Entera Bio Ltd. 10-K

Item 7A . Quantitative and Qualitative Disclosures about Market Risk Not required for smaller reporting companies. 88 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ENTERA BIO LTD. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2022 TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID No. 1309 ) 90 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets 91 Consolidated Statements of Operations 92 Consolidated Statements of Changes in Shareholders' Equity 93 Consolidated Statements of Cash Flows 94 Notes to the Consolidated Financial Statements 95 89 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Entera Bio Ltd. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Entera Bio Ltd. and its subsidiary (the “Company”) as of December 31, 2022 and 2021 , and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years then ended , including the related notes (collectively referred to as the “ consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021 , and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt About the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1d to the consolidated financial statements, the Company has suffered recurring losses from operations and has cash outflows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in note 1d. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion . Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Kesselman & Kesselman Certified Public Accountants (lsr.) A member firm of PricewaterhouseCoopers International Limited Tel-Aviv, Israel March 31, 2023 We have served as the Company’s auditor since 2010. 90 ENTERA BIO LTD. CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data) December 31 2022 2021 A s s e t s CURRENT ASSETS: Cash and cash equivalents 12,309 24,892 Accounts receivable 246 183 Other current assets 294 254 TOTAL CURRENT ASSETS 12,849 25,329 NON-CURRENT ASSETS: Property and equipment, net 139 156 Operating lease right-of-use assets 90 239 Deferred income taxes 43 217 Funds in respect of employee rights upon retirement 6 46 TOTAL NON-CURRENT ASSETS 278 658 TOTAL ASSETS 13,127 25,987 L i a b i l i t i e s and shareholders' equity CURRENT LIABILITIES: Accounts payable 17 166 Accrued expenses and other payables 1,233 2,801 Current maturities of operating lease 91 179 Contract liabilities - 15 TOTAL CURRENT LIABILITIES 1,341 3,161 NON-CURRENT LIABILITIES : Operating lease liabilities - 123 Liability for employee rights upon retirement 32 138 TOTAL NON-CURRENT LIABILITIES 32 261 TOTAL LIABILITIES 1,373 3,422 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Ordinary Shares, NIS 0.0000769 par value: Authorized - as of December 31, 2022 and December 31, 2021, 140,010,000 shares; issued and outstanding as of December 31, 2022, and December 31, 2021 28,809,922 and 28,804,411 shares, respectively * * Additional paid-in capital 107,210 104,950 Accumulated other comprehensive income 41 41 Accumulated deficit ( 95,497 ) ( 82,426 ) TOTAL SHAREHOLDERS' EQUITY 11,754 22,565 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 13,127 25,987 * Represents an amount less than one thousand US dollars The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 91 ENTERA BIO LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. dollars in thousands, except share and per share data) Year ended December 31 2022 2021 REVENUES 134 571 COST OF REVENUES 101 373 GROSS PROFIT 33 198 OPERATING EXPENSES: Research and development 5,848 6,771 General and administrative 7,253 5,690 Other income ( 51 ) ( 46 ) TOTAL OPERATING EXPENSES 13,050 12,415 OPERATING LOSS 13,017 12,217 FINANCIAL EXPENSES (INCOME), net ( 83 ) 29 LOSS BEFORE INCOME TAX 12,934 12,246 INCOME TAX EXPENSE (BENEFIT) 137 ( 59 ) NET LOSS 13,071 12,187 LOSS PER SHARE BASIC AND DILUTED 0.45 0.47 WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE 28,808,090 26,133,770 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 92 ENTERA BIO LTD CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. dollars in thousands, except share and per share data) Ordinary shares Number of shares issued Amounts Additional paid-in capital Accumulated other Comprehensive income Accumulated deficit Total BALANCE AT JANUARY 1, 2021 21,057,922 * 77,708 41 ( 70,239 ) 7,510 Net loss - - - - ( 12,187 ) ( 12,187 ) Exercise of warrants to ordinary shares 3,175,050 * 3,158 - - 3,158 Issuance of shares due to the ATM program, net of issuance costs 4,386,728 * 21,805 - - 21,805 Exercise of options to ordinary shares 177,711 * 418 - - 418 Share-based compensation - - 1,861 - - 1,861 Vested restricted share units 7,000 * - - - - BALANCE AT DECEMBER 31, 2021 28,804,411 * 104,950 41 ( 82,426 ) 22,565 Net loss - - - - ( 13,071 ) ( 13,071 ) Exercise of options to ordinary shares 5,511 * 13 - - 13 Share-based compensation - - 2,247 - - 2,247 BALANCE AT DECEMBER 31, 2022 28,809,922 * 107,210 41 ( 95,497 ) 11,754 * Represents an amount less than one thousand US dollars. The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 93 ENTERA BIO LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) Year ended December 31 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 13,071 ) ( 12,187 ) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 64 53 Deferred income taxes 174 ( 217 ) Share-based compensation 2,247 1,861 Finance expenses (income), net ( 78 ) 18 Changes in operating asset and liabilities: Decrease (increase) in accounts receivable ( 63 ) 72 Decrease (increase) in other current assets ( 40 ) 7 Increase (decrease) in accounts payable ( 149 ) 2 Increase (decrease) in accrued expenses and other payables ( 1,568 ) 1,471 Decrease in contract liabilities ( 15 ) ( 143 ) Net cash used in operating activities ( 12,499 ) ( 9,063 ) CASH FLOWS FROM INVESTING ACTIVITIES: Funds with respect to employee rights upon retirement ( 55 ) - Purchase of property and equipment ( 47 ) ( 17 ) Net cash used in investing activities ( 102 ) ( 17 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares through ATM programs, net of issuance costs - 21,805 Exercise of options and warrants into shares 13 3,576 Net cash provided by financing activities 13 25,381 INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS ( 12,588 ) 16,301 CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BEGINNING OF THE YEAR 24,964 8,663 CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF THE YEAR 12,376 24,964 Reconciliation in amounts on consolidated balance sheets: Cash and cash equivalents 12,309 24,892 Restricted deposits included in other current assets 67 72 Total cash and cash equivalents and restricted deposits 12,376 24,964 SUPPLEMENTAL DISCLOSURE OF CASH FLOW TRANSACTIONS: Income taxes paid in cash during the year 165 2 SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: Operating lease right of use assets obtained in exchange for new operating lease liabilities - 31 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 94 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 1 - GENERAL a. 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 wholly owned subsidiary incorporated in Delaware United States. The Company is a leader in the development and commercialization of orally delivered large molecule therapeutics for use in areas with significant unmet medical need where adoption of injectable therapies is limited due to cost, convenience and compliance challenges for patients. The Company’s most advanced product candidates, EB613 for the treatment of osteoporosis and EB612 for the treatment of hypoparathyroidism, are based on its proprietary technology platform and are both in clinical development. Additionally, the Company intends to license its oral delivery technology to biopharmaceutical companies for use with their proprietary compounds. b. The Company's ordinary shares, NIS 0.0000769 par value per share (“ordinary shares”), are listed on the Nasdaq Capital Market since July 2018 under the symbol “ENTX”. c. On December 10, 2018, the Company entered into a research collaboration and license agreement with Amgen (the “Amgen Agreement”) for the use of the Company’s oral delivery platform in the field of inflammatory disease and other serious illnesses. Pursuant to the Amgen Agreement, the Company and Amgen have agreed to use the Company’s proprietary drug delivery platform to develop oral formulations for one preclinical large molecule program that Amgen has selected. Amgen is responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the programs. The Company granted Amgen an exclusive, worldwide, sublicensable 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 agreement is to be determined by U.S. patent law. d. Because the Company is engaged in research and development activities, it has not derived significant income from its activities and has incurred accumulated deficit in the amount of $ 95.5 million through December 31, 2022 and negative cash flows from operating activities. The Company's management is of the opinion that its available funds as of December 31, 2022 will allow the Company to operate under its current plans into the third quarter of 2024. This assumes the use of the Company’s capital to fund its ongoing operations, including R&D and the completion of the Phase 1 study related to the new formulation EB612. This does not include the capital required to fund the Company's proposed Phase 3 study for EB613 in osteoporosis and comparative study. 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 financing and strategic 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 statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. 95 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES a. Basis of presentation of the financial statements The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Prior to 2021, the Company prepared its financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), as permitted in the United States (“U.S.”) based on the Company’s status as a foreign private issuer as defined in the rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”). During 2021, the Company determined that it is no longer qualified as a foreign private issuer under the SEC rules. As a result, since January 1, 2022, the Company has been required to comply with all of the disclosure and reporting requirements applicable to U.S. domestic issuers, including preparing its financial statement in accordance with U.S. GAAP. b. Use of estimates in the preparation of financial statements The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. c. Functional currency 1) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The U.S. dollar is the currency of the primary economic environment in which the operations of the Company are conducted. The consolidated financial statements are presented in U.S. dollars. The functional currency of the subsidiary is the U.S. dollar. 2) Transactions and balances Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Balances in non- U.S. dollar currencies are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-U.S. dollar transactions and other items in the statements of income (indicated below), the following exchange rates are used: (i) for transactions – exchange rates at transaction dates or average exchange rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization) – historical exchange rates. Currency transaction gains and losses are presented in financial income (expenses), as appropriate. 96 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) d. Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiary Entera Bio Inc. All inter-company transactions and balances have been eliminated in consolidation. e. Cash and cash equivalents The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash. f. Restricted cash Restricted cash deposited in an interest-bearing saving account which is used as a security for the Company's office rent and credit card. g. Concentrations of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains cash held in checking accounts and deposits at financial institutions in major Israeli and U.S. banks. Management believes the Company is not exposed to significant credit risk to its current financial institution, but will continue to monitor regularly and adjust, if needed, to mitigate risk. The Company has established guidelines regarding diversification of its investments and their maturities, which are designed to maintain principal and maximize liquidity. To date, the Company has not experienced any losses associated with this credit risk and continues to believe that this exposure is not significant. h. Fair value measurement The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on 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. The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: 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 inputs that are based on inputs not quoted on active markets but corroborated by market data. 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. 97 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) i. Employee severance benefits Under the Israeli Severance Pay Law, 1963, the Company is required to make severance payments upon dismissal of an Israeli employee or upon termination of employment in certain other circumstances. The severance payment liability to the employees located in Israel (based upon length of service and the latest monthly salary - one month’s salary for each year employed) is recorded on the Company’s balance sheet under “Liability for employee rights upon retirement.” The liability is recorded as if it was payable at each balance sheet date on an undiscounted basis. In accordance with Section 14 of the Israeli Severance Pay Law, 1963, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s retirement benefit obligation. The Company is fully relieved from any severance pay liability with respect to each such employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected in the Company balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plan”). With regard to the period before December 2013, the liability is funded in part from the purchase of insurance policies or by the establishment of pension funds with dedicated deposits in the funds. The amounts used to fund these liabilities are included in the balance sheets under “Funds in respect of employee rights upon retirement”. These policies are the Company’s assets. The amounts of severance payment expenses were $ 132 and $ 137 for the years ended December 31, 2022 and 2021, respectively. The Company expects to contribute to insurance companies approximately $ 132 for the year ending December 31, 2023 in connection with its expected severance liabilities for that year. 98 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) j. Leases The Company determines if an arrangement is a lease at inception. Balances related to operating leases are included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized as of the commencement date based on the present value of lease payments over the lease term. Lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will either exercise or not exercise the option to renew or terminate the lease. The discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. As the Company’s leases do not provide an implicit rate, the Company’s uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Sublease income is recognized on a straight-line basis over the expected lease term and is included in other income in our consolidated statements of operations . k. Property and equipment 1) Property and equipment are stated at cost, net of accumulated depreciation and amortization. 2) The Company’s property and equipment are depreciated using the straight-line method, which approximates the pattern of usage, over the term of the estimated useful life, as follows : Years Computer equipment 3 - 5 Office furniture 10 Laboratory equipment 7 - 10 Leasehold improvements are amortized by the straight-line method over the shorter of (i) the expected lease term and (ii) the estimated useful life of the improvements. 99 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) l. Impairment of long-lived assets The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the long-lived asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the sum of the expected undiscounted cash flow is less than the carrying amount of the asset, the Company recognizes an impairment loss, which is the excess of the carrying amount over the fair value of the asset, using the expected future discounted cash flows. As of December 31, 2022 and 2021, the Company did not recognize an impairment loss on its long-lived assets. m. Share-based compensation The Company grants share options and restricted share units (“RSU”) (together “Share-Based Compensation”) to its employees, directors and non-employees in consideration for services rendered . The Company accounts for Share-Based Compensation awards classified as equity awards, including share-based option awards and RSUs, using grant-date fair value. The Company recognize the value of the award as an expense over the requisite service period . The Company applies ASU 2018-07 (Topic 718) that expands the scope of Topic 718 to include Share-Based Compensation transactions for acquiring goods and services from non-employees. Under the provision of the amendment, the Company measures share-based compensation to non-employees in the same manner as share-based compensation to employees. The Company calculates the fair value of stock-based option awards on the date of grant using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected share price volatility and the expected option term. The computation of expected volatility is based on the historical volatility of the Company’s ordinary shares. The expected option term is calculated using the simplified method, as the Company has concluded that its historical share option exercise experience does not provide a reasonable basis to estimate expected option terms. The interest rate for periods within the expected term of an award is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s expected dividend rate is zero because the Company does not currently pay cash dividends on its shares and does not anticipate doing so in the foreseeable future . The Company elected to recognize compensation costs for awards granted to employees and directors conditioned only on continued service that have a graded vesting schedule using the accelerated method based on the multiple-option award approach. The Company has elected to account for forfeitures as they occur . 100 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) n. Research and development expenses Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, lab expenses, consumable equipment and consulting fees. All costs associated with research and developments are expensed as incurred . Grants received from the Israel Innovation Authority (the “IIA”) are recognized when the grant becomes receivable, provided there is reasonable assurance that the Company will comply with the conditions attached to the grant and there is reasonable assurance the grant will be received. At the time grants are received, successful development of the related projects is not assured, therefore, grants are deducted from the research and development expenses as the applicable costs are incurred, and presented in R&D expenses, net . o. Revenue recognition The Company recognized revenue from the Amgen Agreement according to ASC 606, "Revenues from Contracts with Customers”. Prior to the signing of the Amgen Agreement in 2018, the Company did not have revenue transactions. ASC 606 Revenue from Contracts with Customer introduces a five-step model for recognizing revenue from contracts with customers, as follows: 1. Identify the contract with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations in the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. According to ASC 606, a performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. Goods and services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created. A good or service promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Options granted to the customer that do not provide a material right to the customer that it would not receive without entering into the contract do not give rise to performance obligations. On December 10, 2018, the Company entered into the Amgen Agreement for the use of the Company’s oral delivery platform in the field of inflammatory diseases and other serious illnesses. As part of the agreement, the Company received non-refundable and non-creditable initial access payment of $ 725 from Amgen in January 2019. The Company identified two performance obligations in the agreement: 1) License to use the Company's proprietary drug delivery platform and 2) pre-clinical research and development services (“pre-clinical R&D services”). The preclinical R&D services include discovery, research and design preclinical activities relating to the programs selected by Amgen. 101 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) o. Revenue recognition (continued) The Company determined the license to the intellectual property to be a right to use that has significant standalone functionality separately from the pre-clinical R&D services since the Company is not required to continue to support, develop or maintain the intellectual property transferred and will not undertake any activities to change the standalone functionality of the intellectual property. Therefore, the license to the intellectual property is a distinct performance obligation and as such revenue is recognized at the point in time that control of the license was transferred to Amgen on December 10, 2018. Revenues attributed to the preclinical R&Ds services are recognized during the period of the pre-clinical R&D services, over time according to the input model method on a cost-to-cost basis, since the customer benefits from the research and development services as the entity performs the service. The Company evaluated the standalone selling price of the pre-clinical R&D services at $ 225 and the right to use the intellectual property at $ 500 . The transaction price was comprised of fixed consideration and variable consideration (capped research and development reimbursements). Under ASC 606, the consideration that the Company would be entitled to upon the achievement of contractual milestones, which are contingent upon the occurrence of future events of development and commercial progress, are a form of variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is highly probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. As of December 31, 2022, the Company did not recognize any revenues from any potential milestone payments . An entity should recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property only when (or as) the later of the following events occurs: a) The subsequent sale or usage occurs; and b) The performance obligation to which some or all of the sales based or usage-based royalty has been allocated has been satisfied (or partially satisfied). As royalties are payable based on future commercial sales, as defined in the agreement, which did not occur as of the financial statements date, the Company did not recognize any revenues from royalties. Revenues attributed to preclinical R&D services are recognized during the period of the pre-clinical R&D services according to the input model method on a cost-to-cost basis . In 2022 and 2021, the Company recorded revenues of $ 89 and $ 502 , respectively, related to services provided under the Amgen Agreement. 102 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) p. Income taxes 1) Deferred taxes Deferred income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future . 2) Uncertainty in income taxes The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement. q. Loss per share Basic loss per share is computed on the basis of the net loss, adjusted to recognize the effect of a down-round feature when it is triggered, for the period, divided by the weighted average number of outstanding ordinary shares during the period. Diluted loss per share is based upon the weighted average number of ordinary shares and of ordinary shares equivalents outstanding when dilutive. Ordinary share equivalents include outstanding stock options and warrants, which are included under the treasury stock method when dilutive. The calculation of diluted loss per share does not include options, RSUs and warrants, exercisable into an aggregate of 6,255,235 shares and 6,517,102 shares for the years ended December 31, 2022 and 2021, respectively, because the effect would have been anti-dilutive. r. Legal and other contingencies Management applies the guidance in ASC 450-20, “Loss Contingencies” when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s consolidated financial statements . Legal costs incurred in connection with loss contingencies are expensed as incurred . 103 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) s. Newly issued and recently adopted accounting pronouncements: Recently issued accounting pronouncements adopted 1) In November 2021, the FASB issued ASU 2021-10 “Government Assistance (Topic 832)”, which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The adoption of this guidance did not have material impact on the Company’s consolidated financial statements. 2) In August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company early adopted this guidance effective January 1, 2022 and the impact of the adoption on the Consolidated financial statements was immaterial. Recently issued accounting pronouncements, not yet adopted 1) I n June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for Smaller Reporting Companies (SRCs, as defined by the SEC) for the fiscal year beginning on January 1, 2023, including interim periods within that year. The adoption of this guidance will not have material impact on the Company’s consolidated financial statements. 104 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 3 - OPERATING LEASES 1) The Company leases office and research and development space under several agreements. The annual lease consideration is a total of $ 166 and is linked to the Israeli CPI. The lease agreement expires on June 30, 2023. As of December 31, 2022, the Company provided bank guarantees of approximately $ 37 , in the aggregate, to secure the fulfillment of its obligations under the lease agreements. 2) The Company has entered into operating lease agreements for vehicles used by its employees. The lease periods are generally for three years and the payments are linked to the Israeli CPI. To secure the terms of the lease agreements, the Company has made certain deposits to the leasing company, representing approximately three months of lease payments. The annual lease consideration is a total of $ 21 . The lease cost was as follows: Year ended December 31, 2022 Year ended December 31, 2021 Operating lease cost 197 216 Supplemental cash flow information related to leases was as follows: Year ended December 31, 2022 Year ended December 31, 2021 Operating cash flows from operating leases 197 216 Supplemental balance sheet information related to operating leases was as follows: December 31, 2022 December 31, 2021 Operating Leases Operating lease right-of-use assets 90 239 Current lease liabilities 91 179 Non-current lease liabilities - 123 Total lease liabilities 91 302 Weighted-average remaining lease term (in years) 0.52 1.53 Weighted-average discount rate 16 % 16 % As of December 31, 2022, the maturity of lease liabilities under our non-cancelable operating leases are $ 91 to be paid in 2023. 105 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 4 - COMMITMENTS AND CONTINGENCIES a . Commitment to pay royalties to the government of Israel The Company is committed to pay royalties to the IIA on proceeds from sales of products in the research and development of which the Government participates by way of grants. At the time the grants were received, successful development of the related project was not assumed. In the case of failure of the project that was partly financed by the IIA, the Company is not obligated to pay any such royalties. Under the terms of the Company’s funding from the IIA, royalties are payable on sales of products developed from IIA funded projects of 3 % during the first three years from commencement of revenues, 4 % during the subsequent three years and 5 % commencing the seventh year up to 100% of the amount of the grant received by the Company (dollar linked) plus annual interest based on LIBOR. The amount that must be repaid may be increased to three times the amount of the grant received, and the rate of royalties may be accelerated, if manufacturing of the products developed with the grant money is transferred outside of the State of Israel. In addition, if the Company undergoes a change of control or otherwise transfers the technology “know-how” (as defined under the Research Law) in or outside of Israel, the amount that must be repaid will be increased up to six times. The IIA has not yet declared the alternative benchmark rate to replace LIBOR. However, the Company does not believe it will have significant impact on the Company’s financial position or results of operations. As of December 31, 2022, the total royalty amount that would be payable by the Company to the IIA, before the interest and payments as described above, was approximately $ 460 . These grants were allocated to research and development. Following the signing of the Amgen Agreement, the IIA determined that the Company should pay 5.38 % of each payment received by the Company from Amgen on the license of Intellectual Property up to six times the grant received. As of December 31, 2022, the Company had paid a total amount of $ 83 to the IIA. b. On June 1, 2010, D.N.A. Biomedical Solutions Ltd. ("D.N.A.") and Oramed Ltd., ("Oramed") entered into a joint venture agreement, (the "Joint Venture Agreement") for the establishment of Entera Bio Ltd. According to the Joint Venture Agreement each of D.N.A. and Oramed acquired 50 % of the Company's ordinary shares. D.N.A invested $ 600 in the Company, and Oramed and the Company entered into a Patent License Agreement pursuant to which Oramed licensed to the Company one of Oramed’s patents (the “IPR&D”). On February 22, 2011, Oramed and the Company entered into a patent transfer agreement, (the "Patent Transfer Agreement") that superseded the Patent License Agreement, whereby Oramed assigned to the Company all of its rights, title and interest to its patent that Oramed licensed to the Company in 2010, under certain conditions. Under this agreement, the Company is obligated to pay Oramed royalties equal to 3 % of its net revenues (as defined in the Patent Transfer Agreement). 106 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 5 - SHARE CAPITAL 1) Rights of the Company’s ordinary shares Each ordinary share is entitled to one vote . The holder of an ordinary shares is also entitled to receive dividends whenever funds are legally available, when and if declared by the Board of Directors. A holder of an ordinary share also has the right to receive upon liquidation of the Company, a sum equal to the nominal value of such share, and if a surplus per share remains, to receive such surplus, subject to the rights conferred on any class of shares which may be issued in the future. Since its inception, the Company has not declared any dividends. 2) Changes in share capital: a. IPO warrants In connection with the Company’s initial public offering (“IPO”) in July 2018, the Company issued 1,400,000 IPO warrants to purchase 700,000 ordinary shares, and these warrants have been listed for trading on the Nasdaq Capital Market since August 12, 2018. The IPO warrants were immediately exercisable at an initial exercise price of $ 8.40 per ordinary share for a period of five years , unless earlier repurchased by the Company under "Fundamental Transactions” as described in the warrant agreement or earlier expired as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon exercise of each warrant are subject to standard adjustments. In addition, subject to certain exceptions, the exercise price was subject to reduction if, within two years following the date of original issuance of the warrants, which ended in July 2020, the Company sold or granted any warrant or option at an effective price per share of less than $ 8.00 (as adjusted in proportion with any adjustments made from time to time), based on a weighted average, as described in the warrant agreement. As described in note 5b below, the Company completed a financing round during such two-year period at a price per share lower than the $8.00, therefore, the exercise price of these warrants adjusted to $ 5.85 per share. At the IPO completion date, both of the instruments (warrants and shares) were classified as equity instruments as the warrants are considered indexed to the entity's own stock based on the provision of ASC 815. In March 2021, 4,500 IPO warrants were exercised into 2,250 ordinary shares for total consideration of $ 13 at an exercise price of $ 5.85 per ordinary share. As of the December 31, 2022 there were 1,395,500 traded warrants to purchase 697,750 ordinary shares outstanding with an exercise price of $ 5.85 . 107 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 5 - SHARE CAPITAL (continued) b. In December 2019 and February 2020, the Company entered into subscription agreement with a selected group of accredited investors for the private placement of 6,047,706 ordinary shares for aggregate subscription proceeds to the Company of $ 14.3 million at a price of $ 2.37 per share. In addition, the Company granted 3,023,871 warrants, exercisable over a three-year period from the date of issuance to purchase up to 3,023,871 ordinary shares at a per share exercise price of $ 2.96 (“Investors Warrants”). In addition, the exercise price was subject to reduction if, within one year of the date of original issuance of the warrants which ended in December 2020, the Company issued ordinary shares at an effective price per share less than $ 2.96 . Following the closing of the offering, the Company issued to a broker-dealer 184,515 warrants and 92,257 warrants with per share exercise prices of $ 2.37 to $ 2.96 , respectively (“Broker Warrants”). During 2020, upon issuance of shares through the Company’s At-the-market equity program at a price per share lower than the exercise price, the exercise price of the Investors Warrants and the Broker Warrants adjusted to $ 1.05 . See note 5c. On April 21, 2021, upon satisfaction of the sale price condition pursuant to the subscription agreement, the Company’s Board of Directors elected to accelerate the termination date of the Investors Warrants and Broker Warrants. In accordance with the terms of the applicable agreements, the holders had the opportunity to exercise their warrants until June 23, 2021, following which any unexercised warrants would terminate. Through June 23, 2021, all warrants holders exercised 3,300,645 warrants into 3,172,800 ordinary shares, either through purchase or a cashless exercise. The total consideration from the exercise of these warrants was $ 3,145 at an exercise price of $ 1.05 per share. As of December 31, 2021, all Investors Warrants and Broker Warrants had been exercised and none remain outstanding. c. On July 4, 2020, the Company filed a primary registration statement on form F-3 and established an at-the-market equity program (the " 2020 ATM Program") that allowed the Company to issue up to $ 13.9 million of ordinary shares, at the Company’s discretion. Distributions of the ordinary shares through 2020 ATM Program were made pursuant to the terms of an equity distribution agreement dated July 13, 2020, among the Company and Canaccord Genuity LLC (the "Agent"). In 2020, the Company issued 2,802,731 ordinary shares pursuant to the 2020 ATM Program for net proceeds of $ 3.2 million at a weighted average price of $ 1.27 per ordinary share. In 2021, the Company issued an additional 2,546,265 ordinary shares pursuant to the 2020 ATM Program for net proceeds of $ 9.9 million at a weighted average price of $ 3.99 per ordinary share. d. On May 7, 2021, the Company entered into a new at-the-market equity program (the "2021 ATM Program") that allowed the Company to issue up to additional five million ordinary shares, at the Company's discretion. 108 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 5 - SHARE CAPITAL (continued) Distributions of the ordinary shares through the 2021 ATM Program were made pursuant to the terms of an equity distribution agreement dated May 7, 2021 among the Company and B. Riley Securities, Inc. e. In June and July 2021, the Company issued an aggregate of 1,840,463 ordinary shares pursuant to the 2021 ATM Program for net proceeds of $ 12.1 million at a weighted average price of $ 6.74 per ordinary share. f. During the year ended December 31, 2021, several employees and service providers exercised 177,711 options into 177,711 ordinary shares for a total consideration of $ 418 at a weighted average price of $ 2.54 per ordinary share. g. During the year ended December 31, 2022, one employee exercised 5,511 options into 5,511 ordinary shares for a total consideration of $ 13 at a price of $ 2.14 per ordinary share. 109 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 6 - SHARE-BASED COMPENSATION 1) Share-based compensation plan On March 17, 2013, the Company's Board of Directors approved a Share Incentive Plan (the “2013 Plan”). Under the 2013 Plan, the Company reserves specified number of ordinary shares for allocation to stock options (each, an “Option”), restricted share units, restricted share awards and performance-based awards, that had been awarded to employees and non-employees under the 2013 Plan. Each Option is exercisable for one ordinary share. Any Option granted under the 2013 Plan that is not exercised within six years from the date upon which it becomes exercisable will expire. Since adopting the 2018 Plan (as defined below), the Company has not granted any awards under the 2013 Plan. On July 2, 2018, the Company's Board of Directors and shareholders of the Company approved a new Share Incentive Plan (the “2018 Plan”) and reserved 1,371,398 ordinary shares for allocation to stock options (each, a "2018 Plan Option"), restricted share units, restricted share awards and performance-based awards, to employees and non-employees for issuance under the 2018 Plan. Each 2018 Plan Option is exercisable for one ordinary share. Any 2018 Plan Option that is not exercised within 10 years from the date of grant will expire. The 2018 Plan Options granted to employees are subject to the terms stipulated by section 102(b)(2) of the Israeli Income Tax Ordinance (the “Ordinance”). According to these provisions, the Company will not be allowed to claim as an expense for tax purposes the amounts credited to the employees as a capital gain benefit in respect of the options granted. 2018 Plan Options granted to related parties or non-employees of the Company are governed by Section 3(i) of the Ordinance or Non-Qualified Share Options ("NSO"). The Company will be allowed to claim as an expense for tax purposes in the year in which the related parties or non-employees exercised the options into shares. As of December 31, 2022, 922,080 ordinary shares remain available for future grants under the 2018 Plan. On January 2, 2023, the Company’s Board of Directors approved an increase of 1,440,496 ordinary shares that may be issued under the Company’s 2018 Plan pursuant of the terms of the 2018 Plan, 110 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 6 - SHARE-BASED COMPENSATION (continued) 2) share-based compensation grants to employees and directors: a) On January 4, 2021, options to purchase 1,314,218 ordinary shares were granted to the Company’s former Chief Executive Officer, Dr. Spiros Jamas with an exercise price of $ 1.24 per share. Prior to the terms of Dr. Jamas’ separation agreement (as described below), the options were to vest over four years from the date of grant; 25 % vest on the first anniversary of the date of grant and the remaining 75 % of the option to vest in twelve equal quarterly installments following the first anniversary of the grant date. The grant was subject to the approval by the Company’s shareholders, which approved the grant in March 2021. The fair value of the options at the date of grant was $ 1,320 . On July 15, 2022, the Company entered into a mutual separation agreement with Dr. Jamas. Pursuant to the separation agreement, Dr. Jamas received the following benefits: (i) a one-time lump sum payment of his annual base salary for a period of 13 months, for a total gross amount equal to $ 412 ; and (ii) an extension of the exercise period for the vested portion of the options granted on January 4, 2021, based on the award original terms, representing an aggregate of 492,832 ordinary shares, through the end of a two-year period commencing on July 15, 2022. Effective July 15, 2022, upon termination of the employment agreement with Dr. Jamas, the remaining 821,386 unvested options were forfeited and recognized as a reverse of expense of $ 457 in general and administrative expenses. b) On April 7, 2021, the Company’s Board of Directors approved the following option grants: i. Option grants to purchase 213,000 ordinary shares to certain employees and 70,000 options granted to service providers, with an exercise price of $ 3.61 per share. The options vest over four years from the date of grant; 25 % vest on the first anniversary of the date of grant and the remaining 75 % of the option will 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 $ 646 . ii. Options grant to purchase 33,368 ordinary shares to a non-executive director of the Company, with an exercise price of $ 3.61 . The options will vest over three years in twelve equal quarterly instalments starting on the vesting commencement date. These options were subject to the approval of the shareholders of the Company, which was approved on October 4, 2021. The fair value of the options at the shareholders' approval date was $ 104 . c) On April 21, 2021, options to purchase 345,000 ordinary shares were granted to several executive officers of the Company, with an exercise price of $ 3.15 . The options vest over four years from the date of grant; 25 % vest on the first anniversary of the date of grant and the remaining 75 % of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. These options were subject to the approval of the shareholders of the Company, which was approved on October 4, 2021. The fair value of the options at the shareholders' approval date was $ 1,140 . 111 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 6 - SHARE-BASED COMPENSATION (continued) d) On August 23, 2021, the Company’s Board of Directors approved the following option grants which were approved by the shareholders of the Company on October 4, 2021. i. Grants of options to purchase ordinary shares with a total fair value 0f $ 195 for each of the seven non-executive board members on January 1, 2022. The options will vest over three years in twelve equal quarterly instalments starting on January 1, 2022 the vesting commencement date. On January 1, 2022, which is considered the awards grant date, the Company granted 752,899 ordinary shares to non-executive directors with an exercise price of $ 2.815 per share. ii. Grants of options to purchase ordinary shares with a total fair value 0f $ 65 for each of the seven non-executive board members on January 1, 2022. The options will vest over one year in four equal quarterly instalments starting on January 1, 2022 the vesting commencement date. On January 1, 2022, which is considered the awards grant date, the Company granted 250,964 ordinary shares to non-executive directors with an exercise price of $ 2.815 per share. e) On March 31, 2022, the Company’s Board of Directors approved the following option grants: i. Options to purchase 80,000 ordinary shares to an executive officer and a service provider, in each case, with an exercise price of $ 2.86 per share. The fair value of the options was $ 147 . ii. Options to purchase 55,000 ordinary shares to certain executive officers with an exercise price of $ 2.86 per share. This grant was subject to shareholders' approval, which was obtained at a meeting of the Company’s shareholders held on September 7, 2022. The fair value of the options was $ 37 . The options vest over four years from the date of grant; 25% vest on the first anniversary of the date of grant and the remaining 75% of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. f) On April 28, 2022, the Company’s Board of Directors approved option grants to purchase 220,000 ordinary shares to employees with an exercise price of $ 2.57 per share. The options vest over four years from the date of grant; 25% vest on the first anniversary of the date of grant and the remaining 75% of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. The fair value of the options was $ 364 . g) On May 11, 2022, the Company’s Board of Directors approved a grant of options to purchase 500,000 ordinary shares to Ms. Miranda Toledano, who was serving as the Company’s Chief Financial Officer at the time of the grant. Ms. Toledano has since been appointed the Company’s Chief Executive Officer (as described in Note 6(2)l below). This grant was subject to shareholders' approval, which was obtained at a meeting of the Company’s shareholders held on September 7, 2022. These options have an exercise price of $ 2.00 per share and vest over four years from the date of grant; 25% vest on the first anniversary of the date of grant and the remaining 75% of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. The fair value of the options was $ 390 . 112 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 6 - SHARE-BASED COMPENSATION (continued) h) On July 15, 2022, the Company’s Board of Directors appointed Ms. Miranda Toledano as the Company’s Chief Executive Officer and approved a grant of options to purchase 600,000 ordinary shares at an exercise price of $ 1.40 per share, which are in addition to the options described in note 6(2)k above. This grant was subject to shareholders' approval, which was obtained at a meeting of the Company’s shareholders held on September 7, 2022. The options vest over four years from the date of grant; 25% vest on the first anniversary of the date of grant and the remaining 75% of the option will vest in twelve equal quarterly installments following the first anniversary of the applicable grant date. The fair value of the options was $ 524 . In addition, upon the occurrence of a Triggering Event (as defined below) and subject to the approval of the Board of Directors, Ms. Toledano will be granted additional options to purchases 200,000 ordinary shares. The exercise price will be determined at the time of the Board of Directors’ approval. "Triggering Event" means the earlier of the following events: (i) the execution by the Company of a binding strategic or partnership agreement with a strategic partner to fund the Company's Phase III FDA Trial; or (b) raising sufficient funding to complete the Company's Phase III FDA Trial, in each case as such event is approved by the Board of Directors. i) On June 15, 2022, the Company entered into a separation agreement with Dr. Phillip Schwartz, the Company’s former President of R&D, under which Dr. Schwartz agreed to continue to provide services to the Company until July 21, 2022 (the “Separation Date”). Pursuant to the terms of the separation agreement, which were approved by the Company’s shareholders on September 7, 2022, Dr. Schwartz received a full acceleration of his unvested options, as of the Separation Date, to purchase 68,750 ordinary shares granted in April 2021 that otherwise would have been forfeited. These options, together with 31,250 already vested options granted in April 2021 and 357,500 already vested options to purchase ordinary shares granted in 2017, will be exercisable for a period of 10 years from their respective initial grant dates . The acceleration described above was recognized as a "Type III" modification; therefore, on the shareholder approval date, the Company recognized the incremental costs of unvested options based on the fair value of the options on such date. In addition, the extension of the exercise period for the vested awards was recognized as a "Type I" modification. The total expense amount was $ 112 thousand, which was classified as additional share-based compensation costs in the research and development expenses. In addition, the separation agreement provides for the following payments to Dr. Schwartz, all of which would have otherwise been payable in accordance with either Israeli law or pursuant to his existing employment agreement: a one-time cash separation payment in an amount equal to NIS 537,600 (approximately $ 156 ) and additional payments of NIS 737,771 (approximately $ 214 ) in respect of all other ongoing accrued benefits, subject to any mandatory deductions. The foregoing payments were recognized in the research and development expenses. 113 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 6 - S HARE-BASED COMPENSATION (continued) The fair value of each option granted is estimated at the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions: 2022 2021 Exercise price $ 1.40 -$ 2.86 $ 1.24 -$ 3.61 Dividend yield - - Expected volatility 69 %- 70.2 % 68 %- 71 % Risk-free interest rate 1.35 %- 3.36 % 1.11 %- 0.94 % Expected life - in years 5.5 - 6.5 6.1 - 5.8 2022 2021 Number of options Weighted average exercise price Number of options Weighted average exercise price Outstanding at beginning of the year 4,316,859 $ 3.63 2,570,109 $ 4.85 Granted 2,458,863 2.29 1,975,586 1.95 Exercised ( 5,511 ) 2.14 ( 177,710 ) 2.37 Forfeited ( 902,009 ) 1.41 ( 16,660 ) 2.37 Expired ( 135,115 ) 3.80 ( 34,466 ) 4.00 Outstanding at end of the year 5,733,087 $ 3.30 4,316,859 $ 3.63 Exercisable at end of the year 3,165,677 $ 4.06 2,068,067 $ 5.39 114 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 6 - SHARE-BASED COMPENSATION (continued ) The following tables summarizes information concerning outstanding and exercisable options as of December 31, 2022, in terms of ordinary shares: December 31, 2022 Options outstanding Options exercisable Number of Weighted Number of Weighted options Average options Average Exercise outstanding Remaining exercisable Remaining prices per at end of Contractual at end of contractual share (USD) Year Life year Life - 1,560 0.09 1,560 0.09 1.24 492,831 1.54 492,831 1.54 1.40 600,000 9.54 - - 2.02 500,000 9.37 - - 2.14 400,775 7.26 277,994 7.26 2.53 33,638 6.89 33,638 6.89 2.57 205,500 9.33 - - 2.815 1,003,863 9.01 376,447 9.01 2.86 135,000 9.25 - - 3.15 345,000 8.30 123,125 8.30 3.61 250,868 8.27 101,059 8.27 3.68 294,580 0.26 294,580 0.26 3.97 247,082 6.05 242,053 6.05 6.31 1,222,390 3.08 1,222,390 3.08 5,733,087 3,165,677 The aggregate intrinsic value of the total of the outstanding and exercisable options as of December 31, 2022, is $ 1 . The following table illustrates the effect of share-based compensation on the statements of operations: 2022 2021 Cost of revenues 14 102 Research and development expenses 708 661 General and administrative 1,525 1,098 2,247 1,861 115 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 7 - INCOME TAX A. Corporate tax rate 1) Ordinary taxable income in Israel is subject to a corporate tax rate of 23 %. 2) The Company’s subsidiary Entera Bio, Inc. is taxed separately under the U.S. tax laws at a tax rate of 29 % (Federal and state tax) B. Losses for tax purposes carried forward to future years The balance of carryforward losses as of December 31, 2022 and 2021 are approximately $ 67.1 million and $ 56.1 million, respectively. Under Israeli tax law, tax loss carry forward have no expiration date. C. Tax assessments The Company and its subsidiary have tax assessments that are considered to be final through tax year 2017. D. Loss (income) before income taxes is composed of the following Year ended December 31 2022 2021 Entera Bio Ltd. 12,997 12,362 Entera Bio Inc. ( 65 ) ( 116 ) Total loss before taxes 12,934 12,246 E. Income tax expense (benefit): Year ended December 31 2022 2021 Current: Subsidiary: ( 37 ) 158 Total current income tax ( 37 ) 158 Deferred income taxes 174 ( 217 ) Total deferred income taxes 174 ( 217 ) Total income tax expense (benefit) 137 ( 59 ) 116 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 7 - INCOME TAX (continued) F. Deferred income taxes December 31, 2022 2021 Deferred tax assets: Net operating loss carry forward 15,428 12,895 Research and development 1,225 1,319 Share-based compensation 877 876 Other 158 152 Net deferred tax assets before valuation allowance 17,688 15,242 Valuation allowance ( 17,645 ) ( 15,025 ) Net deferred tax assets 43 217 The Company has classified the net deferred tax assets as long-term. In assessing the likelihood of realizing deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and carry forward losses become deductible. Based on the taxable loss in the Israel, management believes it was more likely than not that the deferred tax assets will not be realized in the Israel and believes it was more likely than not that deferred tax assets will be realized for the U.S. subsidiary. G. Rollforward of valuation allowance: Balance at January 1, 2021 12,420 Additions 2,605 Balance at January 1, 2022 15,025 Additions 2,620 Balance at December 31, 2022 17,645 117 ENTERA BIO LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts ) NOTE 7 - INCOME TAX (continued) H. Reconciliation of theoretical tax expenses to actual expenses The primary difference between the statutory tax rate of the Company and the effective rate results virtually from the changes in valuation allowance in respect of carry forward tax losses and research and development expenses due to the uncertainty of the realization of such tax benefits. I. Uncertain tax positions As of December 31, 2022 and 2021, the Company does not have a provision for uncertain tax positions. NOTE 8 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION: Balance sheets: December 31, 2022 2021 Accrued expenses and other payables: Employees and employees related 154 147 Income tax - 134 Provision for vacation 146 308 Accrued expenses 933 2,212 1,233 2,801 NOTE 9 - SUBSEQUENT EVENT a. On January 2, 2023, 534,246 options to purchase ordinary shares were granted to six non-executive board members with an exercise price of $ 0.73 per share. The options will vest over one year in four equal quarterly installments starting on January 1, 2023. This grant was approved by the shareholders of the Company on October 4, 2021. 118 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and regulations promulgated thereunder) as of December 31, 2022, which we refer to as the Evaluation Date. Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective. Management’s Report on Internal Control over Financial Reporting Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions; • provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles; • provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our management and board of directors (as appropriate); and • provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control-Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. None. 119 PART III I TEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The names of our directors and executive officers as of the date of this Annual Report and their respective ages, positions and biographies are set forth below. Name Age Position Executive Officers Miranda J. Toledano (5) 46 Chief Executive Officer and Director Dana Yaacov-Garbeli 39 Chief Financial Officer Dr. Hillel Galitzer 44 Chief Operating Officer Dr. Arthur Santora 72 Chief Medical Officer Non-Employee Directors Gerald Lieberman (1) 76 Director, Chairman of the Board of Directors Dr. Roger J. Garceau (5) 69 Director, Chairman of the Scientific Advisory Committee Ron Mayron (1) (2) 59 Director, Chairman of the Compensation Committee Gerald M. Ostrov (1) (2) (3) 73 Director, Chairman of the Audit Committee Sean Ellis (1) (3) (4) 48 Director Yonatan Malca (1)(2) (3) (4) (5) 56 Director, Chairman of the Corporate Governance and Nomination Committee (1) Independent in accordance with SEC regulations and Nasdaq rules requirements applicable to us. (2) Member of the Compensation Committee. (3) Member of the Audit Committee. (4) Member of the Corporate Governance and Nomination Committee. (5) Member of the Scientific Advisory Committee. Executive Officers Miranda J. Toledano has served as the Company's Chief Executive Officer, or CEO, since July 2022. Prior to her appointment as CEO, Ms. Toledano served as the Company’s Chief Business Officer, Chief Financial Officer and Head of Corporate Strategy since May 2022. Ms. Toledano has over 20 years of C-level leadership, principal investment and Wall Street/capital market experience in the biotech sector. Ms. Toledano has served as a member of our Board of Directors (the “Board”) since 2018, and as Member of the Scientific Advisory Committee since February 2022. Previously, Miranda served as Chief Operating Officer, Chief Financial Officer, and Director of TRIGR Therapeutics, an oncology focused, clinical stage bispecific antibody company, from August 2018 until its acquisition by Compass Therapeutics (Nasdaq: CMPX) in June 2021. At TRIGR, Miranda oversaw the clinical development of lead asset TR009 (now CTX-009) and led strategic execution, including a $117 million China License Transaction and acquisition by CMPX. Previously, Ms. Toledano served as Head of Healthcare Investment Banking at MLV & Co. (acquired by B. Riley FBR & Co.), where she completed biotech equity financings (IPOs, ATMs, and follow-ons) totaling over $4 billion in aggregate value. Earlier in her career, Ms. Toledano served as vice president in the investment group of Royalty Pharma (Nasdaq: RPRX) from 2004 to 2010. Ms. Toledano is also a member of the board of directors of Journey Medical (Nasdaq: DERM) and NEXGEL (Nasdaq: NXGL). Ms. Toledano holds a B.A. in Economics from Tufts University and an MBA in Finance and Entrepreneurship from the NYU Stern School of Business. 120 Dana Yaacov-Garbeli has served as our Chief Financial Officer since July 2022. Prior that, Ms. Yaacov-Garbeli served as our Israel-based Chief Financial Officer from June 2019 through July 2022. Ms. Yaacov-Garbeli has over 15 years of chief finance and accounting experience. She previously served as Senior Manager at PwC Israel overseeing audits of public and private companies. She has significant experience in financial planning, operations management, external and internal audit for public multinational companies under US GAAP, IFRS and PCAOB standards. Ms. Yaacov-Garbeli is also a partner at A2Z-Finance, a company that provides financial and accounting services. Ms. Yaacov-Garbeli holds a B.A in accounting and business management and an MBA in financial management from The College of Management and Academic studies. Ms. Yaacov-Garbeli is a Certified Public Accountant in Israel. Dr. Hillel Galitzer has served as our Chief Operating Officer since February 2014, prior to which he served as our Director of Scientific Development from July 2012. Dr. Galitzer has more than ten years of experience in medical research and molecular biology. Between August 2010 and February 2014, Dr. Galitzer was an analyst and the chief operating officer for Hadasit Bio Holdings Ltd., a publicly traded company on the Tel Aviv Stock Exchange (TASE: HDST) and OTC markets. He is the co-founder and former chief operating officer of Optivasive Inc. He has written numerous publications in peer-reviewed journals and has lectured and presented in international conferences and universities. Dr. Galitzer received his Ph.D. from the Hebrew University Medical School in Jerusalem, where he was mentored by two world renowned researchers in the areas of parathyroid hormone and calcium regulation, his M.B.A. from Bar Ilan University in Israel and his B.Med.Sc. from the Hebrew University Medical School in Jerusalem. Dr. Arthur Santora has served as our Chief Medical Officer since September 2018. Dr. Santora has more than 30 years of experience in the biopharmaceutical industry. He spent the majority of his career in the clinical research team at Merck & Co., Inc., from June 1989 to March 2017, where he was the lead clinical research physician responsible for much of the clinical development of Fosamax ® (alendronate sodium), one of the world’s most prescribed osteoporosis treatments. He was closely involved in the clinical development of Merck’s once-weekly Fosamax Plus D (alendronate sodium/ vitamin D3 combination tablets), the first drug/vitamin combination tablet in the US. His position at Merck immediately prior to his termination of services in 2017 was Scientific Associate Vice President of Clinical Research, where he was directly responsible for the technical and scientific support for all clinical research of Fosamax/Fosamax plus D and contributed to the development of many other osteoporosis and endocrine marketed and investigational drugs. Prior to joining Merck, he served as a Medical Officer at the US FDA and subsequently was a faculty member at Wayne State University Medical School in Detroit. Dr. Santora is a Clinical Associate Professor at the clinical faculty of Rutgers Robert Wood Johnson Medical School in New Brunswick, New Jersey. He has graduate training in Internal Medicine at Emory, and its Endocrinology and Metabolism subspecialty at the NIH in Bethesda. Dr. Santora received his M.D. and Ph.D. in biochemistry from Emory University in Atlanta. Non-Employee Directors Gerald Lieberman Mr. Lieberman has served as a member of our Board since April 2014 and became our Chairman in July 2019. Mr. Lieberman is also a member of the board of directors of Teva Pharmaceutical Industries Ltd. (NYSE and TASE: TEVA), a global leader in pharmaceuticals and the world’s largest generic drug developer and manufacturer, where he chairs the Audit Committee and serves on both the Human Resources and Compensation Committee and the Finance Committee. He also serves as Chairman of the Board of Directors of DosenRx, Ltd., a Digital health company that has developed a personalized, patient-controlled device for delivering medication. He is also currently a special advisor at Reverence Capital Partners, a private investment firm focused on the middle-market financial services industry. From 2000 to 2009, Mr. Lieberman was an executive at Alliance Bernstein L.P., where he served as President and Chief Operating Officer from 2004 to 2009, as Chief Operating Officer from 2003 to 2004 and as Executive Vice President, Finance and Operations from 2000 to 2003. From 1998 to 2000, he served as Senior Vice President, Finance and Administration at Sanford C. Bernstein & Co., Inc., until it was acquired by Alliance Capital in 2000, forming Alliance Bernstein L.P. Prior to that, he served in various executive positions at Fidelity Investments and at Citicorp. Prior to joining Citicorp he was a certified public accountant with Arthur Andersen. He previously served on the board of directors of Forest Laboratories, LLC from 2011 to 2014, Computershare Ltd. from 2010 to 2012 and Alliance Bernstein L.P. from 2004 to 2009. Mr. Lieberman received a B.S. Beta Gamma Sigma with honors in business from the University of Connecticut. Our Board believes that Mr. Lieberman is qualified to serve as director based upon his experience on boards of other pharmaceutical companies and his years of experience working with healthcare and pharmaceutical companies. 121 Dr. Roger J. Garceau has served as a member of our Board since March 2016, and he served as our interim CEO From August 2020 to January 4, 2021. Dr. Garceau served also served as our Chief Development Advisor from December 2016 to December 2021 (excluding the period he served as our interim CEO). Dr. Garceau has more than 30 years of broad pharmaceutical industry experience. He has been a director of Enterome SA since December 2016, and a director of ArTara Therapeutics since January 2019. Prior to joining Entera, Dr. Garceau served as Chief Medical Officer and Executive Vice President of NPS Pharmaceuticals, Inc. from December 2008 and January 2013 respectively, until February 2015, when NPS Pharmaceuticals, Inc., then traded on Nasdaq, was acquired by Shire plc. (NASDAQ: SHPG). Previously, Dr. Garceau served in several managerial positions with Sanofi-Aventis (NYSE: SNY) from 2002 until 2008, and Pharmacia Corporation from 1986 until 2002. Dr. Garceau is a board-certified pediatrician and is a Fellow of the American Academy of Pediatrics. Dr. Garceau holds a B.S. in Biology from Fairfield University in Fairfield, Connecticut and an M.D. from the University of Massachusetts Medical School. Our Board believes that Dr. Garceau is qualified to serve as director based upon his experience with the Company and his years of experience working with healthcare and pharmaceutical companies. Ron Mayron has served as a member of our Board since April 2021 and is a global healthcare specialist who serves on the boards of numerous public and privately-held pharma and medical device companies in Israel, including DNA BioMedical Solutions, Innocan Pharma, and IceCure Medical. His prior executive experience includes several leadership positions culminating in CEO of Teva Israel & Africa from 2009 until 2013 and CEO of S.L.E from 1999 and until 2007. His expertise within healthcare includes M&A, integration and implementation, global business development, global operations, and supply chain management. He earned a B.Sc. from Ben-Gurion University, and an MBA from the University of Tel Aviv, and attended several programs at Insead University Fontainebleu, France and the Massachusetts Institute of Technology, Boston. Our Board believes that Mr. Mayron is qualified to serve as a director based upon his pharmaceutical industry experience in multiple capacities from operations to chief executive positions as well as his experience on multiple boards of pharmaceutical and medical device companies in Israel. Gerald M. Ostrov has served as a member of our Board since January 2019. Mr. Ostrov consults and invests in new technologies in the medical device and consumer products fields. Mr. Ostrov currently serves on the board of directors of several privately held companies, including Mother’s Choice, a natural products company working with industry giants, Addon Optics, an innovative technology company, and Nuvo Group Ltd., a developer of next generation baby and mother health monitoring for both hospital and home use. From 2008 to 2010, he served as Chairman and CEO of Bausch & Lomb. There Mr. Ostrov led the stabilization, streamlining and pipeline building of Bausch & Lomb following its going-private transaction. From 1998 until 2006, Mr. Ostrov very successfully served as Company Group Chairman for Johnson & Johnson’s Worldwide Vision Care businesses. From 1991 to 1998, Mr. Ostrov worked for Johnson & Johnson and quickly rose to serve as Company Group Chairman of the Consumer and Personal Care businesses in North America. From 1982 to 1991, he served as President of CIBA Consumer Pharmaceuticals Company. From 1976 to 1982, he worked for the Health Care Division of Johnson & Johnson. From 1973 to 1976, Mr. Ostrov worked at Procter & Gamble. Mr. Ostrov holds a B.S. from Cornell and an M.B.A. from Harvard. Our Board believes that Mr. Ostrov is qualified to serve as a director based upon his years as an investor in healthcare related companies. Sean Ellis has served as a member of our Board since June 2019. Mr. Ellis brings extensive knowledge of both life science industries and the U.S. financial markets, with a longstanding history in asset management. Mr. Ellis is a fund manager of Centillion Fund, a venture capital fund dedicated to Israeli investments, with a primary focus on investments in the biotech and healthcare industries. Centillion is one of Entera Bio’s earliest investors and largest shareholders. He holds a BA from New York University and MBA from Columbia University. Our Board believes that Mr. Ellis is qualified to serve as a director based upon his years as an investor in healthcare related companies. Yonatan Malca has served as a member of our Board since 2011. Mr. Malca currently serves as a Chief Executive Officer and director of NanoGohst Ltd. Since 2010 until 2021, he served as a Chief Executive Officer and director of D.N.A Biomedical Mr. Malca also serves as a director of Nextgen-Biomed LTD. (TASE: NXGN) and Jungo Connectivity Ltd. (TASE: JNGO), each of which is an Israeli public company. Mr. Malca holds a B.A. in Economics and Statistics from Bar-Ilan University and an M.A. in Economics and Finance from Bar Ilan University, Israel. Our Board believes that Mr. Malca is qualified to serve as a director based upon his pharmaceutical industry experience as an executive as well as his experience on boards of multiple pharmaceutical companies. 122 Family Relationships There are no family relationships among any of our directors or executive officers. Involvement in Certain Legal Proceedings Our directors and executive officers are not parties to any material legal proceedings. Overall Role of the Board and Board Leadership Structure Under the Israeli Companies Law, 1999 and the regulations promulgated thereunder (together, the “Companies Law”), our Board is responsible for setting our general policies and supervising the performance of management. Our Board may exercise all powers and may take all actions that are not specifically granted by the Companies Law or our Amended and Restated Articles of Association (“Articles”) to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our Board. Our chief executive officer is appointed by, and serves at the discretion of, our Board, subject to the terms of the employment agreement that we have entered into with him. All other executive officers are also appointed by our Board, and are subject to the terms of any applicable employment agreements that we may enter into with them. Our Board currently consists of seven directors. According to our Articles, the number of members of our Board must be at least three and cannot be more than ten. Our Board is divided into three classes with staggered three-year terms, and one class comes up for election each year. The Class I directors were re-elected at our 2021 annual meeting of shareholders to serve until our annual meeting of shareholders in 2024. The Class II director was re-elected at our 2022 annual meeting of shareholders to serve until our annual meeting in 2025. Our Class III directors have terms expiring at our annual meeting of shareholders in 2023. The members of the classes as of the date hereof are as follows: • the Class I directors are Miranda J. Toledano, Roger Garceau and Ron Mayron; • the Class II director is Yonatan Malca; and • the Class III directors are Gerald Lieberman, Gerald M. Ostrov and Mr. Sean Ellis. ​ At each annual meeting of shareholders, directors will be elected to succeed the class of directors whose term has expired. This classification of our Board could have the effect of increasing the length of time necessary to change the composition of a majority of the Board. In general, at least two annual meetings of shareholders will be necessary for shareholders to effect a change in a majority of the members of the Board. Under the Companies Law and our Articles, nominees for directors may also be proposed by any shareholder holding at least one percent (1%) of our outstanding voting power. However, any such shareholder may propose a nominee only if a written notice of such shareholder’s intent to propose a nominee has been given to our Secretary (or, if we have no such Secretary, our Chief Executive Officer). Subject to any requirements under the Companies Law, to be considered timely and thereby be added to such agenda, such a request must be delivered, either in person or by certified mail, postage prepaid, and received at the Company's offices, (i) in the case of an annual meeting, no less than sixty (60) days nor more than one-hundred twenty (120) days prior to the date of the first anniversary of the preceding year’s annual meeting, provided, however, that, in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the proposing shareholder, in order to be timely, must be received no earlier than the close of business one-hundred twenty (120) days prior to such annual meeting and no later than the close of business on the later of ninety (90) days prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made, and (ii) in the case of a Company meeting of shareholders that is an extraordinary meeting, no earlier than one-hundred twenty (120) days prior to such extraordinary meeting and no later than the close of business on the later of sixty (60) days prior to such extraordinary meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made, subject to applicable law. Any such notice must include certain information, including, inter alia, a description of all arrangements between the nominating shareholder and the proposed director nominee and any other person pursuant to which the nomination is to be made by the nominating shareholder, the consent of the proposed director nominee to serve as our director if elected and a declaration signed by the nominee declaring that there is no limitation under the Companies Law preventing his or her election, and that all of the information that is required under the Companies Law to be provided to us in connection with such election has been provided. 123 Our Board is also authorized to appoint directors in order to fill vacancies, including filling empty board seats if the number of directors is below the maximum number permitted under our Articles. Each of our directors, other than our external directors, will serve from the date of election or appointment until the next annual meeting of shareholders for which such director’s class is due for reelection. The approval of at least a majority of the voting power in the Company is generally required to remove any of our directors from office (other than external directors). Under the Companies Law, our Board must also determine the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required to have such expertise, our Board must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our Board has determined that the minimum number of directors of our company who are required to have accounting and financial expertise is one. Our Board has determined that Mr. Gerald Lieberman and Ms. Miranda J. Toledano have financial and accounting expertise as defined in the regulations promulgated under the Companies Law, or Financial and Accounting Expertise. Other than with respect to our directors that are also executive officers or employees, there are no arrangements or understandings between us, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their service as directors of our Company. For information with respect to compensation arrangements with our directors that are also executive officers or employees, see the sections entitled “Item 11. Executive Compensation”” included in this Annual Report. Alternate Directors Our Articles provide that, as permitted under the Companies law, any director may appoint another person, who is qualified to be appointed as a director and who is not a director or an alternate director, to serve as his or her alternate director, subject to the approval of a majority of the members of the Board, excluding such director. The term of an alternate director could be terminated at any time by the appointing director or our Board and would terminate under circumstances in which, according to our Articles, the term of any director shall terminate or automatically terminate upon the termination of the term of the appointing director. The Companies Law stipulates that an external director may not appoint an alternate director, except under very limited circumstances. An alternate director has the same rights and responsibilities as a director, except for the right to appoint an alternate director. Board Leadership Structure The Board currently separates the roles of Board Chairperson and Chief Executive Officer. We believe that separation of the positions of Chairperson of the Board and Chief Executive Officer reinforces the independence of the Board in its oversight of our business and affairs, is more conducive to objective evaluation and oversight of management’s performance, increases management accountability, and improves the Board’s ability to monitor whether management’s actions are in the best interests of the Company and its shareholders. Role of the Board in Risk Oversight Our Board is responsible for overseeing our risk management process. Our Board focuses on our general risk management strategy, the most significant risks facing us, and oversees the implementation of risk mitigation strategies by management. Our Board is also apprised by management of particular risk management matters in connection with its general oversight and approval of corporate matters and significant transactions. The Board’s independent oversight function is further enhanced by the fact that all of the Board’s Committees are composed entirely of independent directors, the directors have complete access to management and the Board and its committees may retain their own respective advisors. 124 Corporate Governance Guidelines Our Board strongly supports effective corporate governance and has developed and followed a program of strong corporate governance. Our Nominating and Corporate Governance Committee is responsible for overseeing our guidelines and reporting and making recommendations to the Board concerning corporate governance matters. Our guidelines are published on our website at www.enterabio.com and are available in print to any shareholder who requests them from our Secretary. Director Independence Our Board undertook a review of the independence of each director. Based on information provided by each director concerning his or her background, employment, and affiliations, our Board has determined that the Board meets independence standards under the applicable rules and regulations of the SEC and the listing standards of Nasdaq. The Board has affirmatively determined that the following Directors are “independent” as of the date of this Annual Report as defined in the listing standards of Nasdaq: Gerald Lieberman, Ron Mayron, Gerald M. Ostrov, Sean Ellis and Yonatan Malca. In making these determinations, our Board considered the current and prior relationships that each non-employee director has with our Company and all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled Item 13 “Certain Relationships and Related Party Transactions, and Director Independence” contained in this Annual Report on Form 10-K. Code of Ethics We have adopted a Code of Business Conduct and Ethics applicable to all of our directors, executive officers and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similar functions. The full text of the Code of Business Conduct and Ethics can be found on our website at www.enterabio.com. Information contained on, or that can be accessed through, our website does not constitute a part of this report and is not incorporated by reference herein. If we make any amendment to the Code of Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of the code of ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC. Board Committees Our Board has established the following committees: Audit Committee Composition and Quorum Under the Nasdaq rules and SEC regulations, we are required to maintain an Audit Committee consisting of at least three independent directors, each of whom is financially literate and one of whom has accounting or related financial management expertise and would qualify as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K. Our Audit Committee consists of Gerald M. Ostrov, who also serves as chairman, Yonatan Malca and Sean Ellis. The Board has determined that each of the members of our Audit Committee is an independent director in accordance with SEC regulations and satisfies the independent director requirements under the Nasdaq rules. All designated members of our Audit Committee meet the requirements for financial literacy under the applicable Nasdaq rules and SEC regulations. Our Board has determined that Gerald M. Ostrov is an “audit committee financial expert,” as such term is defined under applicable SEC rules. 125 Roles, responsibilities and procedures Our Audit Committee provides assistance to our Board in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by, among other things, pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices. Our Audit Committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management. Our Board has adopted an Audit Committee charter setting forth the responsibilities of the Audit Committee consistent with the applicable rules and regulations of the SEC and Nasdaq, as well as the requirements for such committee under the Companies Law, including (a) oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the Board in accordance with the Companies law; (b) recommending the engagement or termination of our internal auditor; (c) recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our Board; (d) identifying deficiencies in the business management practices of our Company, including, inter alia, in consultation with our internal auditor or the independent auditor, and making recommendations to the Board as to how to correct such practices; (e) reviewing and considering the approval of related party transactions; (f) determining whether related party transactions are extraordinary or material under the Companies Law, including transactions in which an office holder has a “personal interest”, under the Companies Law, and whether to approve such transactions; (g) establishing the approval process for certain transactions with a controlling shareholder or in which the controlling shareholder has a “personal interest”; (h) examining and approving the working plan of the internal auditor, subject to any modifications in its discretion; (i) examining our internal audit controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to fulfill his or her responsibilities; (j) examining the scope of our auditor’s work and compensation and submitting its recommendations with respect thereto to our Board or shareholders, depending on which of them is considering the appointment of our auditor; (k) establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees; and (l) reviewing the our annual audited financial statements and quarterly financial statements with management and the independent auditor, including a review of our disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections. A copy of the Audit Committee Charter is available on our website at www.enterabio.com . A “personal interest” under the Companies Law includes an interest of any person in an action or transaction of a company, excluding any interest arising solely from holding the Company’s shares, but including the personal interest of such person’s spouse, sibling, parent, grandparent, descendant, spouse’s descendant, sibling or parent or the spouse of any of such persons, and the personal interest of any entity in which such person or one of the aforementioned relatives of such person serves as a director or Chief Executive Officer, owns 5% or more of such entity’s outstanding shares or voting rights or has the right to appoint one or more directors or the Chief Executive Officer. Further, in the case of a person voting by proxy, “personal interest” includes the personal interest of either the proxy holder or the shareholder granting the proxy, whether or not the proxy holder has discretion how to vote. Compensation Committee Composition and quorum We have a Compensation Committee, the members of which are Ron Mayron, who also serves as chairman, Gerald M. Ostrov and Yonatan Malca. Each member of our Compensation Committee is independent under Nasdaq rules. Roles, responsibilities and procedures Our Board has adopted a charter setting forth the Compensation Committee’s roles and responsibilities, which include (a) recommending a compensation policy regarding the terms of engagement of office holders, which is recommended to the Board for approval and subsequently to shareholders for their approval, in accordance with the Companies Law, and reviewing such policy from time to time, (b) recommending to the Board periodic updates to the compensation policy and whether the compensation policy should continue in effect every three years; (c) assessing the implementation of the compensation policy; (d) reviewing and approving the granting of options, restricted share units, or RSUs, and other incentive awards to the extent such authority is delegated by the Board; (e) reviewing, evaluating and making recommendations regarding the compensation and benefits for non-executive directors, (f) determining whether to approve and recommend to the Board and shareholders to approve transactions with office holders relating to their terms of compensation, as required under the Companies Law, (g) determining whether changes to the compensation terms of the Chief Executive Officer of the Company are material and if the changes are required to be brought to the shareholders for approval, (h) overseeing compliance reporting requirements of the SEC, (i) determining whether to recommend to the Board to adopt a share ownership policy for directors and executive officers, and (j) performing such other activities as may be required. 126 A copy of the Compensation Committee Charter is available on our website at www.enterabio.com . Under the Companies Law, the compensation policy must be adopted by the Board after considering the recommendations of the Compensation Committee and needs to be further brought before the company’s shareholders for approval by a special majority, if necessary. The compensation policy must serve as the basis for decisions concerning the terms of employment or engagement of office holders, including exculpation, insurance, indemnification and any monetary payment and obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement of the Company’s objectives, the Company’s business plan and its long-term strategy, and creation of appropriate incentives for office holders. It must also consider, inter alia, the Company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider additional factors, as follows: (a) the knowledge, skills, expertise and accomplishments of the relevant office holder; (b) the office holder’s roles and responsibilities and prior compensation agreements with him or her; (c) the ratio between the terms offered and the average compensation of the other employees of the company, including those employed through manpower companies; (d) the impact of disparities in salary upon work relationships in the company; (e) the possibility of reducing variable compensation at the discretion of the Board; (f) as to variable compensation, the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and (g) as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances of termination of services. The compensation policy must also include the following principles: (a) the link between variable compensation and long-term performance and measurable criteria; (b) the ratio between variable and fixed compensation, and the ceiling for the value of variable compensation; (c) the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements; (d) the minimum holding or vesting period for variable, equity-based compensation, including bonuses; and (e) maximum limits for severance. Under the Companies Law, every three years we are required to re-obtain the approval of our Compensation Committee, Board and shareholders for either the continuation of our existing compensation policy or adoption of a new compensation policy. Our compensation policy was last approved by our shareholders on October 4, 2021, after having been recommended by our Compensation Committee and approved by our Board, and will therefore need to be either re-approved, amended, or replaced by a new policy in 2024. Our Compensation Committee may conduct or authorize investigations into, or studies of, matters within its scope of responsibilities, and may retain or obtain the advice of a compensation consultant, legal counsel or other advisor in its sole discretion. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel or other advisor that it retains, at the expense of the Company. The Compensation Committee may select, or receive advice from, a compensation consultant, legal counsel or other advisor to the Compensation Committee, other than in-house legal counsel, only after conducting an assessment of, and determining, the advisor’s independence, including whether the advisor’s work has raised any questions of independence or conflicts of interest, taking into consideration the Exchange Act, the factors set forth in Nasdaq rules and any other factors that the committee deems relevant. 127 In 2021, in determining the compensation of certain non-executive directors and in determining our compensation policy, the Compensation Committee retained the services of a compensation consultant, Brightman Almagor Zohar & co., or Deloitte, to conduct a comparative survey of the compensation of such office holders. The 2021 comparative study consisted of: (i) an executive compensation benchmark analysis which included comparative data of the Company’s executive compensation, relative to the peer-group companies in Israel and (ii) an executive compensation benchmark analysis which included comparative data of the Company’s executive compensation, relative to the peer-group companies in the United States. Nominating and Corporate Governance Committee Our Board has adopted a Nominating and Corporate Governance Committee Charter that sets forth the responsibilities of the Nominating and Governance Committee consistent with the rules and regulations of the SEC and Nasdaq, including (a) assisting in identifying, recruiting and, if appropriate, interviewing candidates to fill positions on the Board, including persons suggested by shareholders or others, (b) establishing procedures to be followed by shareholders in submitting recommendations for Board candidates, if appropriate, (c) reviewing the background and qualifications of individuals being considered as director candidates, while considering the candidate’s experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, conflicts of interest and such other relevant factors that the committee considers appropriate in the context of the needs of the Board, (d) recommending the Board nominees for election by shareholders or appointment by the Board, as the case may be, in a manner consistent with the criteria for selecting directors, as established by the Board from time to time, (e) reviewing the suitability for continued service as a director of each Board member, when the term of service of the director expires, and when the director has a change in status (including, but not limited to, an employment change) and recommending whether or not the director should be re-nominated, (f) making recommendations to the Board regarding the size and composition of each committee; and (g) overseeing the performance of the Board as a whole. A copy of the Nominating and Corporate Governance Committee Charter is available on our website at www.enterabio.com. Our Nominating and Corporate Governance Committee consists of Yonatan Malca, who serves as chairman, and Sean Ellis. Scientific Advisory Committee Our Board has adopted a Scientific Advisory Committee Charter that sets forth the responsibilities of the Scientific Advisory Committee, including (a) reviewing, evaluating and reporting to the Board regarding strategy, plans and goals, as well as progress and performance, of the Company’s clinical programs, licensing activities, and research and development activities, (b) meeting with the Company’s R&D and licensing teams to evaluate the plans, goals and performance of the Company’s clinical programs and research and development projects, and make recommendations to the Board as appropriate in the opinion of the committee to fulfill the company strategic goals, (c) identifying and discussing significant emerging regulatory, research and scientific issues and trends and competitive activity, including their potential impacts on any Company programs, plans, or policies relating to its licensing opportunities, clinical programs and research and development activities. (d) evaluating the performance of the committee, including a review of the committee’s compliance with its charter, and review and reassess the charter and submit any recommended changes to the Board for its consideration and approval, (e) form external consulting panels to assist the committee in review of specific R&D programs either current or planned and (f) such other duties and responsibilities as may be assigned to the committee, from time to time, by the Board. A copy of the Scientific Advisory Committee Charter is available on our website at www.enterabio.com. Our Scientific Advisory Committee consists of Roger Garceau, who also serves as chairman of the committee, along with Yonatan Malca and Miranda Toledano. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act and the rules thereunder require our directors and executive officers and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports with the SEC relating to their share ownership and changes in such ownership. 128 Delinquent Section 16(a) Reports Based solely upon our review of copies of filings or written representations from the reporting persons, we believe that certain reports for our executive officers and directors that were required to be filed under Section 16(a) of the Exchange Act during the year ended December 31, 2022 were not filed on a timely basis. Specifically, (i) Messrs. Garceau, Mayron, Lieberman, Ostrov, Galitzer, Santora II, Malca, Ellis, Jamas, Schwartz and Ratan as well as Mses. Toledano and Yaacov-Garbeli each filed a late Form 3 and (ii) Messrs. Garceau, Mayron, Lieberman, Ostrov, Malca and Ellis as well as Ms. Toledano each filed a late Form 4 disclosing two January 2022 option grants from the Company in connection with their service as directors of the Company, in each case due to the delay in obtaining EDGAR codes in connection with our transition from a foreign private issuer to a domestic reporting company. Other than with respect to the aforementioned forms, we believe that all other reports for our executive officers and directors and persons who beneficially own more than 10% of our common stock that were required to be filed under Section 16(a) of the Exchange Act during the year ended December 31, 2022 were filed on a timely basis. I TEM 11. EXECUTIVE COMPENSATION Compensation Policy Our compensation policy was adopted by our shareholders on October 4, 2021, after having been recommended by our Compensation Committee and approved by our Board, and will therefore, under the Companies Law, need to be either re-approved, amended, or replaced by a new policy no later than 2024, and every three years thereafter. The compensation policy includes, among other matters prescribed by the Companies Law, a framework for establishing the terms of office and employment of the directors and officers and guidelines with respect to the structure of the variable pay of officers. Objectives Our compensation policy is intended to align our objectives and work plans with appropriate goals and objectives of our officers and directors, and to ensure that the overall financial and strategic objectives of the Company and its shareholders are met. We recognize that strong and effective leadership is fundamental to our continued growth and success. Therefore, our compensation policy recognizes as a primary objective the need to attract, retain, reward and motivate highly talented officers and directors in competitive labor markets. Officer compensation With regard to our executive officers, or “Officers,” (which includes our Named Executive Officers, as defined below) our compensation policy is designed to provide a mix of compensation to pay Officers for individual and company performance as well as align their interests with the interests of shareholders. The compensation policy is also designed to provide flexibility in design. It must also take into consideration the fact that the appropriate mix of compensation may vary from period to period and from Officer to Officer. To achieve this philosophy, our compensation policy generally includes: (i) short-term incentives such as an annual base salary, benefits and perquisites, (ii) short to medium-term incentives such as annual bonus based on target and above-target performance, and (iii) medium to long-term incentives such as equity-based compensation, termination and retirement benefits. Base salary Base salary for Officers is a fixed compensation element which provides compensation to an Officer for performance of his or her standard duties and responsibilities that reflects the Officer’s education, skills, qualifications, expertise, professional experience and accomplishments, as well as the position, areas and scope of responsibilities of such Officer and his or her prior compensation agreements. Adjustments to base salary are periodically reviewed by the Compensation Committee and the Board. 129 Bonuses Monetary bonuses are generally paid annually, and are designed to reward Officers based on the performance of the Company and their individual results. The target bonus amount and the performance measures and targets for each Officer are provided and calculated in an annual bonus plan, to the extent it is determined and approved by the Company's Compensation Committee and Board, at the beginning of each calendar year for which the bonus is paid. However, the CEO has the power to determine the annual bonus's performance measures and targets for any of the other Officers. The performance measures and targets for receiving the annual bonus are intended to be measurable and quantifiable and may include (but are not limited to) (i) objectives such as capital investment, cash balance relative to equity, obtaining approval from the authorities in the target markets; and (ii) key performance indicators, determined for each Officer separately, according to the Officer's position. The annual bonus also includes a non-measurable component of up to 20% of the Officer’s annual bonus, which is based on the evaluation of each Officer's, according to qualitative measures provided in the annual bonus plan. In addition to the annual bonus, the Compensation Committee and the Board may elect to pay each Officer a special bonus, based on non-measurable criteria, in recognition of a significant achievement or for completion of an assignment, such as completion of a major transaction or achieving a major milestone with material effect over the Company's business. Our compensation policy provides for a maximum cap for bonus payments made to our Officers. The maximum bonus cap for each of our Officers is six times the monthly base salary and with respect to the CEO, up to three times the monthly base salary, determined by non-measurable criteria. Equity-based compensation Our compensation policy also includes an equity incentive component designed, inter alia, to retain Officers, align Officers and shareholders’ interests and incentivize Officers to attain high level of business achievements without taking unreasonable risk, under which the Company may grant Officers options to purchase shares, share appreciation rights, restricted shares, restricted share units, performance awards or other share-based awards (collectively referred to as “equity awards”). The equity awards are determined individually and awarded from time to time, inter alia, according to each Officer’s (a) contribution to the Company's performance; (b) ability to influence the Company's future and performance; (c) the desired mix of compensation components and the mix of equity awards; (d) the Officer's skills, qualifications, experience, roles and personal responsibilities; and (e) the desired competitive levels and dilution or pool limits. The compensation policy caps the annual value of the equity awards to be granted to each Officer, measured at the applicable grant date, at 18 times the monthly base salary of each Officer. The equity awards vesting period shall not be less than one year. Options shall expire up to 10 years from the grant date. For option grants and share appreciation rights, the exercise price shall be no less than the fair market value of the underlying ordinary shares on the date of grant, and subject to applicable law. The compensation policy provides that Officers and directors (to the extent granted equity awards) may be prohibited from hedging their equity awards and any other Company securities held by them. The no-hedging policy applies to each director and each Officer until one year following their termination of employment. The compensation policy further provides that Officers and directors are subject to certain restrictions on pledging or using their equity awards and any other Company securities held by them (whether they are subject to transfer restrictions or not) as collateral for loans, as the Company's Compensation Committee and Board shall determine. Benefits and perquisites Under the compensation policy, our Officers are further entitled to certain fringe benefits that we believe are commonly provided to similarly-situated executives in the market in which we compete for talent and therefore are important to our ability to attract and retain top-level executive management. This includes vacation days, paid sick leave, as well as additional benefits such as, but not limited to, health insurance, a company car and cell phone, company-provided health insurance and meals. 130 For Officers residing in Israel, these benefits may also include contributions to a pension fund, provident fund or insurance policy in accordance with Israeli law, contributions to an education fund of 7.5% of the Officer’s monthly salary and recuperation pay as required under applicable law. An ‘education fund’ is a medium-term savings scheme that takes advantage of a unique tax break granted under Israeli law, whereby a company’s contributions to such fund (which, despite its misleading name, may be used by the employee for any purpose), as well as all capital gains accrued on such contributions, are free of tax if (a) the company contributes an amount equal to 7.5% of the employee’s salary to such fund, up to a certain limit, and the employee further contributes 2.5% of his salary at his expense, and (b) the fund remains undrawn for a period of at least six years from the time of the first contribution. While some of these contributions and benefits are not mandatory under Israeli law, the nature and amount of the benefits provided to our Israeli Officers are customary and prevalent in the Israeli high-tech and bio-pharma market, especially among executives. Non-Israeli Officers may receive similar, comparable or customary benefits as applicable in the jurisdiction in which they are employed. Termination Our Officers are further entitled to certain termination payments and benefits. Officers are entitled to an advance notice period, severance payments and retirement and termination awards. The retirement and termination awards are subject to the Compensation Committee and the Board's approval, and may be provided only if: (a) certain change of control related cases; (b) the Officer has made a special contribution to the advancement of the Company’s business during his employment period as shall be determined by the Compensation Committee; and (d) in respect of Officers other than the CEO, the CEO has recommended granting a retirement bonus. Director compensation The compensation policy provides that non-employee and non-executive directors’ compensation packages shall be determined pursuant to the provisions of the Companies Law in accordance with the Company's objective to attract and retain talented directors with excellent educational background, qualifications, skills, expertise, professional experience and achievements, by providing a fair and competitive compensation program. Such non-employee and non-executive directors’ may be eligible to receive an annual Board membership fee, annual Committee membership fee and equity based compensation. Notwithstanding, non-employee and non-executive directors shall also be entitled to insurance, indemnification and release arrangements. The chair of the Board and the chair of the Board committees may also receive additional annual cash payments for their extra service in such capacities, subject to the provisions of applicable law. In May 2021, we elected to be governed by an exemption under the Companies Law regulations that exempts us from appointing external directors and from complying with the Companies Law requirements related to the composition of the Audit Committee and Compensation Committee of our Board. Our eligibility for that exemption is conditioned upon: (i) the continued listing of our Ordinary Shares on the Nasdaq Capital Market (or one of a few select other non-Israeli stock exchanges); (ii) there not being a controlling shareholder of our company under the Companies Law; and (iii) our compliance with the Nasdaq Listing Rules requirements as to the composition of (a) our Board of Directors-which requires that we maintain a majority of independent directors (as defined under the Nasdaq Listing Rules) on our Board of Directors (subject to applicable cure periods under the Nasdaq Listing Rules) and (b) the Audit and Compensation Committees of our Board of Directors, which rules require that such committees consist solely of independent directors (at least three and two members, respectively). At the time that it was determined to exempt our Company from the external director requirement, our Board affirmatively determined that we met the conditions for exemption from the external director requirement. As of the date hereof, we continue to meet the conditions for exemption from the external director requirement. As a result of our election to be exempt from the external director requirement under the Companies Law, none of our directors are categorized as external directors and as such the applicable requirements and restrictions relating to external directors (including certain compensation related provisions) is no longer applicable. Claw-back The compensation packages to Officers and directors are also subject to claw-back provisions, allowing for the Company’s recovery of any payment made to an Officer or director if the payment was based on incorrect financial statements that subsequently required restatement. The Officer or director will be required to repay to the Company the difference between the original payment and any payment due to the officer or director based on the restatement. 131 Our Compensation Committee periodically reviews the compensation policy, monitors its implementation and recommends to our Board and shareholders amendments to the compensation policy as it deems necessary from time to time. The term of the compensation policy is for a period of three years following the date of its adoption, during which, the Board is required to examine the compensation policy and revise it from time to time if the circumstances under which it had been adopted have materially changed. Following such three-year term, the compensation policy, including any revisions recommended by our Compensation Committee and approved by our Board, as applicable, will be brought once again to the shareholders for approval. Summary Compensation Table The table and summary below outline the compensation granted to our named executive officers (“Named Executive Officers”) during our fiscal years ended December 31, 2022 and December 31, 2021. As a “smaller reporting company,” we are required to provide executive compensation information for the following individuals: (i) all individuals who served as the Company’s principal executive officer (“PEO”), during the last completed fiscal year, regardless of compensation; (ii) the two most highly compensated executive officers (other than the PEO) who were serving as executive officers of the Company at the end of the last completed fiscal year and whose total compensation was greater than $100,000; and (iii) up to two additional persons who served as executive officers (other than as the PEO) during the last completed fiscal year but who were not serving in that capacity at the end of the fiscal year if their total compensation is higher than any of the other two Named Executive Officers in the preceding group. Name and Principal Position Year Salary ($) Bonus ($) Option Award(s) ($)(1) All Other Compensation ($) Total ($) Miranda Toledano (2) 2022 231 - 382 66 679 Chief Executive Officer and director 2021 17 65 82 Spiros Jamas (3) 2022 255 95 (256 ) 428 522 Former Chief Executive Officer 2021 392 - 751 - 1,143 Dr. Phillip Schwartz (4) 2022 188 27 196 371 782 Former President of R&D 2021 453 - 183 49 685 Dr. Hillel Galitzer 2022 287 63 234 37 621 Chief Operating Officer 2021 319 260 61 640 (1) Reflects the associated annual expense recorded in our financial statements for the year ended December 31, 2022, based on the grant date fair value of the share-based compensation granted in exchange for the directors’ and officers’ services computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation (“ASC Topic 718”). The assumptions used in calculating the amounts are discussed in the notes of the Company’s audited financial statements for the year ended December 31, 2022 included in this Annual Report. The fair value amount is recognized as an expense over the course of the vesting period of the options (subject to any applicable accounting adjustments during that period). (2) Ms. Toledano was appointed as our Chief Business Officer, Chief Financial Officer and Head of Corporate Strategy in May 2022. Ms. Toledano was then appointed as our Chief Executive Officer in July 2022. The compensation for fiscal year 2021 and until May 2022 represents her compensation as a non-employee board member. (3) Mr. Jamas served as our Chief Executive Officer from January 4, 2021 until July 13, 2022. Pursuant to the mutual separation agreement entered into between us and Mr. Jamas, he was entitled to a one-time lump sum payment of his annual base salary for a period of 13 months which is included in the table above. (4) Dr. Schwartz served as the President of R&D during fiscal years 2021 and 2022 through his resignation on July 21, 2022. On June 15, 2022, Dr. Schwartz resigned from his position with the Company, effective July 21, 2022. The compensation for fiscal year 2022 represents his compensation received for services rendered through his resignation date. 132 Outstanding Equity Awards at Fiscal Year End The following table sets forth the outstanding equity awards at December 31, 2022 for our Named Executive Officers. Number of Securities Underlying Unexercised Options Option Name Exercisable Unexercisable Expiration Date Miranda Toledano 33,638 17/1/2029 Chief Executive Officer and director 35,852 1/1/2031 35,852 71,705 (1) 1/1/2031 500,000 (2) 16/05/2032 600,000 (3) 15/07/2032 Dr. Spiros Jamas Former Chief Executive Officer 492,832 - 14/7/2023 Dr. Phillip Schwartz 357,500 - 23/11/2027 Former President of R&D 100,000 - 21/4/2031 Dr. Hillel Galitzer 143,000 - 15/11/2023 Chief Operating Officer 120,312 54,688 (4) 16/3/2030 46,875 78,125 (5) 21/4/2031 60,000 (6) 30/3/2032 (1) The 71,705 unexercisable options as of December 31, 2022 will vest in eight equal quarterly installments beginning on March 31, 2023. (2) Of the 500,000 unexercisable options as of December 31, 2022, 25% vest on May 16, 2023, the first anniversary of the grant date and the remaining 75% begin vesting in 12 equal quarterly installments over the following three years. (3) Of the 600,000 unexercisable options as of December 31, 2022, 25% vest on July 15, 2023, the first anniversary of the grant date and the remaining 75% begin vesting in 12 equal quarterly installments over the following three years. (4) The 54,688 unexercisable options as of December 31, 2022 will vest in five equal quarterly installments beginning on March 16, 2023. (5) The 78,125 unexercisable options as of December 31, 2022 will vest in 10 equal quarterly installments from January 21, 2023. (6) Of the 60,000 unexercisable options as of December 31, 2022, 25% vest on March 31, 2023, the first anniversary of the grant date and the remaining 75% will vest in 12 equal quarterly installments over the following three years. 133 Director Compensation Table Under the Companies Law, our directors can be paid for their services as directors to the extent such payments are in accordance with the compensation policy adopted by the Company after approval by the Compensation Committee, our Board and our shareholders by ordinary majority, or, if their compensation deviates from our compensation policy, after approval by the Compensation Committee, our Board and our shareholders by a special majority, if necessary, provided that (i) the majority of the votes includes at least a majority of all the votes of shareholders who are not controlling shareholders of the Company or who do not have a personal interest in the compensation paid to the directors and participating in the vote or (ii) the total of opposing votes from among the shareholders described in subsection (i) above does not exceed 2% of all the voting rights in the Company. The table below outlines compensation earned by our non-employee directors for the fiscal year ended December 31, 2022, including fees earned in cash and options awarded for services provided as a director. Ms. Toledano served as a non-employee director in 2022 until her appointment as an officer in May 2022. Her compensation received in connection with her service as a director is included in her 2022 compensation described above in “Summary Compensation Table”, above. Name Fees Earned or Paid in Cash ($) Option Awards ($)(1) All Other Compensation ($) Total ($) Gerald Lieberman 61,000 196,000 - 257,000 Dr. Roger J. Garceau 41,000 196,000 - 237,000 Yonatan Malca 56,000 196,000 - 252,000 Ron Mayron 50,000 229,000 - 279,000 Gerald M. Ostrov 56,000 196,000 - 252,000 Sean Ellis 52,000 196,000 - 248,000 (1) Reflects the associated annual expense recorded in our financial statements for the year ended December 31, 2022, based on the grant date fair value of the share-based compensation granted in exchange for the directors’ and officers’ services computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation (“ASC Topic 718”). The assumptions used in calculating the amounts are discussed in the notes of the Company’s audited financial statements for the year ended December 31, 2022 included in this Annual Report. The fair value amount is recognized as an expense over the course of the vesting period of the options (subject to any applicable accounting adjustments during that period). The table below sets forth the aggregate number of share options of each non-employee director outstanding as of December 31, 2022: Name Share Options Gerald Lieberman 324,337 Dr. Roger J. Garceau 449,739 Yonatan Malca 177,047 Ron Mayron 177,047 Gerald M. Ostrov 177,047 Sean Ellis 177,047 Employment Agreements We have entered into employment agreements with our Named Executive Officers. A summary of the material terms of these agreements with each of our Named Executive Officers is set forth below. The below descriptions of employment agreements and separation agreements, as applicable, are only summaries and are qualified in their entirety by reference to the full text of the applicable agreement, which are filed as exhibits to this Annual Report on Form 10-K. 134 Miranda J. Toledano In connection with Ms. Toledano’s appointment as the Company’s Chief Business Officer, Chief Financial Officer and Head of Corporate Strategy in May 2022, Ms. Toledano entered into an employment agreement (the “Original Employment Agreement”) with the Company, providing for an annual employer cost of $350,000 inclusive of base salary, pension payments, severance and disability benefits as required under Israeli law. Additionally, Ms. Toledano was entitled to a grant of options pursuant to the Company’s 2018 Equity Incentive Plan to purchase 500,000 Ordinary Shares of the Company’s Ordinary Shares at an exercise price of $2.02 per share, the closing price of the Ordinary Shares on the date the option was approved by the Board. The options vest over four years, with 25% of the options vesting on May 16, 2023 and the remaining 75% vesting in quarterly increments over the remaining three-year period, subject to Ms. Toledano’s continued employment. In addition, Ms. Toledano was eligible to receive an annual bonus in an amount equal to 50% of her annual base salary. Under the Original Employment Agreement, Ms. Toledano also agreed to customary non-disclosure and non-competition covenants, In connection with Ms. Toledano’s appointment as Chief Executive Officer, on July 15, 2022, Ms. Toledano and the Company entered into an amended and restated employment agreement (the “A&R Employment Agreement”), which amends and restates the Original Employment Agreement. The material terms of the Original Employment Agreement remain unchanged, except that the A&R Employment Agreement provides for (i) Ms. Toledano’s service as Chief Executive Officer, (ii) an annual employer cost of $380,000 inclusive of base salary, pension payments, severance and disability benefits as required under Israeli law, (iii) eligibility to receive an annual bonus in an amount equal to 60% of Ms. Toledano’s annual base salary, (iv) a one-time separation payment in the total amount of 12 months of salary and an extension of the exercise period with respect to vested options for a period of up to two-years post-termination, in each case in the event of the termination of Ms. Toledano’s employment by the Company for any reason other than for Cause (as defined in the A&R Employment Agreement), (v) an additional grant of options (the “Options”) pursuant to the Company’s 2018 Equity Incentive Plan to purchase 600,000 Ordinary Shares at an exercise price of $1.40, which was the closing price of the Ordinary Shares on the date the Board approved such option grant and (vi), upon the Company’s achievement of certain performance or financial milestones, a grant of options (the “Additional Options”) to purchase an additional 200,000 Ordinary Shares pursuant to the Company’s 2018 Equity Incentive Plan at an exercise price equal to the closing price of the Ordinary Shares on the date the Board approves such option grant. The Options will vest over four years, with 25% of the Options vesting on July 15, 2023 and the remaining 75% vesting in quarterly increments over the remaining three-year period, subject to Ms. Toledano’s continued employment. The Additional Options will vest over four years, with 25% of the Additional Options vesting on the first anniversary of the grant date and the remaining 75% vesting in quarterly increments over the remaining three-year period, subject to Ms. Toledano’s continued employment. Spiros Jamas Employment Agreement We entered into an employment agreement, effective as of January 2021, with Dr. Spiros Jamas, in connection with his appointment as our Chief Executive Officer and in light of his previous membership in our Board. Pursuant to the agreement, Dr. Spiros Jamas was entitled to an annual base salary of $380,000 and an annual bonus of up to 60% of his base salary (up to $228,000). Additionally, Dr. Jamas was eligible to participate in the Company’s standard full-time employment benefits that are offered by the Company from time to time, which currently include medical, short term disability and 401(k) benefits. Mr. Jamas was also generally entitled to reimbursement for travel and other business expenses and other benefits, including, vacation, holidays and sick leave. Subject to applicable law, Dr. Jamas is also covered by our D&O insurance policy. Dr. Jamas was also granted options to purchase 1,314,218 Ordinary Shares under the 2018 Plan, effective as of January 2021, at an exercise price of $1.24. Salary and other benefits (including any bonus) shall immediately terminate upon termination, provided, however, that in case Dr. Jamas’s employment would have been terminated by the Company without Cause or if Dr. Jamas resigned for Good Reason ("Cause" and Good Reason" as defined in the proxy statement of the Company’s extraordinary general meeting dated March 3, 2021) at any time, he would have been entitled to (i) a one-time lump sum severance payment equal to a period of twelve (12) months of his then-effective annual base salary and (ii) an extension of the exercise period with respect to his vested options to purchase ordinary shares as of the date of termination for up to two (2) years post-termination (provided that in no event shall such extension extend beyond 10 years from the applicable grant date), all subject to his execution and non-revocation of a customary release of claims against the Company, its subsidiary, Entera Bio, Inc., or any applicable affiliates. 135 Separation Agreement On July 13, 2022, the Company and Dr. Jamas entered into a mutual separation agreement (the “Separation Agreement”), pursuant to which the parties agreed that Dr. Jamas would resign from his position as the Company’s Chief Executive Officer, effective July 15, 2022 (the “Jamas Separation Date”). Pursuant to the Separation Agreement, Dr. Jamas’ employment agreement, dated November 30, 2020, terminated, other than with respect to those provisions intended to survive termination, including those with respect to confidentiality, non-competition, non-solicitation and intellectual property. Pursuant to the terms of the Separation Agreement, Dr. Jamas was entitled to receive payment for all accrued but unpaid base salary through the Jamas Separation Date, unused paid time off through the Jamas Separation Date, reimbursement for unreimbursed business expenses properly incurred pursuant to the Company’s applicable expense reimbursement policy, and benefits provided under the Company’s employee benefit plan. In addition, in consideration for Dr. Jamas’ execution of the Separation Agreement and non-revocation of a waiver and release of claims relating thereto, Dr. Jamas was entitled to the following benefits under the Separation Agreement: • a one-time lump sum payment of Dr. Jamas’ annual base salary for a period of thirteen (13) months, for a total gross amount equal to $411,666.67, after the expiration of the revocation period; • an extension of the exercise period for the vested portion of the share option granted to Dr. Jamas on January 4, 2021 pursuant to the terms of the Company’s 2018 Equity Incentive Plan, representing collectively 492,832 ordinary shares, through the end of a two-year period commencing on the Jamas Separation Date. Under the Separation Agreement, Dr. Jamas agreed to cooperate with and assist the Company regarding certain matters and transitioning his employment duties and responsibilities. Subject to certain exceptions and limitations, the Separation Agreement included a general release of claims by Dr. Jamas in favor of the Company and certain related persons and parties, and customary non-disparagement provisions. The Separation Agreement also included certain other customary representations, warranties and covenants of Dr. Jamas. The Separation Agreement superseded all other agreements or arrangements between Dr. Jamas and the Company regarding the subject matter of the agreement, including those with respect to severance payments and benefits. Phillip Schwartz Dr. Phillip Schwartz was appointed as our President of Research and Development in August 2019 and served in this capacity until July 21, 2022, (the “Schwartz Separation Date”), and acted as a director from our inception in 2010 until June 15, 2022, and as Chief Executive Officer from 2010 up until August 2019. We entered into an employment agreement with Dr. Schwartz as our Chief Executive Officer dated June 8, 2014 which was amended last and approved on April 6, 2021, and on April 21, 2021, by our Compensation Committee and the Board, respectively, and approved accordingly by our shareholders in the last annual meeting of the shareholders of the Company on October 4, 2021. Pursuant to the agreement as amended, effective as of January 1, 2021, Dr. Schwartz was entitled to an annual gross base salary of $312,889. Additionally, Dr. Schwartz was eligible to participate in the Company’s standard full-time employment benefits that are offered by the Company from time to time, which currently include medical, short term disability and pension fund benefits. Dr. Schwartz was also generally entitled to reimbursement for travel and other business expenses and other benefits, including, vacation, holidays and sick leave. Subject to applicable law, Dr. Schwartz was also covered by our D&O insurance policy. Dr. Schwartz was granted 357,000 Ordinary Shares under our 2013 Equity Incentive Plan, as of November 23, 2017, at an exercise price of $6.31, which are as of today considered fully vested. In April 2021, he was also granted options to purchase 100,000 Ordinary Shares of the Company under the 2018 Plan, at an exercise price of $3.15. In addition, in case of termination of Dr. Schwartz’s employment, the Company agreed to pay Dr. Schwartz an amount equal to six (6) months salaries as a severance payment, as well as all accrued and unused vacation days and any accrued and unpaid bonuses (to the extent that Dr. Schwartz is entitled to such bonus as of the termination date). 136 On June 15, 2022, the Company entered into a separation agreement with Dr. Phillip Schwartz, the Company’s former President of R&D, under which Dr. Schwartz agreed to continue to provide services to the Company until July 21, 2022 (the “Schwartz Separation Date”). Pursuant to the terms of the separation agreement, which were approved by the Company’s shareholders on September 7, 2022, Dr. Schwartz received a full acceleration of his unvested options, as of the Shwartz Separation Date, to purchase 68,750 ordinary shares granted in April 2021 that otherwise would have been forfeited. These options, together with 31,250 already vested options granted in April 2021 and 357,500 already vested options to purchase ordinary shares granted in 2017, will be exercisable for a period of 10 years from their respective initial grant dates. The acceleration described above was recognized as a "Type III" modification; therefore, on the shareholder approval date, the Company recognized the incremental costs of unvested options based on the fair value of the options on such date. In addition, the extension of the exercise period for the vested awards was recognized as a "Type I" modification. The total expense amount was $112 thousand, which was classified as additional share-based compensation costs in the research and development expenses. In addition, the separation agreement provides for the following payments to Dr. Schwartz, all of which would have otherwise been payable in accordance with either Israeli law or pursuant to his existing employment agreement: a one-time cash separation payment in an amount equal to NIS 537,600 (approximately $155.9) and additional payments of NIS 737,771 (approximately $214.0) in respect of all other ongoing accrued benefits, subject to any mandatory deductions. The foregoing payments were recognized in the research and development expenses Hillel Galitzer We entered into an employment agreement, effective as of June 8, 2014, with Dr. Hillel Galitzer, in connection with his appointment as our Chief Operating Officer, who prior to that served as our Director of Scientific Development from July 2012. Pursuant to the agreement as amended most recently and approved in the Company's annual meeting of shareholders dated October 4, 2021, Dr. Galitzer is entitled to an annual gross base salary of $246,547. Additionally, Dr. Galitzer is eligible to participate in the Company’s standard full-time employment benefits that are offered by the Company from time to time, which currently include medical, short term disability and pension fund benefits. Dr. Galitzer is also generally entitled to reimbursement for travel and other business expenses and other benefits, including, vacation, holidays, company car and sick leave. Subject to applicable law, Dr. Galitzer is also covered by our D&O insurance policy. In November 2017, Dr. Galitzer was granted options to purchase 143,000 Ordinary Shares of the Company, under the Company's 2013 Equity Incentive Plan, with an exercise price of $6.31, all of which are fully vested. We also granted Dr. Galitzer options to purchase 175,000 Ordinary Shares of the Company, under the Company’s 2018 Plan, as of March 16, 2020, at an exercise price of $2.14. Additionally, Dr. Galitzer received a grant of options to purchase 125,000 Ordinary Shares under the Company’s 2018 Plan, as of April 28, 2021, at an exercise price of $3.15, under the 2018 Plan. In addition, Dr. Galitzer received a grant of options to purchase 60,000 Ordinary Shares of the Company, under the Company’s 2018 Plan, as of March 31, 2022, at an exercise price of $2.86. Employee Equity Incentive Plan Share Incentive Plan On March 17, 2013, our Board approved our 2013 Plan for the granting of stock options, restricted share units, restricted share awards and performance-based awards, in order to provide incentives to our employees, directors, consultants and/or service providers. As of December 31, 2022, 1,518,262 Ordinary Shares were issuable upon the exercise of outstanding awards under the 2013 Plan, at a weighted-average exercise price of$5.71 per share. As of December 31, 2022, all of the foregoing outstanding options had vested under the 2013 Plan. Awards granted under the 2013 Plan are subject to vesting schedules and generally vest over a four-year period commencing from the applicable grant date, such that 25% of the awards vest on the first anniversary of the applicable grant date and 75% of the awards vest in 12 equal installments upon the lapse of each three-month period following the first anniversary of the applicable grant date. Subject to the discretion of the 2013 Plan administrator, if an award has not been exercised within six years after the date of the grant, the award expires. Any period in which a grantee is not our employee or has taken a leave of absence will not be included in such vesting period. 137 The 2013 Plan provides for granting awards in compliance with Section 102 of the Israeli Income Tax Ordinance, 5721-1961, or the Ordinance, which provides to employees, directors and officers, who are not controlling shareholders (as defined in the Ordinance) and are Israeli residents, favorable tax treatment for compensation in the form of shares or equity awards issued or granted, as applicable, to a trustee under the capital gains track, or Capital Gains Track, for the benefit of the relevant employee, director or officer and are, or were, to be held by the trustee for at least two years after the date of grant or issuance. Under the Capital Gains Track, any accounting expense with respect to the grant or issuance of such shares or awards which relates to gain taxed as capital gains is not allowed as a deduction for tax purposes. The 2013 Plan addresses the treatment of vested and unvested awards upon the cessation of employment or engagement of the award holder as well as upon consummation of a merger, consolidation or similar transaction, or sale of all or substantially all of our assets or sale of at least 80% of our outstanding securities. The 2013 Plan also provides for certain lock-up arrangements upon consummation of a public offering. The 2013 Plan is administered by our Board or by a committee appointed by our Board. Upon the completion of our initial public offering, the remaining pool of reserved Ordinary Shares under the 2013 Plan was cancelled, and the only reserved Ordinary Shares available for grants to our employees, directors, consultants and service providers in the future are those under the 2018 Plan (which is described below). 2018 Equity Incentive Plan On July 2, 2018, in connection with the consummation of our initial public offering, our Board approved our 2018 Plan, with the purpose of advancing the interests of our shareholders by enhancing our ability to attract, retain and motivate individuals to perform at the highest level. The 2018 Plan governs issuances of equity incentive awards from and after the closing of our initial public offering. The maximum number of Ordinary Shares initially available for issuance under equity incentive awards granted pursuant to the 2018 Plan could not exceed 12% of the total outstanding Ordinary Shares as of the time of adoption. On January 1, 2019 and on January 1 of each calendar year thereafter, an additional number of shares equal to 5% of the total outstanding Ordinary Shares on such date (or any lower number of shares as determined by our Board) have and will become available for issuance under the 2018 Plan. In our shareholders meeting held September 7, 2022, our shareholders approved an amendment to the 2018 Plan to increase the number of Ordinary Shares issuable under the 2018 Plan by a one-time additional amount of 576,188 Ordinary Shares. As of December 31, 2022, a total of 922,080 Ordinary Shares representing 3.2% of the total outstanding shares as of that date remained available for issuance under the 2018 Plan. On January 1, 2023, pursuant to the annual evergreen provision and following the approval of our Board, an additional 1,440,496 Ordinary Shares, equal to 5% of the total outstanding shares as of January 1, 2023, became available for issuance under the 2018 Plan. Equity incentive awards may be granted to our employees, non-employee directors, consultants or other advisors, as well as holders of equity compensation awards granted by a company that may be acquired by us in the future. Awards under the 2018 Plan may be granted in the form of options, share appreciation rights, restricted shares, restricted share units, performance awards or other share-based awards. Options and share appreciation rights will have an exercise price determined by the administrator but that is no less than fair market value of the underlying Ordinary Shares on the date of grant. As of December 31, 2022, 4,214,825 Ordinary Shares were issuable upon the exercise of outstanding awards under the 2018 Plan, at a weighted-average exercise price of $2.04 per share. Of the foregoing outstanding awards, as of December 31, 2022, options to purchase 1,653,531 Ordinary Shares, in the aggregate, had vested under the 2018 Plan, with a weighted-average exercise price of $2.47 per share. The vesting conditions for grants under the 2018 Plan will be determined by the administrator and, in the case of restricted shares and restricted share units, will be set forth in the applicable award documentation. In the event of a participant’s termination of employment, the administrator may, in its discretion, determine the extent to which an equity incentive award may be exercised, settled, vested, paid or forfeited. In the event of a change in control (as defined in the 2018 Plan) of the Company, the Compensation Committee may, in its discretion, take a number of actions with respect to awards outstanding under the 2018 Plan, including the following: (i) continuing awards or converting such awards into an award or right with respect to shares of the successor or surviving corporation; (ii) immediately vesting and settling awards (or in the case of options and share appreciation rights, providing that such awards will become fully exercisable); (iii) cancelling unvested awards for no consideration; (iv) terminating or cancelling awards in exchange for a cash payment; and (v) providing that awards may be assumed, exchanged, replaced or continued by the successor or surviving corporation with cash, securities, rights or other property. In the event of a structural change of the Company (i.e., a transaction in which the Company’s shares immediately prior to the transaction are converted into or exchanged for shares that represent at least a majority of the share capital of the surviving corporation, such as a re-domestication of the Company or a share flip), outstanding awards will be exchanged or converted into awards to acquire shares of the company (if it is the surviving corporation) or the successor company in accordance with the applicable exchange ratio. 138 The 2018 Plan is administered by the Board, provided that the Board may delegate its authority to the Compensation Committee to administer the 2018 Plan. The 2018 Plan provides for granting awards in compliance with Section 102 of the Ordinance, which provides to employees, directors and officers of the Company, who are not controlling shareholders (as defined in the Ordinance) of the Company and are Israeli residents, potential favorable tax treatment for compensation in the form of shares or equity awards issued or granted, as applicable, to a trustee under the Capital Gains Track for the benefit of the relevant employee, director or officer, subject to compliance with the terms and conditions of such tax track. Under the Capital Gains Track, any accounting expense with respect to the grant or issuance of such shares or awards which relates to gain taxed as capital gains is not allowed as a deduction for tax purposes. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Security Ownership of Certain Beneficial Owners and Management The following table sets forth information known to us with respect to the beneficial ownership of our Ordinary Shares as of March 27, 2023 by: • each person or entity known by us to own beneficially 5% or more of our outstanding Ordinary Shares; • each of our directors and executive officers individually; and • all of our executive officers and directors as a group. The beneficial ownership of our Ordinary Shares is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership, generally, includes any shares over which a person exercises sole or shared voting or investment power. For purposes of the table and the related footnotes, unless described otherwise within the footnotes, Ordinary Shares issuable pursuant to options or warrants that are currently exercisable will become exercisable within 60 following March 27, 2023 to be outstanding and beneficially owned by the person holding the options or warrants for the purposes of computing the percentage ownership of that person, but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person, except with respect to the percentage ownership of all executive officers and directors as a group. The percentage of Ordinary Shares beneficially owned is based on 28,809,922 Ordinary Shares outstanding as of March 27, 2023. The beneficial ownership data provided below is based solely on information available to our Company and, in the case of major shareholders who are not otherwise officers or directors, has not been verified further. Except where otherwise indicated, we believe, based on information furnished to us by such owners, that the beneficial owners of the Ordinary Shares listed below have sole investment and voting power with respect to such shares. Unless otherwise noted below, each shareholder’s address is c/o Entera Bio Ltd., Kiryat Hadassah, Minrav Building - Fifth Floor, Jerusalem, Israel. 139 Name Number and Percentage of Ordinary Shares Number Percent 5% or Greater Shareholders (other than directors and executive officers) D.N.A Biomedical Solutions Ltd.(1) 3,762,960 13.1 % Gakasa Holdings LLC.(2) 2,484,275 8.6 % Centillion Fund (3) 2,396,953 8.3 % Executive Officers and Directors: Yonatan Malca(4) 143,798 * Gerald Lieberman(5) 494,515 1.7 % Dr. Roger J. Garceau(6) 464,198 1.6 % Dr. Hillel Galitzer(7) 385,856 1.3 % Dr. Arthur Santora(8) 60,000 * Miranda J. Toledano(9) 296,105 1.0 % Gerald M. Ostrov(10) 146,566 * Sean Ellis(11) 201,666 * Dana Yaacov-Garbeli(12) 151,580 * Ron Mayron(13) 132,353 * All Directors and Executive Officers as a Group (10 persons)(14) 2,476,637 8.0 % * Less than 1% (1) D.N.A Biomedical Solutions Ltd.’s holdings consisted of 3,762,960 Ordinary Shares. D.N.A’s address is at Shimon Hatarsi 43 St., Tel Aviv, Israel. (2) Based on the Schedule 13G/A filed by Gakasa Holdings LLC with the SEC on June 14, 2021 regarding its holdings as of May 19, 2021. Gakasa Holdings LLC’s address is 201 S. Biscayne Blvd., Suite 800, Miami, Florida. (3) Based on the Schedule 13G/A filed by Centillion Fund Inc. with the SEC on November 18, 2022 regarding its holdings as of August 31, 2022. Centillion Fund Inc’s address is 10 Manoel Street, Castries, Saint Lucia LC04 101 (4) Consists of (i) 7,232 Ordinary Shares and (ii) 136,566 Ordinary Shares underlying options to acquire Ordinary Shares. (5) Consists of (i) 210,659 Ordinary Shares and (ii) 283,856 Ordinary Shares underlying options to acquire Ordinary Shares. (6) Consists of (i) 4,940 Ordinary Shares and (ii) 459,258 Ordinary Shares underlying options to acquire Ordinary Shares. (7) Consists of (i) 34,106 Ordinary Shares and (ii) 351,750 Ordinary Shares underlying options to acquire Ordinary Shares. (8) Consists of 60,000 Ordinary Shares underlying options to acquire Ordinary Shares. (9) Consists of (i) 56,800 Ordinary Shares and (ii) 239,305 Ordinary Shares underlying options to acquire Ordinary Shares. (10) Consists of (i) 10,000 Ordinary Shares and (ii) 136,566 Ordinary Shares underlying options to acquire Ordinary Shares. (11) Consists of (i) 62,100 Ordinary Shares (ii) 3,000 Ordinary Shares underlying warrant to acquire Ordinary Shares and (iii) 136,566 Ordinary Shares underlying options to acquire Ordinary Shares. (12) Consists of (i) 56,580 Ordinary Shares and (ii) 95,000 Ordinary Shares underlying options to acquire Ordinary Shares. (13) Consists of (i) 7,000 Ordinary Shares and (ii) 125,353 Ordinary Shares underlying options to acquire Ordinary Shares. (14) Consists of (i) 449,417 ordinary Shares (ii) 3,000 Ordinary Shares underlying warrant to acquire Ordinary Shares and (iii) options to acquire 1,899,220 Ordinary Shares. 140 Securities Authorized for Issuance under Equity Compensation Plans The following table provides certain information as of December 31, 2022, with respect to our equity compensation plans under which our equity securities are authorized for issuance: Plan Category Number of securities to be issued upon exercise of outstanding options, RSUs, warrants and rights (#) Weighted-average exercise price of outstanding options, RSUs, warrants and rights ($) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (#) (a) (b) (c) Equity compensation plans approved by security holders 2013 Plan 1,518,262 $ 5.71 - 2018 Plan 4,214,825 $ 2.04 922,080 Equity compensation plans not approved by security holders - - - Total 5,733,087 $ 3.30 922,080 141 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Described below are any transactions occurring since January 1, 2021, and any currently proposed transactions to which either the Company was a party and in which: • The amounts involved exceeded or will exceed the lesser of  (i) $120,000 and (ii) one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years; and • A director, executive officer, holder of more than 5% of the outstanding share capital of the Company, or any member of such person’s immediate family had or will have a direct or indirect material interest. Indemnification Agreements with Directors Our Articles provide that we may indemnify each of our directors and officers to the fullest extent permitted by the Companies law. Accordingly, we have entered into standard indemnification agreements with each of our directors, whereby we have undertaken to indemnify each such director, in advance, for losses, damages, costs or expenses that such director may suffer or incur as a result of his or her actions or omissions in such capacity on behalf of the Company in certain circumstances and events, subject to the terms, conditions and limitations set out in the indemnification agreement. Approval of Related Party Transactions The Companies Law requires that an “office holder” (as defined in the Companies Law) of a company promptly disclose any personal interest that he or she may have and all related material information known to him or her, in connection with any existing or proposed transaction of the company. Pursuant to the Companies Law, any transaction with an office holder or in which the office holder has a personal interest must be brought before the Audit Committee, in order to determine whether such transaction is an Extraordinary Transaction. Pursuant to the Companies Law, our Articles and Entera written policy, in the event that the Audit Committee determines that the transaction is not an Extraordinary Transaction, the transaction will require only Audit Committee approval; if, however, it is determined to be an Extraordinary Transaction, Board approval is also required and, in some circumstances, shareholder approval may also be required. Such a transaction may only be approved if it is determined to be in the best interests of Entera. A person with a personal interest in the matter generally may not be present at meetings of the Board or certain committees where the matter is being considered and, if a member of the Board or a committee, may generally not vote on the matter. Transactions with Controlling Shareholders Under the Companies law, Extraordinary Transactions with a controlling shareholder, or in which the controlling shareholder has a personal interest, and any engagement with a controlling shareholder, or a controlling shareholder’s relative, with respect to the provision of services to the company or their Terms of Office and Employment as an office holder or their employment, if they are not an office holder, generally require the approval of the Audit Committee (or with respect to Terms of Office and Employment, the Compensation Committee), the Board of Directors and the shareholders. If required, shareholder approval must include (i) at least a majority of the shareholders who do not have a personal interest in the transaction and are present and voting at the meeting (abstentions are disregarded), or, alternatively, that (ii) the total shareholdings of the disinterested shareholders who vote against the transaction do not represent more than two percent of the voting rights in the company. Transactions for a period of more than three years generally need to be brought for approval in accordance with the above procedures every three years. A shareholder who holds 25% or more of the voting rights in a company is considered a controlling shareholder for these purposes if no other shareholder holds more than 50% of the voting rights. If two or more shareholders are interested parties in the same transaction, their shareholdings are combined for the purposes of calculating percentages. 142 Independent Directors Our Board undertook a review of the independence of each director. Based on information provided by each director concerning his or her background, employment, and affiliations, our Board has determined that the Board meets independence standards under the applicable rules and regulations of the SEC and the listing standards of Nasdaq. The Board has affirmatively determined that the following Directors are “independent” as of the date of this Annual Report as defined in the listing standards of Nasdaq: Gerald Lieberman, Ron Mayron, Gerald M. Ostrov, Sean Ellis and Yonatan Malca. In making these determinations, our Board considered the current and prior relationships that each non-employee director has with our Company and all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in this Item 13. I TEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Kesselman & Kesselman (a member firm of PricewaterhouseCoopers International Limited, or PwC) has served as our independent registered public accounting firm for 2022 and 2021. The following table sets forth fees billed to us by our independent registered public accounting firm during the fiscal years ended December 31, 2022 and 2021 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as Audit Fees; (iii) services rendered during the period in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered. Year Ended December 31, 2022 2021 Audit fees (1) $ 194,000 $ 190,000 Tax fees(2) 7,500 6,500 Total fees $ 201,500 $ 196,500 (1) Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financial statements and services related to certain registration statements. (2) Tax consulting services. Audit Committee Pre-approval Policies and Procedures Our Audit Committee is responsible for pre-approving audit and non-audit services provided to us by our independent registered public accounting firm. All of the non-audit services provided to us by the independent auditors following the formation of our Audit Committee were pre-approved by the Audit Committee. 143 PART IV. Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) Documents filed as part of this report: (1) Financial statements See Item 8 for Financial Statements included with this Annual Report. (2) Financial Statement Schedules None. (3) Exhibits: See below. 144 Exhibit No. Description 3.1 Amended and Restated Articles of Association of Entera Bio Ltd. (incorporated by reference to Exhibit 1.1 to the Form 20-F, filed with the SEC on March 18, 2021). 4.1 Description of rights of each applicable class of securities registered under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 2.2 to the Form 20-F filed with the SEC on March 18, 2021). 4.2 Specimen Form of Ordinary Share Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017) 4.3 Form of IPO Warrant (incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on May 17, 2018) 4.4 Form of Underwriter Warrant issued by the Registrant to Maxim Group LLC (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on May 17, 2018) 4.5 Form of Warrant issued by the Registrant to GP Nurmenkari Inc. (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017) 10.1 Amended and Restated Investor’s Rights Agreement, dated as of October 4, 2017, between the Registrant and the other parties thereto (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017) 10.2 Patent Transfer Agreement, dated as of February 22, 2011, between the Registrant and Oramed Ltd. (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017) 10.3 Form of Warrant Agency Agreement (incorporated by reference to Exhibit 10.18 to the Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on June 15, 2018) 10.4 Form of Regulation D Private Placement Subscription Agreement (incorporated by reference to Exhibit 4.25 to the Form 20-F filed with the SEC on March 18, 2021). 10.5 Subscription Agreement, dated December 13, 2019, between the Registrant and D.N.A Biomedical Solutions Ltd. (incorporated by reference to Exhibit 4.26 to the Form 20-F filed with the SEC on March 18, 2021). 10.6 Registration Rights Agreement, dated December 10, 2019, between the Registrant and the other parties thereto (incorporated by reference to Exhibit 4.28 to the Form 20-F filed with the SEC on March 18, 2021). 10.7 Sales Agreement, dated September 2, 2022, between Entera Bio. Ltd. and SVB Securities LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on September 2, 2022) 10.8†† Research Collaboration and License Agreement, dated as of December 10, 2018, between Amgen Inc. and Entera Bio Ltd. (incorporated by reference to Exhibit 4.28 to the Amended Annual Report on Form 20-F/A (File No. 001-38556) filed with the SEC on April 17, 2019) 10.9† Form of indemnification agreement between the Registrant and its directors and executive officers (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 20, 2017) 10.10† The Entera Bio Ltd. Share Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form F-1 (File No. 333-221472) filed with the SEC on November 9, 2017) 10.11† 2018 Equity Incentive Plan (incorporated by reference to Exhibit 99 to the Registration Statement on Form S-8 (File No. 333-227488) filed with the SEC on September 24, 2018) 10.12† Form of Stock Option Award Agreement under the 2018 Equity Incentive Plan (incorporated by reference to Exhibit 4.25 to the Annual Report on Form 20-F (File No. 001-38556) filed with the SEC on March 28, 2019) 10.13† Amended and Restated Employment Agreement, dated July 15, 2022, by and between Entera Bio Ltd. and Miranda Toledano (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on July 18, 2022) 10.14† Consulting agreement, dated June 2, 2019, between Entera Bio Ltd. and Dana Yaacov Garbeli (through A2Z Finance Ltd.), as amended. 145 10.15† Employment Agreement, dated as of June 8, 2014, between Entera Bio Ltd. and Dr. Hillel Galitzer, as amended. 10.16† Employment Agreement, dated as of January 4, 2021 between Entera Bio Ltd. and Dr. Spiros Jamas (incorporated by reference to Exhibit 4.30 to the Form 20-F, filed with the SEC on March 18, 2021). 10.17† Mutual Separation Agreement, dated July 13, 2022, by and between Entera Bio Ltd. and Dr. Spiros Jamas (incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on July 18, 2022) 10.18† Mutual Separation Agreement, dated June 15, 2022, by and between Entera Bio Ltd. and Dr. Phillip Schwartz (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on June 17, 2022) 21.1* List of Subsidiaries 23.1* Consent of Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited. 31.1* Certification of Principal Executive Officer of Entera Bio Ltd. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Principal Financial and Accounting Officer of Entera Bio Ltd. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Principal Executive Officer of Entera Bio Ltd. pursuant to Section 906 of the Sarbanes-Oxley act of 2002 32.2** Certification of Principal Financial and Accounting Officer of Entera Bio Ltd. pursuant to Section 906 of the Sarbanes-Oxley act of 2002 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set. _____________________ † Management contract or compensatory plan or arrangement. * Filed herewith. ** Furnished herewith. †† Confidential treatment granted as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission. ITEM 16. FORM 10-K SUMMARY Not applicable. 146 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 31, 2023 ENTERA BIO LTD. By: /s/ Miranda J. Toledano Miranda J. Toledano Chief Executive Officer and Director KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and appoints each of Miranda J. Toledano and Dana Yaacov-Garbelli, or any of them, each acting alone, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstituting, for such person and in his name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that any such attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ Miranda J. Toledano Chief Executive Officer and Director March 31, 2023 Miranda J. Toledano (Principal Executive Officer) /s/ Dana Yaacov-Garbeli Chief Financial Officer March 31, 2023 Dana Yaacov-Garbeli (Principal Financial and Accounting Officer) /s/ Gerald Lieberman Director March 31, 2023 Gerald Lieberman /s/ Roger J. Garceau Director March 31, 2023 Roger J. Garceau /s/ Ron Mayron Director March 31, 2023 Ron Mayron /s/ Yonatan Malca Director March 31, 2023 Yonatan Malca /s/ Sean Ellis Director March 31, 2023 Sean Ellis /s/ Gerald M. Ostrov Director March 31, 2023 Gerald M. Ostrov 147