MTFB.L Regulatory News (MTFB)

Motif Bio plc

("Motif Bio" or the "Company")

Publication of UK Annual Report and Accounts & Notice of AGM

Motif Bio plc (AIM: MTFB), the clinical stage biopharmaceutical company specialising in developing novel antibiotics, announces its 2016 UK Annual Report and Accounts and notice of its Annual General Meeting have been posted to shareholders and will shortly be available for download from the Company's website at www.motifbio.com.

This follows the announcement made by the Company on 2 May 2017 via RNS of the publication of its financial results for the year ended 31 December 2016 and the filing of its US Annual Report on Form 20-F with the US Securities and Exchange Commission.

The Company's Annual General Meeting is to be held at 2:00 pm BST on 15 June 2017 at the offices of DLA Piper UK LLP at 3 Noble St, London EC2V 7EE, United Kingdom.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014 and has been released by Robert Dickey IV, Chief Financial Officer, on behalf of the Company.

For further information, please contact:

Notes to Editors

About iclaprim

Iclaprim is a potential novel antibiotic, designed to be effective against bacteria that have developed resistance to other antibiotics, including trimethoprim. Iclaprim exhibits potent in vitro activity against Gram-positive clinical isolates of many genera of staphylococci, including methicillin sensitive Staphylococcus aureus (MSSA) and methicillin resistant Staphylococcus aureus (MRSA). The MIC90 of iclaprim was lower than most comparators including vancomycin and linezolid, standard of care therapies used in serious and life-threatening Gram-positive hospital infections. To date, iclaprim has been studied in over 1,000 patients and healthy volunteers. Iclaprim is administered intravenously at a fixed dose, with no dosage adjustment required in patients with renal impairment, or in obese patients. This may help reduce overall hospital treatment costs, especially in renally impaired patients.

About Motif Bio plc www.motifbio.com

Motif Bio is a clinical-stage biopharmaceutical company, engaged in the research and development of novel antibiotics designed to be effective against serious and life-threatening infections in hospitalised patients caused by multi-drug resistant bacteria. Our lead product candidate, iclaprim, is being developed for the treatment of acute bacterial skin and skin structure infections (ABSSSI) and hospital acquired bacterial pneumonia (HABP), including ventilator associated bacterial pneumonia (VABP), infections often caused by MRSA (methicillin resistant Staphylococcus aureus). Having announced the topline results from the REVIVE-1 trial, patients are currently being enrolled and dosed in a second global Phase 3 clinical trial (REVIVE-2) with an intravenous formulation of iclaprim, for the treatment of ABSSSI. Data readout for REVIVE-2 is expected in the second half of 2017.

Chairman's Statement

A clinical trial is somewhat like a moon landing: a lot of detailed planning, followed by excitement around the launch, and then a long period of waiting when little can be done to change the trajectory and flight plan. 2016 was just such a year for Motif Bio plc ("Motif", "Motif Bio", or the "Company") with both our clinical trials underway and we were pleased to end the year on a positive note with the first of the two Phase 3 trials, called REVIVE-1, taking in the 600th and last patient just before year end. The recent announcement of top line results from this trial showed that iclaprim met the primary endpoints and was well tolerated in the study. Data from the second trial, which uses an identical protocol to the first but in different trial centers, are expected in the second half of 2017 and a New Drug Application (NDA) is expected to be filed in the first half of 2018.

In parallel with supervising the work of the Contract Research Organization (CRO) overseeing the two trials, our executive team was hard at work on parallel developments of iclaprim and on preparations for the Hospital Acquired Bacterial Pneumonia (HABP) Phase 3 trials which we hope to initiate before the end of the current year.

The biotech sector reached a peak in the third quarter of 2015 soon after we managed to complete our £22 million financing in the London market. Between that peak and the trough in the spring of 2016 the main biotech indices fell approximately 40% and the small cap end of the market remained under pressure all year.

Whilst this proved to be a negative backdrop for our capital raising program, in November 2016, we successfully concluded a NASDAQ IPO raising US $25 million from both UK and US-based investors (with strong support from Invesco, our largest shareholder), despite a challenging international climate for fund raising in the prior 6 months which had been adversely affected by the Brexit vote in the UK and the US presidential election. We believe the NASDAQ listing for Motif Bio will pay dividends in due course, given that the US is home to several other antibiotic companies and there is a deep pool of investors and analysts who are taking an interest in Motif Bio, particularly as our Phase 3 data has begun to come through.

Iclaprim's history at the Food and Drug Administration (FDA) in 2008/2009 was the source of a great opportunity for Motif Bio to gain ownership and control of a late-stage clinical development asset with tremendous potential value in the context of ever increasing concerns about antimicrobial resistance. We have made solid advances in demonstrating that iclaprim is a novel antibiotic that will meet the safety and efficacy measures needed for regulatory approval by the FDA and other regulators elsewhere. We believe we have made strong progress in bringing attention to the merits of the drug to medical opinion leaders, fund managers, and analysts but more remains to be done. The first acute bacterial skin and skin structure infections (ABSSSI) Phase 3 trial was successfully completed ahead of schedule and showed that iclaprim met the primary endpoints agreed with the FDA. Our headline results confirm that we achieved non-inferiority against vancomycin within the prescribed margin of error and that the drug was well tolerated in the study. While we also need to see good results from the second ABSSSI Phase 3 trial to file for an NDA we can see no reason why the results from the second trial should be materially different from the first, given that both trials use the same protocol and trial design.

One of the themes of the US presidential election was the future of the US health care system. The Affordable Care Act has struggled to deliver on its promises of greater coverage and lower costs. Coverage did increase, but less than expected, and premiums have been rising sharply. One aspect of this debate of particular concern to the biopharma industry has been that of drug pricing. Extreme statements made by politicians from both parties caused much of the uncertainty in the stock market. However, following the US election, 2016 closed on a positive note with the passage of the 21st Century Cures Act. This new legislation includes important provisions for antibiotics, including the ability to use "real world evidence" to support the promotion of approved drugs "off label". This could allow the Company to use existing and new data to support the promotion of iclaprim for use in HABP and possibly other indications, providing we can gain marketing approval for ABSSSI. While it may be some time before the FDA fully implements the provisions of this law, we believe that it could have a positive bearing on our ability to complete our planned HABP trials as well as on the marketing of iclaprim if we can get approval for ABSSSI. The new Commissioner of the FDA has now been announced and one theme of statements from the new administration has been to implement changes in the speed at which the FDA approves new medicines for life threatening drugs. Both the Cures Act and the changes at the FDA could have a significant positive impact on the future development and marketing of iclaprim.

Our team has once again done a fine job in dealing with a large range of challenges in exemplary fashion. Completing a moon landing is no mean feat and we are not there yet, but the successful completion of a complex clinical trial months ahead of schedule is a credit to our team and to Covance, our CRO. Much remains to be done to complete REVIVE-2 including raising further funds which we also need to get the HABP trials underway. The evidence suggests that iclaprim should be a good agent to combat hospital acquired pneumonia, where treatment options are narrowing and outcomes remain poor. We believe it may prove to be equally efficacious in a few other infections and our plan is to find financing to support additional clinical work in these other areas as well. With good results from our first trial now available for all to see, we are committed to building on that success in the coming months.

I would like to close by recognizing the contribution of Dr. John Stakes III on the board. John was forced to step down in July due to ill health. His clinical wisdom and experience as well as his steadfast support over the years is much missed. I would also like to welcome to the board Dr. Craig Albanese, COO of the Morgan Stanley Children's Hospital, part of the Columbia Presbyterian hospital system in New York and one of the largest and most prestigious health care organizations in the world. We all miss John, but we welcome the contribution that Craig can make to the development of your company. Your board remains very active in support of our goals. Getting a drug approved is a challenging undertaking. We have accomplished a lot thus far and look forward with increased confidence to the completion of REVIVE-2 later in the year and, assuming the data confirms what we have seen in REVIVE-1, the filing of a new drug application for iclaprim in the first half of 2018.

Richard C.E. Morgan

Chairman

May 15, 2017

Chief Executive Officer's Statement

In 2016, Motif Bio made significant progress towards our goal of bringing our novel antibiotic candidate, iclaprim, to patients with serious and life-threatening infections. In November, we completed a listing on NASDAQ together with a U.K. placing on AIM, raising US $25 million, with significant support from our largest shareholder, Invesco. The European placing was well supported by several existing shareholders.

Iclaprim is a novel diaminopyrimidine antibiotic that inhibits an essential bacterial enzyme called ''dihydrofolate reductase'' (DHFR) which is essential in the process leading to the production of bacterial DNA and RNA that are required for bacteria to grow and divide. Stopping this pathway leads to bacterial cell death. This is an underutilized mechanism that works in a different way to other standard of care antibiotics such as penicillins, cephalosporins, tetracyclines, aminoglycosides, macrolides, and quinolones. Iclaprim can be effective against Gram-positive bacteria that have developed resistance to other antibiotic mechanisms.

In March 2016, we announced that patient enrolment had commenced in the first of our REVIVE Phase 3 clinical programs in patients with ABSSSI.

Post year end, data from REVIVE-1, the first of two Phase 3 trials, were released on April 18 2017, demonstrating that iclaprim was effective, achieving the primary endpoint, and was well tolerated. REVIVE-2 is identical to REVIVE-1 except that it is enrolling patients from different clinical trial sites. The trial is progressing well, with more than 80% of the total patients enrolled and data readout expected in H2 2017.

If successful, the data from the two REVIVE trials will satisfy the requirements to submit a NDA in the United States and a Marketing Authorisation Application (MAA) in Europe. We anticipate being in a position to submit the data for an NDA and MAA in H1 2018.

In October 2016, new data were presented on iclaprim at an important scientific event, ID Week 2016. These data summarized the safety and efficacy parameters of the optimized 80mg fixed dose that is being used in the REVIVE Phase 3 trials. The fixed dose will make it easier for clinicians when initiating treatments as no adjustments for bodyweight are required. A provisional patent application has been filed covering the iclaprim optimized fixed dose. In addition, data were presented confirming the highly potent activity of iclaprim against bacteria, including MRSA, collected from patients around the world with ABSSSI and hospital acquired bacterial pneumonia (HABP).

We believe that iclaprim, if approved, can be an attractive candidate for use as a first-line monotherapy, particularly in seriously ill ABSSSI patients with underlying conditions such as renal impairment (kidney disease) and/or diabetes. It is estimated that renal impairment affects up to 26% of the approximately 3.6 million patients hospitalized with ABSSSI annually in the United States.

In addition to ABSSSI, we believe that iclaprim may be an important option for patients with other types of infections in hospitals, such as HABP. In the US, an estimated 1.4 million patients are diagnosed with HABP each year with a mortality rate that can vary between 20% and 50%. Selection of the correct antibiotic(s) at the start of treatment is critical. Iclaprim has been shown to concentrate in lung tissue (pneumonia is inflammation of lung tissue) and has demonstrated efficacy in a small clinical trial in patients with HABP. Once we have secured additional capital we are ready to rapidly initiate a Phase 3 trial in patients with HABP. In addition to the ABSSSI indication, we believe that this indication will be a significant value driver for the Company.

Motif Bio has continued to create and develop relationships with potential partners and appointed an adviser to identify potential commercialization partners for iclaprim in markets outside the US, with a focus on Europe and Japan which are the most valuable markets. We continue to develop our plans to commercialize iclaprim ourselves in the US where we can efficiently target the top 1,500 hospitals responsible for the majority of antibiotic prescriptions.

2017 - the year ahead

Since our admission to trading on AIM in April 2015, we have raised approximately US $65 million. As a biopharmaceutical company, our future success depends on the continued ability to raise capital in order to build additional value by completing clinical trials, which will increase the clinical uses for iclaprim. Our REVIVE-2 trial is currently 80% enrolled and top line data are expected to be announced in H2 2017. The Company's current cash resources are expected to be sufficient to enable us to fully enroll REVIVE-2 and trade into early H2 2017, but are not sufficient to complete REVIVE-2 and advance iclaprim towards planned NDA and MAA submissions in H1 2018. We have been considering a range of options to bring additional funding into the Group and following the positive data from REVIVE-1, we are confident that we can raise additional funding to finance the continued execution of the Company's strategic plans and deliver shareholder value. We believe that the planned Phase 3 HABP trial, if successful, will provide valuable data for hospital infectious disease physicians treating these patients. Successful hospital antibiotics such as daptomycin and linezolid have reached peak year revenues of more than US $1 billion. In each case these antibiotics were studied in several indications and this is a good roadmap for Motif as we continue to develop iclaprim. We are planning several programs to further differentiate iclaprim and to demonstrate the potential benefits to patients, physicians and payers. We are seeking input from experts who understand how hospitals judge new products, including their expectations on data that will be required to enable rapid formulary access. We strengthened our Scientific Advisory Board in May 2017 and expect to submit numerous articles for publication in peer-reviewed scientific journals, as well as abstracts for presentation at key scientific conferences, to build awareness and understanding in the medical community of the features and benefits of iclaprim.

I am very grateful to you as shareholders for your support throughout 2016 and to my colleagues who continue to work tirelessly to deliver on our plans. We are excited about the potential to bring iclaprim to the market in order to help the millions of patients suffering in hospitals with serious and life-threatening infections.

Graham Lumsden

Chief Executive Officer

May 15, 2017

Strategic Report

Strategy and Business Model

The Group's business strategy is to develop novel antibiotics that are designed to be effective against serious and life-threatening infections caused by multi-drug resistant bacteria. With an initial focus on hospital infections (rather than infections handled by office-based physicians), the intention is to commercialize directly in the US and to partner with other companies for commercialization in other countries. The Company expects to generate revenues from sales of its pharmaceutical products, once they are approved. In addition, the Company expects to be able to enter into distribution and marketing agreements in one or more territories outside the US, which could result in cash payments from partners in the form of upfront payments, progress-based milestone payments, and royalties on sales. Until the Company is able to commercialize its pharmaceutical products, it is expected to continue generating losses until revenues from these sources exceed operating costs, including investment in R&D and marketing expenses. The Board expects to be able to support its discovery and development plans for the foreseeable future and to raise sufficient capital to be able to launch and sell its products in the US.

The Company's lead product candidate, iclaprim, is being developed for the treatment of the most common and serious bacterial infections such as ABSSSI and HABP, including those caused by resistant strains such as MRSA (methicillin-resistant Staphylococcus aureus). Two pivotal Phase 3 ABSSSI clinical trials, designed to meet regulatory requirements for approval in the United States and Europe, are on track to be completed in 2017. Top line results were recently announced for the first of those studies. If approved, iclaprim could be ready for commercialization in 2018. A Phase 3 clinical trial to determine the efficacy of iclaprim in HABP is planned to start in 2017.

In addition, the Company is in discussions with pharmaceutical companies and universities to build a pipeline of innovative antibiotics targeting Gram-positive and Gram-negative bacteria.

Business review

The Group's results for the year are set out in the consolidated income statement on page 35. A review of the Group's performance during the year, together with its position at the end of the year, is given in the CEO's Statement on page 4.

General and administrative expenses increased by US $1.3 million, to US $4.9 million, in the year ended December 31, 2016 from US $3.6 million in the year ended December 31, 2015. This increase was primarily attributable to an increase in legal and other professional fees, including: (i) the costs associated with being a public company in the United Kingdom and in the United States; (ii) the costs associated with the filing of a registration statement on Form F-1 with the U.S. Securities and Exchange Commission relating to the U.S. public offering of American Depositary Shares; and (iii) increases in the costs of outside professional services, including commercial evaluation and strategy services, investor relations and other consulting services.

Research and development expenses increased by US $30.1 million to US $34.8 million in the year ended December 31, 2016 from US $4.7 million in the year ended December 31, 2015. This increase was primarily attributable to the commencement of iclaprim clinical development. For the year ended December 31, 2016, US $30.4 million was spent in relation to contract research organization expenses, US $2.2 million in relation to clinical operations and US $2.1 million in relation to chemistry and manufacturing development and other non-clinical development.

Net cash provided by financing activities amounted to US $21.4 million in the year ended December 31, 2016, resulting from the November 2016 underwritten U.S. public offering and European placement. Net cash provided by financing activities was US $36.6 million in the year ended December 31, 2015, resulting from (i) the issuance of promissory notes; (ii) the initial public offering on AIM; and (iii) the follow on offering on AIM.

At December 31, 2016 and 2015, the Group had cash and cash equivalents of approximately US $21.8 million and US $28.6 million, respectively. Significant revenue from product sales is not expected to be generated unless and until regulatory approval is obtained and current or any future product candidates are commercialized. The Group anticipates that it will continue to generate losses for the foreseeable future and expects losses to increase as development continues and regulatory approvals is sought for product candidates, and commercialization begins for any approved products.

Operations have been financed primarily by net proceeds from the issuance of ADSs on the NASDAQ Capital Market, the issuance of ordinary shares on AIM, and the issuance of convertible promissory notes to related parties. On April 28, 2017, we announced the appointment of Peel Hunt LLP as nominated adviser and joint corporate broker with immediate effect.

Selected peer companies developing antibiotics, including Allergan, Cempra, Nabriva, Paratek, and Tetraphase, are regularly followed and studied as benchmarks for clinical development timelines, product pricing, capital requirements, financial metrics, and market positioning. Qualitative and quantitative market research is used to identify and assess market opportunities for novel antibiotics.

Going Concern

The Group and Company has suffered recurring losses and negative cash flows as a result of continuing clinical trials and expected to incur losses for the next several years as it expands its research, development and clinical trials of iclaprim. The directors are unable to predict the extent of any future losses or when the Group and Company will become profitable, if at all.

As of December 31, 2016, the Group and Company has US $21.8 million in cash with current liabilities of US $18.6 million and net cash used in operating activities of US $ 27.9 million for the year ended December 31, 2016. Net losses for the year ended December 31, 2016 were US $40.3 million.

These financial statements have been prepared under the assumption that the Group and Company will continue as a going concern. Due to the Group and Company's recurring and expected continuing losses from operations, the directors have concluded there is material uncertainty which may cast significant doubt about the Group and Company's ability to continue as a going concern for at least one year from the issuance of these financial statements without additional capital becoming available. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company will be required to raise additional capital within the next year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. The directors cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company raises additional funds by issuing equity securities, its stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company's ability to conduct business. If the Company is unable to raise additional capital when required or on acceptable terms, it may have to (i) significantly delay, scale back, or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that the Company would otherwise seek to develop or commercialize itself on unfavorable terms.

On April 18, 2017, the Company announced positive topline results from REVIVE-1, its global Phase 3 clinical trial in patients with ABSSSI. Iclaprim achieved the primary endpoint of non-inferiority at the early time point after start of study drug administration as well as non-inferiority for the test of cure endpoint. Iclaprim was well tolerated in the study, with most adverse events categorized as mild. The directors believe that this new data and the fact that REVIVE-2, the second Phase 3 trial, uses an identical protocol to REVIVE-1 but has different trial centers, could provide the basis for increased investor interest in the Company and Group and, hence, potentially provide greater opportunities to raise additional capital.

Principal Risks and Uncertainties

The principal risks faced by the Group, and the actions taken to mitigate them, are shown in the table below:

Key Performance Indicators

The Directors do not consider traditional financial measures, such as EBIT, to be key performance indicators at this stage of the business, however the Directors closely follow the Company's cash position. The principal focus of the Group is the completion of the Phase 3 clinical trials for REVIVE-1 and REVIVE-2, the measurement of which is based on the level of patient enrolment and the receipt and compilation of data from those studies. REVIVE-1 was fully enrolled in January 2017 and the positive topline results of that study were announced on April 18, 2017 both well ahead of schedule and of what had been publicly announced as the receipt of the topline results in the second quarter. With regard to REVIVE-2, the Company anticipates full enrolment being achieved in Q2 2017.

Environmental and Social Matters

The Directors do not consider the disclosure of environmental and social matters to be necessary to the understanding of the business or its performance year.

Greenhouse Gas Emissions

It is not practical for the Group to obtain information on its emissions as such information is not available.

Our People

At December 31, 2016, the Company's Board was made up of eight directors (6 men and 2 women). The senior management, (Chief Financial Officer, Chief Medical Officer, and Vice President, Clinical Operations) consisted of all men. At the end of the year, there were no additional employees of the Company.

Approved by the Board and signed on its behalf by:

Robert Dickey IV

Chief Financial Officer

May 15, 2017

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements 

The notes are an integral part of these consolidated financial statements.

The notes are an integral part of these consolidated financial statements.

1. General information

Motif Bio plc is a clinical stage biopharmaceutical company which specializes in developing novel antibiotics designed to be effective against serious and life-threatening infections caused by multi-drug resistant bacteria.

Motif Bio Limited ("the Company") was incorporated in England and Wales on November 20, 2014 with company registration number 09320890. The Company's registered office is at 27/28 Eastcastle Street, London W1W 8DH, U.K. On April 1, 2015, the Company was re-registered as a public company limited by shares and changed its name to Motif Bio plc. Motif BioSciences Inc. was incorporated in the US State of Delaware on December 2, 2003 and has its registered office at 160 Greentree Drive, Suite 101, Dover, Delaware, 19904. On April 1, 2015, Motif BioSciences Inc. became a wholly owned subsidiary of the Company by way of a group reorganization by plan of merger. The principal place of business is 125 Park Avenue, 25th Floor, New York, NY, 10017, USA. The Company's country of domicile is the U.K.

The consolidated financial statements include the accounts of Motif Bio plc and its wholly owned subsidiary, Motif BioSciences Inc. ("the Group").

The financial statements were approved by the Board of Directors on May 15, 2017.

Going Concern

The Group and Company has suffered recurring losses and negative cash flows as a result of continuing clinical trials and expected to incur losses for the next several years as it expands its research, development and clinical trials of iclaprim. The directors are unable to predict the extent of any future losses or when the Group and Company will become profitable, if at all.

As of December 31, 2016, the Group and Company has US $21.8 million in cash with current liabilities of US $18.6 million and net cash used in operating activities of US $ 27.9 million for the year ended December 31, 2016. Net losses for the year ended December 31, 2016 were US $40.3 million.

These financial statements have been prepared under the assumption that the Group and Company will continue as a going concern. Due to the Group and Company's recurring and expected continuing losses from operations, the directors have concluded there is material uncertainty which may cast significant doubt about the Group and Company's ability to continue as a going concern for at least one year from the issuance of these financial statements without additional capital becoming available. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company will be required to raise additional capital within the next year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. The directors cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company raises additional funds by issuing equity securities, its stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company's ability to conduct business. If the Company is unable to raise additional capital when required or on acceptable terms, it may have to (i) significantly delay, scale back, or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that the Company would otherwise seek to develop or commercialize itself on unfavorable terms.

On April 18, 2017, the Company announced positive topline results from REVIVE-1, its global Phase 3 clinical trial in patients with ABSSSI. Iclaprim achieved the primary endpoint of non-inferiority at the early time point after start of study drug administration as well as non-inferiority for the test of cure endpoint. Iclaprim was well tolerated in the study, with most adverse events categorized as mild. The directors believe that this new data and the fact that REVIVE-2, the second Phase 3 trial, uses an identical protocol to REVIVE-1 but has different trial centers, could provide the basis for increased investor interest in the Company and Group and, hence, potentially provide greater opportunities to raise additional capital.

Significant events

On November 18, 2016, the Group announced the pricing of the underwritten US public offering and European placement, which were concurrently conducted, of 71,633,248 ordinary shares, comprised of 22,863,428 ordinary shares plus 2,438,491 ADSs (representing 48,769,820 ordinary shares at a 20 to 1 ratio). The Group offered 48,769,820 ordinary shares in a US firm commitment public offering in the form of 2,438,491 American Depository Shares or ADSs, together with warrants to purchase 1,219,246 ADS Warrants. Each ADS represents 20 of the Group's ordinary shares and was sold together with 0.5 of an ADS Warrant in a fixed combination. Each full ADS Warrant is exercisable for one ADS at an exercise price of US $8.03 per ADS, exercisable from the date of issuance until five years thereafter. In Europe, the Group offered in a concurrent placement on a best efforts basis 22,863,428 ordinary shares, together with warrants to purchase 11,431,714 ordinary shares. Each ordinary share was sold together with 0.5 of an Ordinary Share Warrant in a fixed combination. Each full Ordinary Share Warrant is exercisable for one ordinary share at an exercise price of £0.32 (US $0.40), exercisable from the date of issuance until five years thereafter. The public offering price of the ADSs and ADS Warrants in the US offering was US $6.98 per ADS and ADS Warrant combination, and the public offering price of the Group's ordinary shares and Ordinary Share Warrants in the European placement was £0.28 (US $0.35) per ordinary share and Ordinary Share Warrant combination. Net proceeds to the Group following the offering, after deducting underwriting discounts and commissions and offering expenses of approximately US $3.5 million, were approximately US $21.5 million. None of the underwriting discounts and commissions or other offering expenses were paid to directors or officers of the Group or their associates or to persons owning 10% or more of any class of the Group's equity securities or to any affiliates of the Group. H.C. Wainwright & Co., LLC was the underwriter for the above described offering.

On September 7, 2016, the Group amended and restated the convertible notes with Amphion Innovations plc and Amphion Innovations US Inc. to provide that any outstanding principal under the notes as of the maturity date will be paid to the holders on the maturity date, at the Group's election, through the issuance of (i) a number of our ordinary shares, based on the conversion price set forth in the notes, or (ii) a number of ADSs, which is equal to a number determined by dividing the number of ordinary shares the holder would otherwise be entitled to by the then applicable ADS to ordinary share ratio. The amended and restated convertible promissory notes also provide that except in the event of a default, no interest will accrue or be payable with respect to the amounts due under notes. In consideration for its agreement to forego interest payments under its convertible promissory notes, the Group issued 409,000 ordinary shares to Amphion Innovations plc. The amended and restated notes also permit the Group or the holders to convert all or any portion of the outstanding principal under the notes into ordinary shares or ADS (as determined by the Group) at any time prior to the maturity date.

In December 2016, the Group issued 14,510,770 new ordinary shares following the conversion of convertible promissory notes by Amphion Innovations plc and Amphion Innovations US Inc. The notes which totaled US $3,550,786 were converted in accordance with their terms at US $0.2447 per share.

Group reorganization and initial public offering

On February 18, 2015, the Company incorporated a Delaware subsidiary, Motif Acquisition Sub, Inc. On December 31, 2014 Motif BioSciences Inc., the Company, and Motif Acquisition Sub, Inc. entered into an agreement where, upon the Company's admission to AIM of the London Stock Exchange on April 2, 2015, Motif Acquisition Sub, Inc. merged with and into Motif BioSciences Inc. and Motif BioSciences Inc. continued as the surviving entity and became a wholly-owned subsidiary of the Company. Prior to the merger, Motif BioSciences Inc. completed a reverse stock split in order to increase the share price of Motif BioSciences Inc. so that the share price was closer to the Company's admission price. The former Motif BioSciences Inc. stockholders were issued 36,726,242 ordinary shares of the Company in a share-for-share exchange for their common stock in Motif BioSciences Inc. so that the former Motif BioSciences Inc. stockholders owned an equivalent number of ordinary shares in the Company as the number of shares of common stock that they had previously owned in Motif BioSciences Inc. All outstanding, unexercised, and vested stock options for shares of common stock in Motif BioSciences Inc. were converted into options for ordinary shares of the Company (note 16).

This was a common control transaction and therefore outside the scope of IFRS 3-"Business Combinations." The transaction has therefore been accounted for as a group reorganization and the Group is presented as if the Company has always owned Motif BioSciences Inc. The comparatives presented in these financial statements therefore represent the results and capital structure of the Company. The reserve on consolidation represents the difference between the nominal value of the shares of the Company issued to the former stockholders of Motif BioSciences Inc. and the share capital and share premium of Motif BioSciences Inc. at the date of the transaction. As stated, the nominal value of the Company shares was used in the calculation of the reorganization reserve.

The consolidated statements of changes in equity and the additional disclosures in note 19 explain the accounting for the share-for-share exchange in more detail.

On April 2, 2015, the Company was admitted to AIM and issued 14,186,140 ordinary shares at a price of £0.20 per share.

On July 22, 2015, the Company completed a subsequent placing of 44,000,000 ordinary shares at a price of £0.50 per share.

Acquisition of Nuprim Assets

On April 1, 2015, Motif BioSciences Inc. acquired the assets owned by Nuprim Inc. ("Nuprim"), a Maryland corporation, related to iclaprim (the "Nuprim Assets"). Motif BioSciences Inc. issued 1,513,040 (post-reverse stock split) shares of common stock to the shareholders of Nuprim Inc. that were held in escrow until the closing of the reorganization. These shares of common stock in Motif BioSciences Inc. were converted into ordinary shares of the Company upon the Company's admission to AIM on April 2, 2015. Upon admission, 9,805,400 ordinary shares of the Company and 9,432,033 warrants were issued to the former Nuprim shareholders (note 9).

2. Significant accounting policies

a. Basis of preparation

The accounting policies set out below have been applied consistently to all periods presented in this financial information.

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS. This basis of preparation describes how the financial statements have been prepared in accordance with IFRS. The financial statements have been prepared under the historical cost convention as modified for financial instruments (including derivative instruments) at fair value through the income statement. A summary of the more important Group accounting policies is set out below.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial information and the reported amounts of revenue and expenses during the period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

The comparative information for the year ended December 31, 2014 has been prepared on the basis of the financial information of Motif BioSciences Inc., which is the predecessor of the Company, for the year then ended.

The Company has taken advantage of the exemption in Section 408 of the Companies Act 2006 not to present its own Statement of Comprehensive Loss. The loss for the Company for the year was US $2.2 million (2015: US $1.6 million loss).

a. New and amended standards effective from January 1, 2016

There are no new standards and amendments that have been applied from January 1, 2016, which have had an impact on the Group's financial statements.

New standards and interpretations not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for the reporting periods covered by these consolidated financial statements and have not been early adopted by the Group.

The new standards potentially relevant to the Group are discussed below.

IFRS 9, Financial Instruments (as revised in 2014) - Effective date - January 1, 2018, with early adoption permitted. The Group currently plans to apply IRFS 9 initially on January 1, 2018. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. Based on the initial assessment, this standard is not expected to have a material impact on the Group.

IFRS 15, Revenue from Contracts with Customers - Effective date - January 1, 2018, with early adoption permitted. - IFRS 15 establishes a comprehensive guideline for determining when to recognize revenue and how much revenue to recognize. The Group currently has no revenues, therefore, the adoption of IFRS 15 is not expected to have a material impact on the Group, however, the Group will continue to reassess the potential impact of the adoption of this guidance

IFRS 16, Leases - Effective date - January 1, 2019 - IFRS 16 will replace IAS 17. It will eliminate the distinction between classification of leases as finance or operating leases for lessees. The adoption of IFRS 16 is not expected to have a significant impact on the Group's net results or net assets, however, the Group will continue to reassess the potential impact of the adoption of this guidance as the effective date becomes closer.

Amendments to IAS 7, Disclosure Initiative - Effective date - January 1, 2017, with early adoption permitted. - The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. To satisfy the new disclosure requirements, the Group intends to present a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities.

Principles of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances, and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

When the Group ceases to consolidate because of a loss of control, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognized in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture, or financial asset.

b. Segment reporting

The chief operating decision-maker is considered to be the Board of Directors of Motif Bio plc. The chief operating decision-maker allocates resources and assesses performance of the business and other activities at the operating segment level. In addition, they review the IFRS consolidated financial statements.

The chief operating decision-maker has determined that Motif has one operating segment - the development and commercialization of pharmaceutical formulations. The Group maintains space and has some activities in the U.K., however, the finance and most other management functions take place in the US.

c. Foreign currency translation

(a) Functional and Presentation Currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in United States Dollars (US $), which is Motif Bio plc's functional and presentation currency.

 (b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other income or other expenses.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognized in other comprehensive income.

d. Research and development costs

Expenditure on drug development activities is capitalized only if all of the following conditions are met:

· it is probable that the asset will create future economic benefits;

· the development costs can be measured reliably;

· technical feasibility of completing the intangible asset can be demonstrated;

· there is the intention to complete the asset and use or sell it;

· there is the ability to use or sell the asset; and

· adequate technical, financial, and other resources to complete the development and to use or sell the asset are available.

These conditions are generally met when a filing is made for regulatory approval for commercial production. Otherwise, costs on research activities are recognized as an expense in the period in which they are incurred.

The Company's preclinical studies and its clinical trials have been performed utilizing third-party contract research organizations ("CROs") and other vendors. For preclinical studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled, duration of enrollment, percentage of work completed to date and contract milestones achieved. The Company monitors patient enrollment levels and related activities to the extent possible through internal reviews, correspondence and status meetings and review of contractual terms. The Company estimates are dependent on the timeliness and accuracy of data provided by our CROs and other vendors. In this event, the Company could record adjustments to research and development expenses in future periods when the actual activity levels become known.

At this time, the Group does not meet all conditions and therefore development costs are recorded as expense in the period in which the cost is incurred.

e. Intangible assets

Intangible assets acquired separately from a business are initially stated at cost, net of any amortization and any provision for impairment. Where a finite useful life of the acquired intangible asset cannot be determined, the asset is not subject to amortization but is tested for impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

f. Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

g. Financial instruments-initial recognition and subsequent measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

a) Financial assets, initial recognition, and measurement

All financial assets, such as receivables and deposits, are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.

The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred "loss event"), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

b) Financial liabilities, initial recognition, and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, and payables, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Company's financial liabilities include trade and other payables, loans and borrowings, and warrants classified as liabilities.

c) Subsequent measurement

The measurement of financial liabilities depends on their classification. Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method if the time value of money is significant.

h. Financial assets and liabilities

Financial assets and financial liabilities are included in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

Non-derivative financial instruments

Cash and cash equivalents

Cash and cash equivalents include bank balances, demand deposits, and other short-term, highly liquid investments (with less than three months to maturity) that are readily convertible into a known amount of cash and are subject to an insignificant risk of fluctuations in value.

Financial liabilities and equity

The Group classifies an instrument, or its component parts, on initial recognition as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument.

An instrument is classified as a financial liability when it is either (i) a contractual obligation to deliver cash or another financial asset to another entity; or (ii) a contract that will or may be settled in the Group's own equity instruments and is a non-derivative for which the Group is, or may be, obliged to deliver a variable number of the Group's own equity instruments or a derivative that will, or may be, settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group's own equity instruments.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

An equity instrument is defined as any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. An instrument is an equity instrument only if the issuer has an unconditional right to avoid settlement in cash or another financial asset.

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received. Direct issuance costs are processed as a deduction on equity.

Derivative financial instruments

The Group does not have a policy of engaging in speculative transactions, nor does it issue or hold financial instruments for trading purposes.

The Group has entered into various financing arrangements with its investors, including convertible loans. These convertible loans each include embedded financial derivative elements (being the right to acquire equity in the Group at a future date for a pre-determined price). Therefore, while the Group does not engage in speculative trading of derivative financial instruments, it may hold such instruments from time to time as part of its financing arrangements. The Group has also entered into financing arrangements that include the issuance of warrants. These warrants may be considered derivative financial instruments based on the terms of the agreements.

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The resulting gain or loss is recognized in the consolidated income statement, as the Group currently does not apply hedge accounting.

Impairment of financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument's fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating), the reversal of the previously recognized impairment loss is recognized in the consolidated income statement.

i. Offsetting financial instruments

Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency, or bankruptcy of the Company or the counterparty.

j. Share-based payment transactions

The fair value of options and warrants granted to employees, directors, and consultants is normally recognized as an expense, with a corresponding increase in equity, over the period in which the option and warrant holders become unconditionally entitled to the options and warrants unless incremental and directly attributable to an equity transaction in which case it is deducted from equity. The fair value of the options and warrants granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognized as an expense is adjusted to reflect the actual number of share options and warrants that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.

k. Financial income and expenses

Financial income comprises interest receivable on funds invested. Financial expenses comprise interest payable.

Interest income and interest payable are recognized in the income statement as they accrue, using the effective interest method.

l. Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized.

m. Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its shares. Basic EPS is calculated by dividing the profit or loss attributable to shares of the Company by the weighted average number of shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares outstanding for the effects of all dilutive potential shares, which comprise share options and warrants granted to employees and non-employees. In periods when the Company has a loss attributable to shareholders, diluted EPS equates to basic EPS.

n. Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method.

Debt issuance costs on loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the

extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

o. Equity

The Company classifies an instrument, or its component parts, on initial recognition as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument.

An instrument is classified as a financial liability when it is either (i) a contractual obligation to deliver cash or another financial asset to another entity; or (ii) a contract that will, or may be, settled in the Company's own equity instruments and is a non-derivative for which the Company is, or may be, obliged to deliver a variable number of the Company's own equity instruments or a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company's own equity instruments.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

An equity instrument is defined as any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. An instrument is an equity instrument only if the issuer has an unconditional right to avoid settlement in cash or another financial asset.

Ordinary Shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds

p. Critical accounting estimates and judgments

In preparing the financial information, the Directors make judgments on how to apply the Group's accounting policies and make estimates about the future. The critical judgments that have been made in arriving at the amounts recognized in the financial information and the key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities in the next financial year, are discussed below:

Acquisition and valuation of the iclaprim assets

The directors, on assessing if the acquisition of the Nuprim iclaprim assets was of a business or of a group of assets, considered:

· the identified elements of the acquired group;

· the capability of the acquired group to produce outputs; and

· the impact that any missing elements have on a market participant's ability to produce outputs with the acquired group.

As the acquired group was not accompanied by any associated processes and because the acquired assets do not have planned principal activities, or a plan to produce outputs, the Directors considered the acquisition to be of a group of assets, not a business.

The Directors use their judgment to identify the separate intangible assets and then determine a fair value for each based upon the consideration paid, the nature of the asset, industry statistics, future potential, and other relevant factors. Asset acquisitions are measured based on their cost to the acquiring entity, which generally includes transaction costs. An asset's acquisition cost or the consideration transferred by the acquiring entity is assumed to be equal to the fair value of the net assets acquired, unless contrary evidence exists. These fair values are tested for impairment annually.

Research and development expenditures

Research expenditures are currently not capitalized because the criteria for capitalization are not met. At each balance sheet date, the Group estimates the level of service performed by the vendors and the associated costs incurred for the services performed.

Although the Group does not expect the estimates to be materially different from amounts actually incurred, the understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in reporting amounts that are too high or too low in any particular period.

Share based payments and fair value of warrants

The Directors have to make judgments when deciding on the variables to apply in arriving at an appropriate valuation of share based compensation and warrants, including appropriate factors for volatility, risk free interest rate, and applicable future performance conditions and exercise patterns.

q. Investments in subsidiaries 

Investments in subsidiaries are shown in the Company balance sheet at cost and are reviewed annually for impairment.

3. Financial risk management

This note explains the Group's exposure to financial risks and how these risks could affect the Group's future financial performance.

a. Credit risk

Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, and if a counterparty will default on its contractual obligations resulting in financial loss to the Group.

The credit risk on liquid funds is limited because cash balances are held with bank and financial institutions with credit-ratings assigned by international credit-rating agencies. All deposits are held with banks with S&P ratings of A-2 and AA- for short term deposits.

At December 31, 2016, no current asset receivables were aged over three months. No receivables were impaired.

b. Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The principal risk to which the Group is exposed is liquidity risk. See discussion in note 1 as it relates to the Group's ability to continue as a going concern.

The Group has financed its operations using cash raised through the issue of debt and equity. The Group manages its liquidity risk by monitoring cash flows against forecast requirements based on an 18 month cash forecast. The Directors acknowledge that uncertainty remains over the ability of the Group to have the resources to fully support the iclaprim trials and that additional funding will be needed through public markets, private financing, and partnering opportunities.

The Group would also like to begin clinical trials of iclaprim in other disease indications. In order to commence these trials, the Group would need to obtain additional financing. A delay in beginning these additional trials could lead to

a decrease in the Group's prospects for the commercialization of iclaprim. In order to continue the current clinical trials of iclaprim and commence new clinical trials the Group is heavily dependent on the public markets both in the U.K. and US. A downturn in the public markets, especially in biotech, may make it difficult for the Group to obtain sufficient funds to continue its clinical trials and the commercialization of iclaprim. On March 2, 2016, the Group announced the dosing of the first patient in its two REVIVE (Randomized Evaluation intraVenous Iclaprim Vancomycin trEatment) Phase 3 clinical trials in ABSSSI. On January 30, 2017, the Group announced that the last patient had finished the treatment phase in REVIVE-1. On April 18, 2017, the Group announced positive topline results from REVIVE-1, its global Phase 3 clinical trial in patients with ABSSSI. Iclaprim achieved the primary endpoint of non-inferiority at the early time point after start of study drug administration as well as non-inferiority for the test of cure endpoint. Iclaprim was well tolerated in the study, with most adverse events categorized as mild. The Group believes that this new data and the fact that REVIVE-2, the second Phase 3 trial, uses an identical protocol to REVIVE-1 but has different trial centers, could provide the basis for increased investor interest in the Group and, hence, potentially provide greater opportunities to raise additional capital.

In the event that the Group does not have adequate capital to maintain or develop its business, additional capital may not be available to the Group on a timely basis, on favorable terms, or at all, which could have a material and negative impact on the Group's business and results of operations.

Contractual maturities of financial liabilities:

c. Market risk

Foreign currency risk

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed by minimizing the balance of foreign currencies to cover expected cash flows during periods where there is strengthening in the value of the foreign currency. The Group holds part of its cash resources in US dollars and British pound sterling. The valuation of the cash fluctuates along with the US dollar/sterling exchange rate. No hedging of this risk is undertaken.

The carrying amounts of foreign currency denominated monetary net assets at the reporting date are as follows:

At December 31, 2016, if pounds sterling had weakened/strengthened by 5% against the US dollar with all other variables held constant, the loss for the year would have been US $890 (2015: US $131,000) higher/lower.

Interest rate risk

The Group's exposure to interest rate risk is limited to the cash and cash equivalent balance of US $21,829,632 and its financing exposures that are at fixed rates of interest. Changes in interest rates would have no significant impact on the profit or losses of the Group.

d. Capital risk management

The Directors define capital as the total equity of the Group. The Directors' objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal structure to reduce the cost of capital. In order to maintain an optimal capital structure, the Directors may adjust the amount of dividends paid to shareholders, return capital to shareholders, and issue new shares to reduce debt.

4. Other income and expense items

This note provides a breakdown of the items included in other income, finance income, and costs and an analysis of expenses by nature for the years ended December 31, 2016, 2015, and 2014.

a. Other income

The gain on settlement of contract disputes for the year ended December 31, 2016 relates to a write off of a payable due to a consultant as a result of a settlement with him. The gain on settlement of contract disputes for the years ended December 31, 2015 and 2014 primarily relates to payables to a Director for amounts owed to him for his services as Chief Executive Officer. These amounts were written off in a settlement agreement.

b. Breakdown of expenses by nature

c. Finance income and costs

5.  Employee numbers and costs

The monthly average number of persons employed by the Group (including Executive Directors but excluding Non-executive Directors) and key management personnel during the year, analyzed by category, was as follows:

The aggregate payroll costs of Executive Directors and key management personnel were as follows:

6. Directors' remuneration

The highest paid director's aggregate emolument was US $488,510 for the year. The director did not exercise share options during the year. No remuneration was paid to directors for the year ended December 31, 2014.

Directors of the Company have been awarded rights to subscribe for shares in the Group as set out below. See note 22 "Subsequent Events" for a description of the share option granted to Mr. Robert Dickey IV upon his joining the company in January 2017 as Chief Financial Officer.