lease agreement will expire on June 30, 2023 with a one-time option for the Company to early terminate the agreement on December 31, 2021 subject to a notice period of six months.

As of March 31, 2019, the Company provided bank guarantees of approximately $30 thousand, in the aggregate, to secure the fulfillment of its obligations under the lease agreements.

	March 31, 2019
Depreciation expense:
Facility		26
Vehicles		2
Financial expense		12
Cash paid for amounts included in the measurement of lease liabilities		35
Right of use assets obtained in exchange for new operating lease liabilities		223

ENTERA BIO LTD.

NOTES TO CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(UNAUDITED)

NOTE 4 – FINANCIAL RISK FACTORS

The Company's activities expose it to a variety of financial risks.

The condensed interim financial statements do not include all financial risk information and disclosures required in the annual financial statements; they should be read in conjunction with the Company's annual financial statements as of December 31, 2018.

There have been no changes in the risk management policies since the year end.

NOTE 5 – FAIR VALUE MEASUREMENT

The Company measures fair value and discloses fair value measurements for financial assets. Fair value is based on the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

The fair value of the financial instruments included in the working capital of the Company is usually identical or close to their carrying value. The fair value of warrants to purchase ordinary shares is based on level 1 measurement as of March 31, 2019. As of March 31, 2018, the fair value of the Company's financial liabilities measured at fair value was based on level 3 measurement.

NOTE 6 – SHARE BASED COMPENSATION

On January 17, 2019, the Company granted options to purchase 124,000 ordinary shares to certain employees, with an exercise price of $3.97. The options vest over 4 years from the date of grant; 25%will vest on the first anniversary of the date of grant and the remaining 75% options shall vest in twelve equal quarterly installments following the first anniversary of the grant date. The fair value of the options at the date of grant was $341 thousand.

On January 17, 2019, the Company's Board of Directors approved to grant options to purchase 25,000 ordinary shares to the CMO, with an exercise price of $3.97. From the total options, 25% will vest on March 1, 2019 and the remaining 75% options shall vest in twelve equal quarterly installments over the next three years starting January 17,2019. The grant was subject to the shareholders' approval, which was received in May 2019. The fair value of the options at March 31, 2019 was $76 thousand.

ENTERA BIO LTD.

NOTES TO CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(UNAUDITED)

NOTE 6 – SHARE BASED COMPENSATION (Cont.):

On January 17, 2019, the Company's Board of Directors approved to grant options to purchase 201,828 ordinary shares to non-executive directors of the Company, with an exercise price of $3.97. The options will vest over 3 years in twelve equal quarterly instalments starting in the vesting commencement date (as described in each agreement). The grant was subject to shareholders' approval, which was received in May 2019. The fair value of the options at March 31, 2019 was $591 thousand.

NOTE 7- SUBSEQUENT EVENTS

On May 20, 2019, the Company's Shareholders approved the grant options to non-executive directors and the CMO as describe in note 6.