Entera Bio Ltd. 10-Q

ITEM 1 . FINANCIAL STATEMENTS ENTERA BIO LTD. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2023 TABLE OF CONTENTS Page CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Condensed Consolidated Balance Sheets (unaudited) 4 Condensed Consolidated Statements of Operations (unaudited) 5 Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited) 6 Condensed Consolidated Statements of Cash Flows (unaudited) 7 Notes to the Consolidated Financial Statements (unaudited) 8 3 ENTERA BIO LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data) (Unaudited) March 31, December 31, 2023 2022 A s s e t s CURRENT ASSETS: Cash and cash equivalents 10,691 12,309 Accounts receivable 29 246 Other current assets 653 294 TOTAL CURRENT ASSETS 11,373 12,849 NON-CURRENT ASSETS: Property and equipment, net 136 139 Operating lease right-of-use assets 48 90 Deferred income taxes 43 43 Funds in respect of employee rights upon retirement 6 6 TOTAL NON-CURRENT ASSETS 233 278 TOTAL ASSETS 11,606 13,127 Liabilities and shareholders' equity CURRENT LIABILITIES: Accounts payable 150 17 Accrued expenses and other payables 1,296 1,233 Current maturities of operating lease 48 91 TOTAL CURRENT LIABILITIES 1,494 1,341 NON-CURRENT LIABILITIES : Liability for employee rights upon retirement 32 32 TOTAL NON-CURRENT LIABILITIES 32 32 TOTAL LIABILITIES 1,526 1,373 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Ordinary Shares, NIS 0.0000769 par value: Authorized - as of March 31, 2023 and December 31, 2022, 140,010,000 shares; issued and outstanding - as of March 31, 2023 and December 31, 2022, 28,809,922 * * Additional paid-in capital 107,726 107,210 Accumulated other comprehensive income 41 41 Accumulated deficit ( 97,687 ) ( 95,497 ) TOTAL SHAREHOLDERS' EQUITY 10,080 11,754 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 11,606 13,127 * Represents an amount less than one thousand US dollars The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 ENTERA BIO LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. dollars in thousands, except share and per share data) (Unaudited) Three Months Ended March 31, 2023 2022 REVENUES - 68 COST OF REVENUES - 54 GROSS PROFIT - 14 OPERATING EXPENSES: Research and development 931 1,690 General and administrative 1,294 2,171 Other income ( 13 ) ( 12 ) TOTAL OPERATING EXPENSES 2,212 3,849 OPERATING LOSS 2,212 3,835 FINANCIAL INCOME, NET ( 22 ) ( 44 ) LOSS BEFORE INCOME TAX 2,190 3,791 INCOME TAX BENEFIT - ( 7 ) NET LOSS 2,190 3,784 LOSS PER SHARE BASIC AND DILUTED 0.08 0.13 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE 28,809,922 28,804,411 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 ENTERA BIO LTD CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. dollars in thousands, except share and per share data) (Unaudited) Ordinary shares Number of shares issued Amounts Additional paid-in capital Accumulated other Comprehensive income Accumulated deficit Total BALANCE AT JANUARY 1, 2022 28,804,411 * 104,950 41 ( 82,426 ) 22,565 Net loss - - - - ( 3,784 ) ( 3,784 ) Share-based compensation - - 964 - - 964 BALANCE AT March 31, 2022 28,804,411 * 105,914 41 ( 86,210 ) 19,745 BALANCE AT JANUARY 1, 2023 28,809,922 * 107,210 41 ( 95,497 ) 11,754 Net loss - - - - ( 2,190 ) ( 2,190 ) Share-based compensation - - 516 - - 516 BALANCE AT March 31, 2023 28,809,922 * 107,726 41 ( 97,687 ) 10,080 * Represents an amount less than one thousand U.S. dollars. The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 6 ENTERA BIO LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands, except share and per share data) (Unaudited) Three months ended March 31, CASH FLOWS FROM OPERATING ACTIVITIES: 2023 2022 Net loss ( 2,190 ) ( 3,784 ) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 14 16 Deferred income taxes - ( 33 ) Share-based compensation 516 964 Finance income, net ( 3 ) ( 39 ) Changes in operating asset and liabilities: Decrease (increase) in accounts receivable 217 ( 27 ) Increase in other current assets ( 359 ) ( 1,099 ) Increase in accounts payable 133 33 Increase (decrease) in accrued expenses and other payables 63 ( 808 ) Decrease in contract liabilities - ( 15 ) Net cash used in operating activities ( 1,609 ) ( 4,792 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 11 ) ( 23 ) Net cash used in investing activities ( 11 ) ( 23 ) DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS ( 1,620 ) ( 4,815 ) CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BEGINNING OF THE PERIOD 12,376 24,964 CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF THE PERIOD 10,756 20,149 Reconciliation in amounts on consolidated balance sheets: Cash and cash equivalents 10,691 20,109 Restricted deposits included in other current assets 65 40 Total cash and cash equivalents and restricted deposits 10,756 20,149 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 7 ENTERA BIO LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share data) (Unaudited) NOTE 1 - DESCRIPTION OF BUSINESS a. Entera Bio Ltd. (collectively with its subsidiary, the "Company") was incorporated on September 30, 2009 under the laws of the State of Israel 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”), have been 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 had agreed to use the Company’s proprietary drug delivery platform to develop oral formulations for one preclinical large molecule program that Amgen had selected. Amgen is responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the programs. On May 2, 2023, the Company and Amgen agreed to terminate the Amgen Agreement in accordance with its terms, effective on such date. 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 an accumulated deficit in the amount of $ 97.7 million as of March 31, 2023 and negative cash flows from operating activities. The Company's management is of the opinion that its available funds as of March 31, 2023 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. 8 ENTERA BIO LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share data) (Unaudited) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES a. Basis of presentation of the financial statements These unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial statements. Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of March 31, 2023, and the consolidated results of operations, statements of changes in shareholders' equity and cash flows for the three-month periods ended March 31, 2023 and 2022. The consolidated results for the three-month period ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2022, as filed with the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2023. The comparative balance sheet at December 31, 2022 has been derived from the audited annual financial statements at that date but does not include all disclosures required by U.S. GAAP for annual financial statements. b. 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 dilutive ordinary shares equivalents outstanding. 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 and warrants, exercisable into 7,116,583 shares and 6,238,605 shares for the periods ended March 31, 2023 and 2022, respectively, because the effect would have been anti-dilutive. c. Newly issued and recently adopted accounting pronouncements: Recently issued accounting pronouncements adopted 1) In 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 is effective for Smaller Reporting Companies (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 did not have material impact on the Company’s consolidated financial statements. 9 ENTERA BIO LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share data) (Unaudited) NOTE 3 - SHARE-BASED COMPENSATION On January 2, 2023, options to purchase an aggregate of 534,246 ordinary shares were granted to six non-executive board members with an exercise price of $ 0.73 per share which was the share price on the grant day. The options vest over one year in four equal quarterly installments starting on the date of grant. This grant was approved by the shareholders of the Company on October 4, 2021. The fair value of the options at the date of grant was $ 253 . 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: Three months ended March 31, 2023 Exercise price $ 0.73 Dividend yield - Expected volatility 74 % Risk-free interest rate 3.98 % Expected life - in years 5.3 NOTE 4 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION: Balance sheets: March 31, December 31, Accrued expenses and other payables: 2023 2022 Employees and employees related 182 154 Provision for vacation 163 146 Accrued expenses 951 933 1,296 1,233 NOTE 5 - SUBSEQUENT EVENTS a. In April 2023, the Company entered into an amendment to its office lease agreement from 2014 to extended the period of the lease agreement for additional five years , expiring on June 30, 2028 , with two options for early termination subject to a notice period. The monthly lease fee is a total of $ 15 . b. On April 24, 2023, the Company’s Board of Directors approved the following option grants: i. Options to purchase 851,000 ordinary shares to employees, executive officers and service providers with an exercise price of $ 0.795 per share. ii. Options to purchase 350,000 ordinary shares to the Company’s Chief Executive Officer with an exercise price of $ 0.795 per share. This grant is subject to shareholders' approval. These 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. iii. Options to purchase 30,000 ordinary shares to a service provider with an exercise price of $ 0.795 per share. These options vest immediately at the service inception date. c. On May 2, 2023, the Company and Amgen agreed to terminate the Amgen Agreement in accordance with its terms, effective on such date. 10