AKARI THERAPEUTICS PLC
CONSOLIDATED ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 2016
Registered Number: 05252842
AKARI THERAPEUTICS PLC
CONSOLIDATED ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
CONTENTS
Officers and professional advisers
Directors’ report
Strategic Report
Director’s Remuneration Report
Independent Auditors’ report to the shareholders of Akari Therapeutics Plc
Consolidated statement of comprehensive loss
Consolidated statement of financial position
Parent company statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Parent company statement of cash flows
Page
1
2 – 3
4 – 8
9-17
18
19
20
21
22
23
24
Notes to the report and financial statements
25-37
AKARI THERAPEUTICS PLC
OFFICERS AND PROFESSIONAL ADVISERS
FOR THE YEAR ENDED 31 DECEMBER 2016
Directors
Secretary
Registered Office
Independent Auditors
G Roshwalb
R Prudo-Chlebosz
C Richardson
J Hill
S Ungar
D Byrne
R Ward
D Williams
SLC Corporate Services Limited
R Shaw (appointed 23 March 2016)
42-50 Hersham Road
Walton-On-Thames,
Surrey
KT12 1RZ
haysmacintyre
26 Red Lion Square
London
WC1R 4AG
1
AKARI THERAPEUTICS PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2016
Unless the context otherwise requires, all references to “Akari,” “we,” “us,” “our,” the “Company”, the “Group” and
similar designations refer to Akari Therapeutics, Plc and its subsidiaries.
The directors present their report and the audited financial statements for the year ended 31 December 2016.
PRINCIPAL ACTIVITY
The principal activity of the Group is developing inhibitors of acute and chronic inflammation, specifically the
complement system, the eicosanoid system and the bioamine system for the treatment of rare and orphan diseases.
DIRECTORS
The directors who served the company during the year and up to the date of signing the Annual Report were as follows:
M Cohen (resigned 13 October 2016)
G Roshwalb
A Shaw (resigned 29 June 2016)
R Prudo-Chlebosz
C Richardson
J Hill
S Ungar
D Byrne (appointed 20 April 2016)
R Ward (appointed 13 October 2016)
D Williams (appointed 29 June 2016)
SUPPLIER PAYMENT POLICY
It is the Group’s policy to agree to commercial terms with its suppliers prior to purchase of goods or services. The
Group negotiates favourable payment terms where possible.
CORPORATE GOVERNANCE
The Group is not required to implement the provisions of the UK Corporate Governance Code (the “Code”).
Regular board meetings are held and the Executive Directors are heavily involved in the day to day running of the
business. The Board of Directors meets regularly and is responsible for formulating strategy, monitoring financial
performance and approving material items of expenditure.
GOING CONCERN
The Group meets its day-to-day working capital requirements through funding. The competiveness in the market
conditions continue to create uncertainty particularly over the level of demand for the Group’s research and development
activities, product candidates and products and the availability of funding for the foreseeable future. The Group’s forecast
and projections, taking account of reasonably possible changes in trading performance and market conditions, show that
the Group should be able to operate within the level of its current liabilities. After making enquiries, the Directors have a
reasonable expectation that the Group has sufficient funding and adequate resource to continue operationally for at least
12 months from the date of this Annual Report. The Group therefore continues to adopt the going concern basis for the
preparation of the consolidated financial statements.
2
AKARI THERAPEUTICS PLC
DIRECTORS’ REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable
laws and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under
that law the directors are required to prepare the group financial statements in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the EU. Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company
and the profit or loss of the Group for that period.
The Group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position
and performance of the group; the Companies Act 2006 provides in relation to such financial statements that references in
the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair
presentation. The parent company financial statements are required by law to give a true and fair view of the state of affairs
of the parent company.
In preparing these financial statements the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRS as adopted by the EU subject to any material
departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
the parent company will continue in business.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time
the financial position of the Group and parent company and to enable them to ensure that the financial statements comply
with the Companies Act 2006 and Article 4 of the IAS Regulation. They have general responsibility for taking such steps
as are reasonably open to safeguard the assets of the Group and parent company and to prevent and detect fraud and
other irregularities.
The Directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s performance, business model and strategy.
DISCLOSURE OF INFORMATION TO AUDITORS
So far as each of the directors is aware at the time the report is approved:
there is no relevant audit information of which the Groups’s auditors are unaware; and
the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit
information and to establish that the auditors are aware of that information
This report was approved by the board on 15 May 2017
and signed on its behalf.
Dr. R Prudo
Executive Chairman
3
AKARI THERAPEUTICS PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2016
REVIEW OF BUSINESS
We are a clinical-stage biopharmaceutical company focused on developing inhibitors of acute and chronic inflammation,
specifically the complement system, the eicosanoid system and the bioamine system for the treatment of rare and orphan
diseases. Each of these systems has scientifically well-supported causative roles in the diseases being targeted by us. We
believe that blocking early mediators of inflammation will prevent initiation and continual amplification of the processes
that cause certain diseases.
Ticks have undergone 300 million years of natural selection to produce inhibitors that bind tightly to key highly-
conserved inflammatory mediators, are generally well tolerated in humans, and remain fully functional when a host is
repeatedly exposed to the molecule. Our molecules are derived from these inhibitors.
Our lead product candidate, Coversin™, which is a second-generation complement inhibitor, acts on complement
component-C5, preventing release of C5a and formation of C5b–9 (also known as the membrane attack complex, or
MAC), and independently also inhibits LTB4 activity, both elements that are co-located as part of the
immune/inflammatory response. Coversin is a recombinant small protein (16,740 Da) derived from a protein originally
discovered in the saliva of the Ornithodoros moubata tick, where it modulates the host immune system to allow the
parasite to feed without alerting the host to its presence or provoking an immune response.
Coversin has received orphan drug status from the U.S. Food and Drug Administration, or the FDA, and the European
Medicines Agency, or the EMA, for paroxysmal nocturnal haemoglobinuria, or PNH, and Guillain Barré Syndrome, or
GBS. Orphan drug designation provides us with certain benefits and incentives, including a period of marketing
exclusivity if regulatory approval of the drug is ultimately received for the designated indication. The receipt of orphan
drug designation status does not change the regulatory requirements or process for obtaining marketing approval and
designation does not mean that marketing approval will be received. We intend to apply in the future for further orphan
drug designation in indications we deem appropriate. We have also received fast track designation for the investigation of
Coversin for treatment of PNH in patients who have polymorphisms conferring eculizumab resistance.
Our initial clinical targets for Coversin are PNH, atypical Hemolytic Uremic Syndrome, or aHUS, and GBS. We are also
targeting patients with polymorphisms of the C5 molecule which interfere with correct binding of Soliris® (eculizumab),
a first-generation C5 inhibitor currently approved for PNH and aHUS treatment, making these patients resistant to
treatment with that drug. In addition to disease targets where complement dysregulation is the key driver, we are also
targeting a range of inflammatory diseases where the inhibition of both C5 and LTB4 are implicated.
Other compounds in our pipeline include engineered versions of Coversin that potentially decrease the frequency of
administration, improve potency, or allow for specific tissue targeting, as well as new proteins targeting LBT4 alone, as
well as bioamine inhibitors (for example, anti-histamines). In general, these inhibitors act as ligand binding compounds,
which may provide additional benefit versus other modes of inhibition. For example, off target effects are less likely with
ligand capture. One example of this benefit is seen with LTB4 inhibition through ligand capture. LTB4 acts to amplify
the inflammatory signal by bringing and activating white blood cells to the area of inflammation. Compounds that have
targeted the production of leukotrienes will inhibit both the production of pro-inflammatory as well as anti-inflammatory
leukotrienes—often diminishing the potential benefit of the drug on the inflammatory system. Coversin has demonstrated
that, by capturing LTB4, it is limited to disrupting the white blood cell activation and attraction aspects, without
interfering with the anti-inflammatory benefits of other leukotrienes.
Coversin is much smaller than typical antibodies currently used in therapeutic treatment. Coversin can be self-
administered by subcutaneous injection, much like an insulin injection, which we believe will provide considerable
benefits in terms of patient convenience. We believe that the subcutaneous formulation of Coversin may accelerate
recruitment for our clinical trials, and, as an alternative to intravenous infusion, may accelerate patient uptake if Coversin
is approved by regulatory authorities for commercial sale. Patient surveys contracted by us suggest that a majority of
patients would prefer to self-inject daily than undergo intravenous infusions.
Information about the interim analysis of our ongoing Phase II PNH trial and other matters can be found in our Report on
Form 6-K filed with the Securities and Exchange Commission on April 24, 2017.
As previously reported by us in our public filings with the Securities and Exchange Commission, on 27 April 2017, we
issued a press release stating that Edison Investment Research Ltd. has withdrawn its report issued 26 April 2017 titled “Akari’s
Coversin matches Soliris in Phase II” (the “Edison Report”) because it contains material inaccuracies, including without
limitation, with respect to our recently announced interim analysis of its ongoing Phase 2 PNH trial of Coversin.
4
AKARI THERAPEUTICS PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
Investors were cautioned not to rely upon any information contained in the Edison Report and instead were directed to
our press release issued on 24 April 2017 that discusses the interim analysis of its ongoing Phase 2 PNH trial and other
matters. Our Board of Directors has established an ad hoc special committee of the Board to review the involvement, if
any, of our personnel with the Edison Report. While that review is pending, Dr. Gur Roshwalb, our Chief Executive
Officer, has been placed on administrative leave and Dr. Ray Prudo in his role as Executive Chairman is temporarily
assuming Dr. Roshwalb’s duties in his absence.
On 12 May 2017, a putative securities class action captioned Derek Da Ponte v. Akari Therapeutics, PLC, Gur
Roshwalb, and Dov Elefant (Case 1:17-cv-03577) was filed in the U.S. District Court for the Southern District of New
York against the Company, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer. The
plaintiff asserted claims alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based
primarily on the Company’s above referenced press release issued on 27 April 2017. The purported class covers the
period from 30 March 2017 to 11 May 2017. The action seeks unspecified damages and costs and fees. The Company
intends to vigorously defend itself against this lawsuit. At this time, the Company is unable to estimate the ultimate
outcome of this legal matter and its impact on the Company.
RESULTS AND DIVIDENDS
Research and development expenses for the year ended 31 December 2016 were $17,306,000 (2015: $5,799,000). This
$11,507,000 increase was due to higher expenses of $8,175,000 for manufacturing, $1,859,000 for clinical trial expenses,
$914,000 for consulting expense, $576,000 for personnel expenses, $221,000 for regulatory expenses, $119,000 for
toxicology studies and $119,000 for stock-based non-cash compensation expense offset by a research and development
tax credit of $578,000.
Administrative expenses for the year ended 31 December 2016 were $9,941,000 (2015: $5,502,000). This $4,439,000
increase was primarily due to higher expenses of $2,851,000 for stock-based non-cash compensation expense,
$1,480,000 of personnel expenses, $564,000 of board expenses and $356,000 of rent expenses, offset by $750,000 of
compensation expense in 2015. Net cash used in operating activities for the year ended 31 December 2016 was
$24,614,000 (2015: $4,967,000). Net cash flow used in operating activities was primarily attributed to our ongoing
research activities to support Coversin, including manufacturing, clinical trial and preclinical activities.
Net cash used in investing activities for the year ended 31 December 2016 was $10,067,000 (2015: net cash received of
$1,533,000). This is cash used to purchase office equipment and short-term investments offset by maturities of short-term
securities.
Cash, cash equivalents, and short term investments decreased to approximately $44,263,000 at 31 December 2016 (2015:
$69,062,000).
The Group made a loss of $26,224,000 (2015: $29,607,000). The loss for the Group is in line with the expected
performance and the Directors are satisfied with the results for the year.
No dividends were paid during the year (2015: $Nil) and the directors do not propose a final dividend.
5
AKARI THERAPEUTICS PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
PRINCIPAL RISKS AND UNCERTAINTIES
Financing
The Group’s main risk is obtaining additional funding when required to continue its future operations and planned
research and development activities. The Directors recognise that the Group may not be able to obtain financing on
favourable terms and the terms of the Group’s finance arrangements may be dilutive. The Group may also seek
additional funding through arrangements with collaborators and other third parties. These type of arrangements may
require the Group to relinquish rights to internally developed technology, product candidates or products. If the Group
was unable to obtain additional funding on a timely basis, the Group may be required to curtail or terminate some or all
of its research or development programs, including some or all of its product candidates.
Early stage development
The Group is an early stage development Group with limited history of trading on which future projections can be based.
There is no guarantee that the Group will succeed in growing its current business or that the Group will be able to
provide or maintain sufficient resources required for operations in the development and introduction of its products. A
large majority of early stage development companies fail to achieve their business plans mainly due to lack of being able
to estimate the speed of new market entrants and the costs associated with entering markets and obtaining market share.
Drug development
The Group’s approach to drug development is complex and all of the product candidates are in an early stage of
development with a high risk of failure. It is impossible to predict when or if any of the product candidates will prove
effective or safe in humans or will receive regulatory approval.
Further common challenges for similar companies and the Group is to:
Find a stable active product or formulation without extensive clinical trials and substantial additional
costs or create adequate assay for the products for formulation or clinical testing purposes;
Manufacture, and/or formulate sufficient amounts of its product candidates or upscale or optimise such
synthesis so as to enable efficient production of scale;
Find safe and effective doses and dose ratios for its product candidates without extensive clinical trials
and substantial additional costs;
Obtain sufficient supply or quality of product candidates supply or materials to produce product
candidates or other materials necessary to conduct clinical trials; and
Establish manufacturing capabilities or enter into agreements with third parties to supply materials to
make product candidates, or manufacture clinical trial drug supplies.
6
AKARI THERAPEUTICS PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
Market acceptance
The Group is not guaranteed that any of its product candidates will gain market acceptance amongst physicians, patients,
healthcare providers, pharmaceutical companies or other customers.
The Group’s clinical trials in humans may show that the doses or dose ratios selected based on screening, animal testing
or early clinical trials do not achieve the desired therapeutic result in humans, or achieve these results only in a small part
of the population. The U.S. Food and Drug Administration (“FDA”) or other regulatory agencies in the United States
and foreign jurisdictions may determine that these clinical trials do not support the Group’s conclusion. The Group may
be required to conduct additional long-term clinical studies and provide more evidence substantiating the safety and
effectiveness of the doses or dose ratios selected in a significant patient population.
Intense competition from powerful competitors
Many companies, universities and research organisations developing product candidates have greater resources and
significantly greater experience in financial, research and development, manufacturing, marketing, sales, distribution and
technical regulatory matters than the Group has. These competitors could commence and complete clinical testing of
their products, obtain regulatory approval, and begin commercial-scale manufacturing of their products faster than the
Group is able to, thus resulting in a situation whereby the Group may not be able to commercialise its product candidates
or achieve a competitive position in the market.
Product liability exposure
The Group faces exposure to product liability and other claims if its product candidates, products or processes are alleged
to have caused harm. These risks are inherent in testing, manufacturing, and marketing human therapeutic products. If
the Group is sued for any injury caused by its products, product candidates or processes, the Group’s liability could
exceed its product liability insurance coverage and its total assets. Claims against the Group, regardless of their merit or
potential outcome, may also generate negative publicity or damage the Group’s ability to obtain physician endorsement
of its products or expand its business.
Intellectual Property
The Group may be unable to protect the intellectual property relating to its product candidates, or if it infringes the rights
of others, its ability to successfully commercialise its product candidates may be harmed. The Group owns or hold
licenses to a number of issued patents (foreign and foreign counterparts) and pending patent applications. The Group’s
success depends in part on its ability to obtain patent protection both in the United States and in other countries for its
product candidates, as well as the methods for treating patients in the product indications using these product candidates.
The Group’s ability to protect its product candidates from unauthorised or infringing use by third parties depends in
substantial part on its ability to obtain and maintain valid and enforceable patents. Due to evolving legal standards
relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions and the scope of
claims made under these patents, the Group’s ability to obtain, maintain and enforce patents is uncertain and involves
complex legal and factual questions. Even if the Group’s product candidates, as well as methods for treating patients for
prescribed indications using these product candidates are covered by valid and enforceable patents and have claims with
sufficient scope, disclosure and support in the specification, the patents will provide protection only for a limited amount
of time. Accordingly, rights under any issued patents may not provide the Group with sufficient protection for a
commercial advantage against competitive products or processes
Liquidity and Public Listing
Historically, a limited public market exists for the Group’s securities and it cannot assure that its securities will continue
to be listed on the NASDAQ Capital Market or any other securities exchange or that an active trading market will ever
develop for any of its securities. The Group’s ADSs were approved for listing on the NASDAQ Capital Market on 31
January 2014. The Group cannot assure that it will be successful in meeting the continuing listing standards of the
NASDAQ Capital Market. Consequently, the trading liquidity of its ADSs may not improve. The Group may not be
successful in maintaining the listing of its ADSs on the NASDAQ Capital Market and cannot assure that its ADSs will be
listed on a national securities exchange. There is no assurance that an active trading market for its ADSs will develop or
if such a market develops that it will be sustained.
7
AKARI THERAPEUTICS PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
FINANCIAL INSTRUMENTS
The Group finances its operations using cash generated by the sale of equity instruments in the Group. The cash flow of
the Group is monitored on a regular basis to ensure the Group has sufficient funding to meet its capital and operational
requirements.
RESEARCH AND DEVELOPMENT
The Group is a clinical-stage biopharmaceutical company focused on developing inhibitors of acute and chronic
inflammation, specifically the complement system, the eicosanoid system and the bioamine system for the treatment of
rare and orphan diseases.
KEY PERFORMANCE INDICATORS
The Directors consider the key performance indicators to be the research and development spend. This allows the
Directors to manage the on-going activities and strategies for further development of the Group.
The key performance indicators are measured and reviewed on a regular basis at Board meetings and enable the Directors
to communicate the performance of the Group against predetermined targets.
Key financial performance indicators:
Research and Development spend - $17,306,000 (2015: $5,799,000)
Cash, cash equivalents and short term investments position - $44,263,000 (2015: $69,062,000)
This report was approved by the board on 15 May 2017 and signed on its behalf.
Dr. R Prudo
Executive Chairman
15 May 2017
8
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 31 DECEMBER 2016
PART I - ANNUAL REPORT ON REMUNERATION
Information provided in this section of the Directors’ Remuneration report is subject to audit.
Single Total Figure of Remuneration for Each Director (subject to audit)
The following table shows the compensation paid or accrued during the fiscal year ended 31 December 2016.
Name of Director
Salary
and Fees
($)
Taxable
Benefits
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)(1)
Pension
Benefits
($)
2016 Total
($)
Executive Director
Ray Prudo(2)
Gur Roshwalb, M.D
200,000
375,000
-
28,925
(3)
8,757 (5)
150,000
187,500
129,167
282,178
Clive Richardson
Non-Employee Director
James Hill, M.D
Stuart Ungar, M.D
David Byrne (7)
Donald Williams (8)
Robert Ward (9)
Mark S. Cohen(10)
Allan Shaw (11)
58,249
50,770
21,683
25,500
10,880
60,749
25,290
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,750(4)
350,000
581,250
33,225(6)
446,160
126,226
126,226
278,636
248,898
69,062
195,287
-
-
-
-
-
-
-
-
184,475
176,996
300,319
274,398
79,942
256,036
25,290
(1) These amounts represent the aggregate grant date fair value for option awards for fiscal year 2016 computed in accordance with FASB ASC Topic
718. A discussion of the assumptions used in determining grant date fair value may be found in Akari’s Financial Statements, included in Akari’s
Annual Report on Form 20-F for the year ended 31 December 2016.
(2) Dr. Prudo is party to a non-executive contract although he performs executive duties on behalf of Akari.
(3) Consists of company contributions to health benefits.
(4) Consists of company contributions to a 401K plan.
(5) Consists of company contributions to health benefits of $7,167 and life insurance premiums of $1,590.
(6) Consists of company contributions to a pension plan.
(7) Mr. Byrne was appointed to the board as a Class A director on 20 April 2016.
(8) Mr. Williams was appointed to the board as a Class A director on 30 June 2016.
(9) Mr. Ward was appointed to the board as a Class A director on 13 October 2016.
(9) Mr. Cohen resigned as a Class C director on 13 October 2016. In connection with Mr. Cohen’s resignation, Akari and Mr. Cohen agreed that Mr.
Cohen’s (i) outstanding unvested stock options from 25 November 2015 and 29 June 2016 in the amounts of 1,028,722 and 1,300,000 ordinary shares,
respectively, shall be fully vested as of 13 October 2016, and (ii) vested options (including those whose vesting accelerated pursuant to the preceding
clause) shall continue to be exercisable for a period ending on the earlier of (1) 10 years following the respective dates of grant of such options, or (2)
three months following Akari’s 2018 AGM. In addition, Akari agreed to (i) grant Mr. Cohen an additional option to purchase 1,300,000 fully vested
ordinary shares (equivalent to 13,000 ADS) at an exercise price of $0.080621 per share (or $8.0621 per ADS) and which can be exercised until three
months following the 2018 AGM, and (ii) pay Mr. Cohen, in quarterly instalments, $45,750 for the balance of director fees that he would have earned
through the 2017 AGM and an additional $61,000 that he would have earned in director fees from the 2017 AGM to the 2018 AGM.
(10) Mr. Shaw’s term as a Class A director expired on 29 June 2016. As of 31 December 2016, all previously granted options to Mr. Shaw expired
without exercise.
The following table shows the compensation paid or accrued during the fiscal year ended 31 December 2015.
Name of Director
Salary
and Fees
($)
Taxable
Benefits
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)(1)
Pension
Benefits
($)
2015 Total
($)
Executive Director
Ray Prudo (2)
Gur Roshwalb, M.D
Clive Richardson
Non-employee Director
James Hill, M.D
56,986
357,292
79,792
-
31,429(4)
1,660(5)
-
86,625
-
17,381
-
-
-
6,863,034
3,431,517
-
-
9,184(6)
56,986
7,306,951
3,511,309
185,875
-
203,256
-
-
-
9
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
Stuart Ungar, M.D
David Byrne
Donald Williams
Robert Ward
Mark S. Cohen (3)
Allan Shaw
15,956
-
-
-
42,312
39,463
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
184,548
-
-
-
188,530
185,875
-
-
-
-
-
-
200,504
-
-
-
230,842(3)
225,338
(1) These amounts represent the aggregate grant date fair value for option awards for fiscal year 2015 computed in accordance with FASB ASC Topic
718. A discussion of the assumptions used in determining grant date fair value may be found in Akari’s Financial Statements, included in Akari’s
Annual Report on Form 20-F for the year ended 31 December 2015.
(2) Dr. Prudo is party to a non-executive contract although he performs executive duties on behalf of Akari.
(3) Does not include payments of an aggregate of $451,361 for intellectual property legal services and expenses for third parties in 2015 made to Pearl
Cohen Zedek Latzer Baratz LLP, of which Mr. Cohen is a senior partner.
(4) Consists of company contributions to health benefits.
(5) Consists of company contributions to health benefits of $1,365 and life insurance premiums of $295.
(6) Consists of company contributions to a pension plan.
Incentive Plan Awards (subject to audit)
Akari operates an equity incentive plan (the 2014 Equity Incentive Plan (“2014 Plan”)) under which Directors receive
options to acquire ordinary shares in Akari. Options awards granted during the fiscal year ended 31 December 2016 are
as follows:
Name of Director
James Hill, M.D
Stuart Ungar, M.D
David Byrne
David Byrne
Donald Williams
Donald Williams
Robert Ward
Mark S. Cohen
Mark S. Cohen
Option
Awards(1)
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
Grant Date Exercise
Stock Awards ($) (2)
29/6/2016
29/6/2016
22/4/2016
29/6/2016
29/6/2016
29/6/2016
13/10/2016
29/6/2016
13/10/2016
Price
$0.1454
$0.1454
$0.1796
$0.1454
$0.1454
$0.1454
$0.080621
$0.1454
$0.080621
126,226
126,226
152,410
126,226
126,226
122,673
69,062
126,226
69,062
(1) Option awards are subject to time-based vesting.
(2) These amounts represent the aggregate grant date fair value for option awards for fiscal year 2016 computed in accordance with FASB ASC Topic
718. A discussion of the assumptions used in determining grant date fair value may be found in Akari’s Financial Statements, included in Akari’s
Annual Report on Form 20-F for the year ended 31 December 2016.
Payments for Loss of Office
Mark Cohen resigned from Akari on 13 October 2016. Akari has agreed to make payments for loss of office to Mark
Cohen for an amount equal to his director fees up the date of the annual general meeting in 2018 (June 2018). The
amount payable for the payment for loss of office in 2016 is $13,095.
Director’s shareholdings (subject to audit)
The table below shows, for each Director, the total number of shares owned, the total number of share options held and
the number of share options vested as at 31 December 2016. No Director exercised any share options during the year
ended 31 December 2016.
Name of Director
Executive Director
Ray Prudo
Gur Roshwalb, M.D
Clive Richardson
Non-employee Director
Ordinary Shares Owned
Share Options
Vested Share Options (1)
722,345,600 (2)
175,438
-
-
33,323,700
16,271,850
-
10,949,906
5,084,953
10
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
James Hill, M.D
Stuart Ungar, M.D
David Byrne
Donald Williams
Robert Ward
Allan Shaw (3)
Mark Cohen (4)
-
-
-
-
-
33,530
2,647,857
2,600,000
2,600,000
2,600,000
2,600,000
1,300,000
-
4,401,500
587,518
574,185
-
-
-
-
4,401,500
(1) All share options that were outstanding as at 31 December 2016 use time-based vesting and are not subject to performance targets other than
continued service until the date of vesting. None of the options have been exercised.
(2) Represents the entire holdings of RPC Pharma Limited. Dr. Prudo has voting and dispositive control over the Ordinary Shares held by RPC Pharma
Limited and owns approximately 71% of RPC’s outstanding shares (including option grants), including 10.64% of RPC’s outstanding shares held in
trust for Dr. Ungar. Dr. Prudo disclaims beneficial ownership except to the extent of his actual pecuniary interest in such shares.
(3) Mr. Shaw’s term as a Class A director expired on 29 June 2016.
(4) Mr. Cohen resigned as a Class C director on 13 October 2016.
The remainder of this Directors’ Remuneration Report is not subject to audit.
Illustration of Total Shareholder Return
The following graph compares the cumulative total shareholder return on Akari’s ADSs, each representing 100 ordinary
shares, with that of the Nasdaq Biotech Index from the period that Akari’s shares were publicly traded on The Nasdaq
Capital Market through 31 December 2016. Akari selected the Nasdaq Biotech Index because Akari’s ADSs trade on The
NASDAQ Capital Market and Akari believes this indicates its relative performance against a group consisting of more
similarly situated companies.
11
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
Chief Executive Total Remuneration History
The table below sets out total remuneration details for the Chief Executive Officer.
Period
Single total
figure of
remuneration
$
2016 (Gur Roshwalb)
2015 (Gur Roshwalb)
2014 (Gur Roshwalb)
2013 (Gur Roshwalb) (1)
2012 (2)
581,250
7,306,951
410,564
576,389
-
Annual
Bonus
187,500
86,625
-
-
-
Short-term
incentive
payout
against
maximum
125% (4)
100% (5)
-
-
-
Option
Awards ($)
-
6,863,034
60,564
173,396
-
Option
Awards
against
maximum
(3)
-
-
-
-
-
(1) Dr. Roshwalb was appointed as Akari’s Chief Executive Officer on 4 March 2013.
(2) Akari was not a quoted company in 2012.
(3) All options were awarded on a discretionary basis on an annual basis.
(4) Bonus was awarded in 2016 but calculated for a 15 month period from the date of the acquisition of Volution Immuno Pharmaceutical SA on 18
September 2015.
(5) Bonus was awarded in 2015 but calculated for a 9 month period until the date of the acquisition of Volution Immuno Pharmaceutical SA on 18
September 2015.
Chief Executive Officer’s Remuneration Compared to Other Employees
The table below shows the percentage change in remuneration of the Chief Executive Officer and Akari’s employees as a
whole between the year ended 31 December 2015 and the year ended 31 December 2016.
Basic Salary
Annual bonus
Taxable benefits
Percentage increase in remuneration
in year ended 31 December 2016
compared
with remuneration in the year ended
31 December 2015
CEO
5%
116%
9%
All employees (1)
88%
270%
6%
(1)
Increase was due to the acquisition of Volution Immuno Pharmaceutical SA on 18 September 2015 and subsequent increase in headcount and
governance changes in Akari as a result of the acquisition.
Relative Importance of Spend on Pay
The following table sets forth the total amounts spent by the Company on remuneration for the year ended 31 December
2016 and the year ended 31 December 2015. Given that Akari remains in the early phases of its business life cycle, the
comparator chosen to reflect the relative importance of Akari’s spend on pay is Akari’s research and development costs
as shown in its Annual Report on Form 20-F for the year ended 31 December 2016. The Company acquired Volution
Immuno Pharmaceuticals SA on 18 September 2015 and as a result spending has increased.
Period
Total spend on remuneration
Shareholder distributions
Research and development costs
December
Year Ended
31
2016
$
3,145,055
-
17,306,001
December
Year Ended
31
2015
$ (1)
1,335,837
-
5,799,076
(1)
Increase was due to the acquisition of Volution Immuno Pharmaceutical SA on 18 September 2015 and subsequent increase in headcount and
governance changes in Akari as a result of the acquisition.
12
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
Implementation of remuneration policy for year ending 31 December 2017
The following table presents the salary increases agreed for the upcoming fiscal year
Director
Executive Director
Ray Prudo
Gur Roshwalb, M.D
Clive Richardson
Non-employee Director
James Hill, M.D
Stuart Ungar, M.D
David Byrne
Donald Williams
Robert Ward
31
December
2016
31
December
2017 (1)
Increase
%
$200,000
$375,000
£210,000
$206,000
$450,000
£252,000
3% (2)
20% (3)
20% (4)
$56,000
$50,770
$21,683
$25,500
$10,880
$57,680
$47,380
$47,380
$52,530
$47,380
3% (2)
3% (2)
3% (2)
3% (2)
3% (2)
(1) Additional discretionary bonuses may be awarded in accordance with contractual entitlement and the remuneration policy.
(2) Represents an increase in line with inflation.
(3) Represents an increase in line with market and industry compensation packages (following compensation committees’ consultation with
compensation consultants).
(4) Represents an increase in line with increased global role and to bring Mr. Richardson in line with the US salary ranges.
Compensation Committee Approach to Remuneration Matters
The Compensation Committee is comprised of Dr. James Hill (Chairman), Dr. Stuart Ungar, and Mr. David Byrne. All
members have continued to serve until the date of this Directors’ Remuneration Report. The charter of the Committee is
set forth on Akari’s website at http://www.akaritx.com.
Advice Provided to the Compensation Committee
The Committee retained Willis Towers Watson to provide independent advice and consultation with respect to
remuneration arrangements for the Executive Officers, senior management and the Non-Executive Directors. Willis
Towers Watson is a global remuneration consultant with a well established reputation for design and implementation of
remuneration programmes, including the design and implementation of equity-based award programmes. The amounts
paid to Willis Towers Watson in the year ended 31 December 2016 total $39,167.
In addition to Willis Towers Watson, the Committee solicited and received input from the Chief Executive Officer
concerning the remuneration of senior executives other than himself. The Chief Executive Officer provided
recommendations with respect to annual cash bonuses to be paid to these persons for service in the year ending 31
December 2016 and base salary awards effective from 1 January 2017, and with respect to equity-based awards to be
made to these persons in December 2016. The Chief Executive Officer also provided input concerning the remuneration
packages of senior executives appointed during the year. Finally, the Chief Executive Officer also provided input to the
Committee regarding the implementation of equity-based remuneration as an element of all other employees’
remuneration.
Statement of Voting at AGM
Akari is committed to ongoing shareholder dialogue and the Compensation Committee takes an active interest in
shareholder views and voting outcomes.
This is the first year that the Directors’ Remuneration Report is being put to shareholder vote.
13
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
PART II - DIRECTORS’ REMUNERATION POLICY
INFORMATION PROVIDED IN THIS SECTION OF THE DIRECTORS’ REMUNERATION REPORT IS
NOT SUBJECT TO AUDIT.
This Directors’ Remuneration Policy (“Policy”) of Akari Therapeutics, Plc (“Akari”) is subject to shareholder approval at
the 2017 Annual General Meeting of Shareholders (“AGM”). The Policy provides a framework for execution of Akari’s
compensation framework from the date of its approval at the 2017 AGM and for a period of three years thereafter, unless
changes to the Policy are required earlier and a new Policy is put to shareholder vote.
For the avoidance of doubt, in approving the Directors’ remuneration policy, authority is given to Akari to honour any
commitments entered into with current or former Directors (such as the payment of a pension, fees or the vesting/exercise
of past share option awards).
Akari’s remuneration policy seeks to provide compensation packages which will attract, motivate, reward and retain an
executive team with the right calibre of talent, experience, and skills to lead a successful future for Akari. Akari’s
compensation framework is designed to provide a competitive package in comparison to companies of similar size,
complexity, maturity profile and geographic presence.
The table below sets out the main elements of Akari’s remuneration policy for its Executive Directors and seeks to
explain how each element of the compensation package operates:
Policy table – Executive Directors
Element
Base salary
Purpose and
link to
strategy
Support the
recruitment
and retention
of Executive
Officers
Pension
Other
Benefits
Encourages
and enables
executives to
build savings
for their
retirement
Provide
market
competitive
benefits in a
cost-effective
way
Operation
Maximum opportunity
Performance
metrics
Base salary levels are
set taking into account
the role, responsibilities
and individual’s
experience in the
position, performance of
the individual and
Akari.
Base salaries are
typically reviewed
annually.
Akari typically makes
contributions to pension
plans (or retirement
savings plans) to match
prevailing local market
practices.
None, although
overall
performance of the
individual is
considered when
setting and
reviewing salaries.
There is no prescribed
maximum increase nor
any requirement to
increase salary at any
time.
By exception, higher
increases may be made
to reflect individual
circumstances. These
may include significant
changes in the job size
or complexity and/or
promotion.
Currently up to 10% of
None.
salary per annum.
Provisions include
No prescribed
None.
maximum. The cost of
benefits will vary from
year to year in
accordance with the cost
of insuring such
benefits.
medical insurance, life
assurance, permanent
health insurance, etc.
In exceptional
circumstances, such as
the relocation of an
executive or for a new
hire, additional benefits
14
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
Bonus
To reward the
delivery of
annual targets
as well as to
recognise the
individual
contributions
towards our
key strategic
achievements
may be provided in the
form of relocation
allowance and benefits.
Other benefits may be
offered if considered
appropriate and
reasonable by the
Compensation
Committee.
Any bonus is paid in
cash typically within 60
days after the end of the
financial year to which
it relates.
Performance objectives
and targets are either
fixed contractually or
set annually and actual
payout levels are
determined after the
year end, based on
performance against
targets subject to
overriding discretion of
the Compensation
Committee.
The maximum annual
bonus payable for any
financial year is capped
at 100% of salary,
although the
Compensation
Committee reserves the
right to vary this amount
in exceptional
circumstances.
Where
performance
conditions are
attached to a bonus
payment, targets
are either fixed
contractually or
selected by the
Compensation
Committee and set
annually and can
include key
financial,
operational and/or
individual
objectives. All
assessments of
performance
against target is
made by the
Compensation
Committee in its
sole discretion.
Equity
incentive
plan
(2014 Equity
Incentive
Plan)
To motivate
and reward
long-term
performance
in alignment
with the
shareholder
interests and
value-creation
CSOP
(UK resident
employees
and directors
only)
Awards may be made
periodically to
Executive Officers in
the form of options or in
shares including stock
appreciation rights,
phantom stock awards
or stock units.
Awards typically vest
over three or four years
and may be subject to
phased vesting.
Executives are eligible
to participate in the all-
employee CSOP Plan
under the same
conditions as all other
employees.
There is no specific
Where performance
maximum set for annual
equity awards.
When making awards,
the Compensation
Committee will take
into account internal
grant guidelines, which
have been set in
reference to local
market norms.
conditions are
attached to an
award, these
typically include
key financial,
operational and/or
individual
objectives subject
to overall
Compensation
Committee
discretion.
Grant value of £30,000
or local market rules as
amended from time to
time.
None.
15
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
Policy table – Non-Executive Directors
Akari’s non-employee compensation policy is administered by its board of directors with the assistance of the
Compensation Committee. The Compensation Committee periodically reviews non-employee director compensation
policy and makes recommendations to the board.
Non-Executive Directors typically receive an annual retainer paid in cash for their service (depending on their additional
membership and chairman responsibilities) and an annual grant of stock options but do not participate in the bonus plan
to which Executive Officers are eligible, nor do they typically receive any other performance related payment.
The table below sets out some of the features of Akari’s current non-employee director compensation policy:
Element
Annual Cash
Retainer Fee
Purpose and
link to
strategy
Support the
recruitment
and retention
of Non-
Executive
Directors
Share
options
Strengthens
the alignment
to
shareholders’
interests
through share
ownership
Operation
Maximum opportunity
Performance
metrics
Each Non-Executive
There is no
None.
prescribed maximum
increase nor any
requirement to
increase salary at any
time.
None.
Normal initial grant and
annual grant of share
options will be equal to
1,300,000 (or equivalent
value of ADS) but the
Committee reserves the
discretion to review and
amend this amount.
Director serving on the
Board receives an
annual cash retainer,
with additional amounts
payable for acting as a
chairman or a member
of various committees.
In addition, the
Chairman and Vice
Chairman receive an
additional cash retainer.
Annual cash retainers
are typically payable on
a quarterly basis.
A Non-Employee
Director may elect to
receive annual cash
payments in the form of
fully-vested ordinary
shares.
Directors typically
receive an annual grant
of options in the form of
market value options
under the 2014 Equity
Incentive Plan.
These awards typically
vest in full on the date
of the next AGM
following the date of
grant, subject to the
Non-Executive
Director’s continued
service on the Board,
have a term of 10 years
from date of grant, and
vesting accelerates in
the case of a change of
control.
16
AKARI THERAPEUTICS PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
The foregoing is qualified in its entirety by Akari’s current non-employee director compensation policy, as may be
amended from time to time.
Approach to recruitment compensation
Akari’s policy is to pay a fair remuneration package for the role being undertaken and the experience of the individual to
be appointed.
Akari expects remuneration packages for Executive Directors to include base salary, targeted level of annual cash
incentive, initial and ongoing equity-based awards, standard benefits and special provisions tailored to the recruiting
situation, such as: sign-on bonus, reasonable relocation support and make-whole awards for remuneration forfeited from
a prior employer (whether on account of cash bonuses, share awards, pension benefits or other forfeited items). The
Compensation Committee retains the discretion to provide additional cash, share based payment, benefits and other
remuneration where necessary or useful to recruit new Executive Directors or to secure the ongoing service of existing
Executive Directors.
The remuneration package for any new non-Executive Director will be set in accordance with the terms of Akari’s non-
employee director compensation policy then in effect.
Director’s service contracts
Akari’s board of directors is divided into three classes for purposes of election (Class A Directors, who serve a one year
term before being subject to re-election at Akari’s annual general meeting; Class B Directors, who serve a two year term
before being subject to re-election at the annual general meeting; and Class C Directors who serve a three year term
before being subject to re-election at the annual general meeting, provided also that in any two year period, a majority of
the board must stand for re-election).
Service contracts are available for inspection at Akari’s registered office or 75/76 Wimpole Street London W1G 9RT.
Policy on Payments for Loss of Office
Akari’s approach to payments to Executive Directors in the event of termination is to take account of the individual
circumstances including the reason for termination, individual performance, contractual obligations and the terms of any
option award.
Generally, Akari expects that employment arrangements for any Executive Director will include a notice provision and
continuing payment obligations as per the individual Executive Director service contracts following termination by Akari
of an Executive Director without cause or termination by the Executive Director for good reason or change of control.
Payment obligations could include base salary, benefits, and all or some portion of target annual cash remuneration.
Akari may offer payment in lieu of notice if it is considered to be in the best interests of Akari.
Treatment of unvested outstanding equity awards will be determined according to the specific nature of termination,
individual contracts, and plan rules.
The Compensation Committee reserves the right to make payments it considers reasonable under a compromise or
settlement agreement, including payment or reimbursement of reasonable legal and professional fees, and any payment or
compensation (in whatever form) in respect of statutory rights under employment law in the US, UK or other
jurisdictions. Payment or reimbursement (in whatever forms) of reasonable outplacement fees may also be provided.
Other relevant information considered
As appropriate, the Compensation Committee considers the pay and conditions of the broader employee workforce when
making compensation related decisions for the Directors.
The Compensation Committee also considers shareholder feedback, so far as it relates to compensation, when reviewing
of the appropriateness of its Policy.
This report was approved by the board on 15 May 2017 and signed on its behalf.
Dr. R Prudo
Executive Chairman
17
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF
AKARI THERAPEUTICS PLC
We have audited the financial statements of Akari Therapeutics Plc for the year ended 31 December 2016 which
comprise the Consolidated Statement of Comprehensive Loss, the Consolidated and Company Statements of Financial
Position, the Consolidated and Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows and
the related notes. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent
company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company's shareholders, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those
matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs
as at 31 December 2016 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by
the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006
and, as regards the group financial statements, Article 4 of the IAS Regulation.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report and Strategic Report for the financial year for which the
financial statements are prepared is consistent with the financial statements and these reports have been prepared in
accordance with applicable legal requirements.
In the light of our knowledge and understanding of the Group and its environment obtained in the course of the audit, we
have not identified material misstatements in the Directors' Report and Strategic Report.
The part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you
if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements and the part of Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Ian Cliffe (Senior statutory auditor)
for and on behalf of haysmacintyre, Statutory Auditor
15 May 2017
26 Red Lion Square
London WC1R 4AG
18
AKARI THERAPEUTICS PLC
CONSOLIDATED INCOME STATEMENT OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED 31 DECEMBER 2016
Research and development expenses
Administrative expenses
Goodwill impairment
OPERATING LOSS
Net finance income
LOSS BEFORE INCOME TAX
Income Tax Expense
LOSS FOR THE YEAR
Other Comprehensive (Loss) Income:
Currency translation differences
COMPREHENSIVE LOSS FOR THE YEAR
Notes
3
4
2016
$000
(17,306)
(9,941)
-
---------------
(27,247)
1,023
---------------
(26,224)
-
---------------
(26,224)
=======
(437)
---------------
(26,661)
=======
2015
$000
(5,799)
(5,502)
(19,284)
---------------
(30,585)
978
---------------
(29,607)
-
---------------
(29,607)
=======
111
---------------
(29,496)
=======
All losses are derived from continuing activities for the current and previous financial year.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent
company income statement. Refer note 5 for the results of the parent company.
The notes on pages 25 to 37 form an integral part of the consolidated financial statements.
19
AKARI THERAPEUTICS PLC
COMPANY NUMBER: 05252842
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2016
ASSETS
Non-current assets
Property, plant and equipment
Intangible Assets
Current assets
Trade and Other receivables
Cash and cash equivalents
Short term investments
TOTAL ASSETS
EQUITY
Capital and reserves attributable to the Company’s
equity shareholders
Called up share capital
Share premium
Other reserves
Merger reserve
Share based payment reserve
Reverse Acquisition reserve
Retained earnings
TOTAL EQUITY
LIABILITIES
Non Current Liabilities
Warrants
Other long term liabilities
Current liabilities
Trade and other payables
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
2016
$000
2015
$000
7
6
9
12
13
13
13
13
13
13
11
11
10
58
39
---------------
97
1,513
34,241
10,022
---------------
45,776
---------------
45,873
=======
18,341
94,778
(280)
9,128
8,029
(20,983)
(67,283)
---------------
41,730
---------------
35
56
4,052
---------------
4,143
---------------
45,873
=======
41
52
---------------
93
739
69,062
-
---------------
69,801
---------------
69,894
=======
18,341
94,778
157
9,128
4,096
(20,983)
(41,086)
---------------
64,431
---------------
685
49
4,729
---------------
5,463
---------------
69,894
=======
The financial statements were approved and authorised for issue by the Board of Directors on 15 May 2017
and were signed below on its behalf by:
Dr. R Prudo
Executive Chairman
The notes on pages 25 to 37 form an integral part of these consolidated financial statements.
20
AKARI THERAPEUTICS PLC
COMPANY NUMBER: 05252842
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2016
ASSETS
Non-current assets
Property, plant and equipment
Investment in subsidiaries
Current assets
Trade and Other receivables
Cash and cash equivalents
Short term investments
TOTAL ASSETS
EQUITY
Capital and reserves attributable to the Company’s
equity shareholders
Called up share capital
Share premium
Merger reserve
Share based payment reserve
Retained earnings
TOTAL EQUITY
LIABILITIES
Non Current Liabilities
Warrants
Other long term liabilities
Current liabilities
Trade and other payables
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
2016
$000
2015
$000
7
8
9
12
13
13
13
13
11
11
10
58
20,339
---------------
20,397
5,589
34,115
10,022
---------------
49,726
---------------
70,123
=======
18,341
94,778
9,128
8,029
(64,231)
---------------
66,045
---------------
35
56
3,987
---------------
4,078
---------------
70,123
=======
41
20,339
---------------
20,380
4,337
68,685
-
---------------
73,022
---------------
93,402
=======
18,341
94,778
9,128
4,096
(38,221)
---------------
88,122
---------------
685
49
4,546
---------------
5,280
---------------
93,402
=======
The financial statements were approved and authorised for issue by the Board of Directors on 15 May 2017
and were signed below on its behalf by:
Dr. R Prudo
Executive Chairman
The notes on pages 25 to 37 form an integral part of these consolidated financial statements.
21
AKARI THERAPEUTICS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
Share
Capital
$000
Share
Other Merger
Premium Reserves Reserve
$000
$000
$000
Share
Based
Payment
Reserve
$000
Reverse
Acquis-
ition
Reserve
$000
Retained
Loss
$000
Total
$000
(11,479)
2,224
At I January 2015
11,211
2,446
Comprehensive loss for the year
Shares in issue by parent prior to
reverse acquisition
Reverse acquisition adjustment
Issue of
acquisition
Issue of shares
Issue of shares for advisory fees
Share based payments
shares on
reverse
At 31 December 2015
Comprehensive loss for the year
Share based payments
Dissolution of subsidiary
At 31 December 2016
-
927
(11,211)
11,211
6,144
59
-
--------------
18,341
=======
-
-
-
--------------
18,341
=======
-
30,657
(2,446)
-
63,430
691
-
--------------
94,778
=======
-
-
-
--------------
94,778
=======
46
111
-
-
-
-
-
-
--------------
157
=======
(437)
-
-
--------------
(280)
=======
-
-
-
-
-
3,056
-
-
-
(29,607)
-
-
9,128
-
-
-
--------------
9,128
=======
-
-
-
--------------
9,128
=======
-
-
(20,983)
-
-
-
-
-
1,040
--------------
4,096
=======
-
3,933
-
--------------
8,029
=======
-
-
-
--------------
(20,983)
=======
-
-
-
--------------
(20,983)
=======
-
-
-
--------------
(41,086)
=======
(26,224)
-
27
--------------
(67,283)
=======
(29,496)
34,640
(34,640)
20,339
69,574
750
1,040
--------------
64,431
=======
(26,661)
3,933
27
--------------
41,730
=======
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
Share
Capital
$000
Share
Premium
$000
Merger
Reserve
$000
Share Based
Payment
Reserve
$000
At I January 2015
927
30,657
Total comprehensive loss for the year
Share based payments
Issue of shares on reverse acquisition
Issue of shares (relating to financing, net of
issue costs)
Issue of shares for advisory fees (net of
costs)
At 31 December 2015
Total comprehensive loss for the year
Share based payments
Dissolution of subsidiary
At 31 December 2016
-
-
11,211
-
-
-
6,144
63,430
59
--------------
18,341
=======
-
-
-
--------------
18,341
=======
691
--------------
94,778
=======
-
-
-
--------------
94,778
=======
-
-
-
9,128
-
-
--------------
9,128
=======
-
-
-
--------------
9,128
=======
2,964
-
1,132
-
-
-
--------------
4,096
=======
-
3,933
-
--------------
8,029
=======
The notes on pages 25 to 37 form an integral part of these consolidated financial statements.
Retained
Loss
$000
Total
$000
(29,306)
5,242
(8,915)
-
-
(8,915)
1,132
20,339
-
69,574
-
--------------
(38,221)
=======
(26,037)
-
27
--------------
(64,231)
=======
750
--------------
88,122
=======
(26,037)
3,933
27
--------------
66,045
=======
22
AKARI THERAPEUTICS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2016
Cash flows from operating activities
Loss before income tax
Adjustments for:
Changes in fair value of warrants
Share-based payment
Compensation expense
Goodwill impairment
Foreign currency exchange gains
Depreciation and amortisation
Trade and other receivables
Trade and other payables
Other liabilities
Net cash flows used in operating activities
Cash flow from investing activities
Cash received from reverse acquisition
Receivable from related party
Purchase of property and equipment
Purchase of short-term investments
Maturities of short-term investments
Net cash used (from) investing activities
Cash flows from financing activities
Proceeds from shareholder loans
Payments of shareholder loans
Proceeds from issuance of Ordinary shares
Issue costs
Cash generated from financing activities
Exchange (losses) gains on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
2016
$000
2015
$000
(26,224)
(29,607)
(650)
3,933
-
-
(273)
51
(786)
(672)
7
------------
(24,614)
-
10
(55)
(46,120)
36,098
------------
(10,067)
-
-
-
-
------------
-
(140)
(34,821)
69,062
------------
34,241
========
(1,115)
1,040
750
19,283
-
10
914
3,755
3
------------
(4,967)
1,552
(8)
(11)
-
-
------------
1,533
3,031
(3,561)
75,000
(5,426)
------------
69,044
125
65,735
3,327
------------
69,062
========
The notes on pages 25 to 37 form an integral part of these consolidated financial statements.
23
AKARI THERAPEUTICS PLC
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2016
Cash flows from operating activities
Loss before income tax
Adjustments for:
Changes in fair value of warrants
Share based payments
Compensation expense
Depreciation
Trade and other receivables
Trade and other payables
Taxation
Exchange rate differences
Other liabilities
Net cash flows used in operating activities
Cash flow from investing activities
Purchase of property, plant and equipment
Purchase of short-term investments
Maturities of short-term investments
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of Ordinary shares
Issue costs
Cash generated from financing activities
2016
$000
2015
$000
(26,037)
(10,646)
(650)
3,933
-
38
(1,252)
(559)
-
-
7
------------
(24,520)
(55)
(46,120)
36,098
------------
(10,077)
-
-
------------
-
451
1,132
750
19
(3,700)
3,203
1,563
(8)
-
------------
(7,236)
(11)
-
-
------------
(11)
75,000
(5,426)
------------
69,574
Exchange gains on cash and cash equivalents
27
-
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
(34,570)
68,685
------------
34,115
========
62,327
6,358
------------
68,685
========
The notes on pages 25 to 37 form an integral part of these consolidated financial statements.
24
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
1.
ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated.
(a)
Basis of preparation
These consolidated financial statements of Akari Therapeutics Plc have been prepared in accordance with
International Financial Reporting Standards (IFRS) and IFRIC interpretations issued and effective or issued and
early adopted as at the time of preparing these statements and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The consolidated financial statements are prepared on a historical
cost conversion. A summary of the more important accounting policies is set out below.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and
estimates are significant to the consolidated financial statements are disclosed in note 1(n).
(b)
Basis of consolidation
Subsidiaries are all 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 over the entity. The subsidiaries are fully consolidated from the date on
which control is transferred to the Group and deconsolidated from the date that control ceases.
The financial statements of the subsidiaries are prepared for the same financial year as the parent company,
applying consistent accounting policies throughout the Group. Inter-company balances and transactions,
including unrealised profits are eliminated on consolidation.
The Group financial statements consolidate the Company’s financial statements of Akari Therapeutics Plc and
its subsidiaries (the “Group”). The consolidated financial statements include the accounts of the Company,
Volution and Volution Immuno Pharmaceuticals Ltd (a UK Ltd Company), its wholly-owned subsidiary, which
was incorporated in London on 22 August 2015. On 6 September 2016, Volution Immuno Pharmaceuticals Ltd
was dissolved.
(c)
Foreign currency translation
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 functional currency
of Akari Therapeutics Plc is U.S. dollars. The Group and Parent Company financial statements are presented in
U.S Dollars which is considered to the Group’s presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at
the date of the transactions or valuation where items are re-measured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at period-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyper-
inflationary economy) that have a functional currency different from the presentation currency are translated as
follows:
(a)
(b)
(c)
assets and liabilities at the balance sheet date are translated at the closing rate as at that balance sheet
date;
income and expenses for each income statement are translated at average exchange rates; and
all resulting exchange differences are recognised in other comprehensive income.
25
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
1.
ACCOUNTING POLICIES (continued)
(d)
Financial instruments
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown
within borrowings in current liabilities on the balance sheet.
Trade and other receivables
Trade and other receivables are recognised at fair value less a provision for impairment. Bad debts are written off
through the income statement when identified. If collection is expected in one year or less, they are classified as current
assets. If not, they are presented as non-current assets.
Trade and other payables
Trade payables are obligations to pay for goods or services received that have been acquired in the ordinary
course of the business from suppliers. Trade payables are classified as current liabilities if payment is due within
one year or less. If not, they are presented as non-current liabilities. Executory contracts are recognised when
both parties to the contract met their respective obligations. Trade and other payable are unsecured, non-interest
bearing and are stated at cost.
The Group's liability related to options and warrants related to equity and debt financing and are recognised on
the balance sheet at their fair value, with changes in the fair value accounted for in the statement of
comprehensive loss and included in financing income or expenses.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
(e)
Research and development expenditure
Research costs are expensed through the income statement as they are incurred. Research and development
expenses include, among other costs, costs incurred by outside laboratories and other accredited facilities in
connection with clinical trials and preclinical studies.
Under IAS 38, development costs are only capitalised after technical and commercial feasibility of the asset for
sale or use have been established. The company must intend and be able to complete the asset and either use it
or sell it and be able to demonstrate how the asset will generate future economic benefit. If the company cannot
distinguish between the research and the development phase, then all costs are expensed as research costs.
(f)
Property, plant and equipment:
Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated
depreciation and excluding day-to-day servicing expenses. The assets residual values and useful lives are
reviewed, and adjusted if appropriate, at the end of each reporting period.
Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:
Computers, peripheral and scientific equipment - 33%
Office furniture and equipment
- 33%
The Group reviews all long-lived assets for impairment whenever events or circumstances indicate the carrying
amount of such assets may not be recoverable. Recoverability of assets to be held or used is measured by
comparison of the carrying value of the asset to the future undiscounted net cash flows expected to be generated
by the asset. If such asset is considered to be impaired, the impairment recognised is measured by the amount by
which the carrying value of the asset exceeds the discounted future cash flows expected to be generated by the
asset.
26
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
1.
ACCOUNTING POLICIES (continued)
(g)
Intangible assets:
(h)
(i)
Patent acquisition costs and related capitalised legal fees are recognised at historical cost. Patents have a finite
useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-
line basis method and are amortised over the shorter of the legal or useful life. The estimated useful life for
current patents is twenty two years.
The Group expenses costs associated with maintaining and defending patents subsequent to their issuance in the
period the costs are incurred.
Investments
Investments in subsidiary undertakings are stated at cost less provisions for impairment.
Share-based payments and warrants
Where share options or warrants are awarded to directors and employees, the fair value of the options or
warrants at the grant date is charged to the consolidated income statement over the vesting period. Non-market
vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each
balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the
number of options that eventually vest. Market vesting conditions are factored into the fair value of the options
and warrants granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of
whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to
achieve a market vesting condition.
Where the terms and conditions of options and warrants are modified before they vest, the increase in the fair
value of the options and warrants, measured immediately before and after the modification, is also charged to
the consolidated income statement over the remaining vesting period.
When the options and warrants are exercised, the company issues new shares. The proceeds received net of any
directly attributable transaction costs are credited to share capital (nominal value) and share premium when the
options and warrants are exercised.
When share options and warrants lapse, any amounts credited to the share-based payments reserve are released
to the retained earnings reserve.
(k)
Finance income and expenses
Interest income and expenses are recognised using the effective interest method. It mainly comprise of changes
in the fair value of financial assets and liabilities that are measured at fair value through the income statement
and exchange gains and losses which is reported on a net basis in the statement of comprehensive loss.
(l) Operating lease agreements
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made on operating leases are charged to the income statement on a
straight line basis over the period of the lease.
(m) Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying values in the financial statements. The deferred tax is not accounted for if
it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at
the time of the transaction does not affect either the accounting or taxable profit or loss. Deferred tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which temporary differences can be utilised.
27
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
1.
ACCOUNTING POLICIES (continued)
(n) Critical accounting estimates and judgements:
The Group makes estimates and assumptions concerning the future. The preparation of financial statements
requires management and the Board of Directors to make estimates and judgments that affect reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These
estimates are based on historical experience and various other assumptions that management and the Board
believe are reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions, significantly impacting earnings and
financial position.
Management believes that the following areas, all of which are discussed and separately marked in the
respective sections of Note 1 “Accounting Policies,” comprise the most difficult, subjective or complex
judgments it has to make in the preparation of the financial statements: valuation of intangible and other non-
current assets, deferred taxation, and collecting trade receivables.
(o) Business combinations:
Business combinations on or after 1 January 2004 are accounted for under IFRS 3 (“Business combinations”)
using the purchase price method. Any excess of the cost of business combinations over the group’s interest in
the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised in the balance sheet
as goodwill.
After initial recognition, goodwill is not amortised but is stated at cost less any accumulated impairment loss,
with the carrying value being reviewed for impairment, at least annually and whenever events or changes in
circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill is allocated to the related cash generating units monitored by
management. Where the recoverable amount of the cash generating unit is less than its carrying amount,
including goodwill, an impairment loss is recognised in the income statement.
Intangible assets are tested annually for impairment and other non-current assets are tested where an indication
of impairment arises. The assessment of impairment is made by comparing the carrying amount of cash
generating units (including any associated goodwill) to the higher of their value in use and their fair value.
Value in use represents the net present value of future discounted cash flows.
Any impairment of non-current assets are recognised in the income statement.
2.
EXPENSES BY NATURE
Employee benefit expense (see below)
Depreciation
Amortisation
Exchange loss
Auditors’ remuneration
- audit fees
- other services
2016
$000
2,722
38
13
(273)
20
2
=======
2015
$000
551
10
7
91
27
5
======
28
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
2.
EXPENSES BY NATURE (continued)
Employee benefit expense
Wages and salaries
Social security costs
The average number of persons (including directors)
employed by the group during the year was as follows:
Office and administration
Key management remuneration
Wages and salaries
2016
$000
2,453
269
--------------
2,722
=======
20
=======
1,928
=======
2015
$000
520
31
--------------
551
=======
9
=======
310
=======
The Key management is considered to be the directors and senior management team. Details of directors’
remuneration can be seen within the Directors’ Remuneration Report on pages 9 to 17.
3.
NET FINANCE INCOME
Change in value of liability related to warrants
Net foreign exchange gains (losses)
Interest Income
Interest Expense
Other taxes
4(a).
INCOME TAX EXPENSE
Current tax:
Current tax on losses for the year
Adjustment in respect of prior years
The tax assessed in the year is different from the standard rate of
corporation tax in the UK of 20.00% in 2016 and 20.25% in 2015.
The differences are explained below:
Loss before tax
Loss on ordinary activities before tax multiplied by the standard
companies’ rate of tax in the UK
Effects of:
Losses carried forward
Tax charge
29
2016
$000
650
273
143
(39)
(5)
---------------
1,022
=======
2016
$000
-
-
-------------
-
======
2015
$000
1,115
(91)
21
(23)
(44)
---------------
978
=======
2015
$000
-
-
-------------
-
=======
(26,224)
=======
(29,607)
=======
(5,245)
(5,995)
5,245
--------------
-
=======
5,995
--------------
-
=======
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
5.
LOSS ATTRIBUTABLE TO THE PARENT COMPANY
The parent Company has taken advantage of section 408 of the Companies Act 2006 and has not included its own
profit and loss account in these financial statements. The parent Company has made a loss for the year of
$26,037,000 (2015: $8,915,000).
6.
INTANGIBLE ASSETS
GROUP
Cost
At 1 January 2016
Additions
At 31 December 2016
Amortisation
At 1 January 2016
Charge for the year
At 31 December 2016
Net Book Value
At 31 December 2016
At 31 December 2015
Patent
acquisition costs
$000
95
-
---------------
95
---------------
(43)
(13)
---------------
(56)
---------------
39
=======
52
=======
7.
PROPERTY PLANT AND EQUIPMENT
GROUP
Office furniture
and equipment
$000
Cost
At 1 January 2016
Additions
At 31 December 2016
Depreciation
At 1 January 2016
Charge for the year
At 31 December 2016
Net Book Value
At 31 December 2016
At 31 December 2015
80
55
---------------
135
---------------
(39)
(38)
---------------
(77)
---------------
58
=======
41
=======
30
Total
$000
95
-
---------------
95
---------------
(43)
(13)
---------------
(56)
---------------
39
=======
52
=======
Total
$000
80
55
---------------
135
---------------
(39)
(38)
---------------
(77)
---------------
58
=======
41
=======
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
7.
PROPERTY PLANT AND EQUIPMENT
COMPANY
Office furniture
and equipment
$000
Cost
At 1 January 2016
Additions
At 31 December 2016
Depreciation
At 1 January 2016
Charge for the year
At 31 December 2016
Net Book Value
At 31 December 2016
At 31 December 2015
80
55
---------------
135
---------------
(39)
(38)
---------------
(77)
---------------
58
=======
41
=======
Total
$000
80
55
---------------
135
---------------
(39)
(38)
---------------
(77)
---------------
58
=======
41
=======
8.
INVESTMENTS IN SUBSIDIARIES
Company
Investments in
Subsidiary
Undertakings
$000
At 1 January 2016
Additions
20,339
-
----------
At 31 December 2016
20,339
======
The Company directly owns 100% of the issued share capital of the following subsidiary undertakings, which
have been included in the consolidated financial statements:
Volution Immuno
Pharmaceuticals SA
Celsus Therapeutics Inc.
Morria Biopharma Ltd.
Principal activity
Development of
pharmaceutical drugs
Dormant
Dormant
Country of
incorporation
Holdings
Switzerland
Ordinary
United States
Israel
Ordinary
Ordinary
%
100
100
100
Volution Immuno Pharmaceuticals Ltd was dissolved on 6 September 2016.
31
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
9.
TRADE AND OTHER
RECEIVABLES
Trade and other receivables
Prepayments and accrued income
2016
$000
176
1,337
-----------
1,513
=====
Group
Company
2015
$000
10
729
-----------
739
=====
2016
$000
4,267
1,322
----------
5,589
=====
2015
$000
3,645
692
----------
4,337
=====
10.
TRADE AND OTHER PAYABLES
Group
Company
Trade payables
Accrued expenses
2016
$000
2,316
1,736
---------------
4,052
=======
2015
$000
2016
$000
4,321
408
---------------
4,729
=======
2,275
1,712
-------------
3,987
======
2015
$000
4,155
391
-------------
4,546
======
11.
NON CURRENT LIABILITIES
Group
Company
Warrants (note 14)
Deferred rent liability
2016
$000
35
56
-------------
91
======
2015
$000
2016
$000
685
49
-------------
734
======
35
56
------------
91
======
2015
$000
685
49
------------
734
======
12.
CALLED UP SHARE CAPITAL
Issued and fully paid
No of shares
Share Capital
$
Akari Therapeutics Plc
As at 1 January 2016 and 31 December 2016
1,177,693,383
==============
18,340,894
=============
32
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
13.
RESERVES
The following describes the nature and purpose of each reserve within equity:
Share premium - Accumulated amounts subscribed for share capital in excess of the nominal value of the share
capital issued.
Retained loss – Includes all current and prior period losses
Other reserves - Accounts for all other gains and losses reported by the group and not recognised elsewhere.
Includes accumulated gains and losses arising from the retranslation of the net assets of overseas entities.
Share based payment reserve – This includes all movement for share options granted during the period.
Merger reserve – Merger reserve represents the premium on the shares issued to acquire Volution Immuno
Pharmaceuticals SA in accordance with the provisions of S612 of the Companies Act 2006.
Reverse acquisition reserve – The reverse acquisition reserve relates to the reverse acquisition between Celsus
Therapeutics PLC and Volution Immuno Pharmaceuticals SA on 18 September 2015.
14. WARRANTS
Upon completion of the Acquisition, the Company assumed certain warrants that were issued in connection with several
private placements by the Company and certain investors where it sold ordinary shares and warrants. Some of the issued
warrants contain non-standard anti-dilution clauses.
As of 18 September 2015, the Acquisition date, warrants to purchase 5,617,977 ordinary shares had full ratchet anti-
dilution protection (which would be triggered by a share or warrant issuance at less than $0.1958 price share or exercise
price per share). The issuance of ordinary shares in connection with the financing triggered the full ratchet anti-dilution
protection resulting in an additional 188,303 ordinary shares issuable upon exercise of such warrants for a total of
5,806,280 and reducing the exercise price to $0.18945. As of 31 December 2016, the fair value of the warrants was
$34,838. The net change in fair value was recognised as change in fair value of option and warrant liabilities in the
Group’s consolidated statement of comprehensive loss. The warrants expired on 4 April 2017.
The Group accounts for the liability warrants issued in accordance with IAS 39, “’Financial Instruments: Recognition
and Measurement” as a freestanding liability instrument that is measured at fair value at each reporting date, based on its
fair value, with changes in the fair values being recognised in the Group's consolidated statement of comprehensive loss
as financing income or expense.
The fair value of warrants granted was measured using the Binomial method of valuation.
Fair values were estimated using the following assumptions for the options as of 31 December 2016:
Expected dividend yield
Expected volatility
Risk-free interest
Expected life
0 %
73.39 %
0.51 %
0.26 years
The Group’s financial assets and liabilities measured at fair value on a recurring basis, consisted of the following types of
instruments as of the following dates:
Warrants (anti-dilution protection)
33
31 December 31 December
2016
2015
$
34,838 $
685,141
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
14. WARRANTS (continued)
Warrants to service providers and investors -
The warrants acquired as part of the acquisition and outstanding as of 31 December 2016 are as follows:
Grant date
2012 warrants
Number of
warrants
1,383,086
2013 warrants
399,160
$
$
Exercise
Price
1.72 - $2.25
Expiration date
16 January 2017- 30 November 2017
2.00
16 January 2018-17 September 2018
15
SHARE OPTIONS
As part of the business combination, the Group acquired the former Company’s 2015 Equity Incentive Plan (the
“Plan”). The number of shares that may be issued upon exercise of options under the Plan, cannot exceed
141,142,420 shares. As of 31 December 2016, 61,770,222 Ordinary shares are available to be issued to certain
employees or directors under the Plan rules. The option plan is administered by the Group’s board of directors and
grants are made pursuant thereto by the compensation committee. The per share exercise price for the shares to be
issued pursuant to the exercise of an option shall be such price equal to the fair market value of the Group’s ordinary
shares on the grant date and set forth in the individual option agreement. Options terminate ten years after the grant
date and typically vest over three to four years.
The following is a summary of the Group's share options granted separated into ranges of exercise price:
Exercise
price
(range)
Options
outstanding
as of 31
December
2016
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
Options
exercisable
as of 31
December
2016
Remaining
contractual
life (years for
exercisable
options
Weighted
average
exercise
price
0.08-0.19
0.32
0.60-0.75
1.19-1.56
2.00
24,313,351
53,597,347
290,000
311,500
860,000
79,372,198
9.31
8.72
7.2
3.24
6.73
0.15
0.32
0.72
1.31
2.00
6,950,054
17,239,932
290,000
311,500
695,000
25,486,486
9.22
8.72
8.23
3.24
6.73
0.15
0.32
0.72
1.31
2.00
On 23 March 2016, the Company granted 11,000,000 options to its employees at an exercise price of $0.141 per
share that vests semi-annually over four years. On 22 April 2016, the Company granted 1,300,000 options
a
director at an exercise price of $0.18 per share that vest annually over three years. On 29 June 2016, the Company
granted. 7,800,000 options to its directors at an exercise price of $0.145 per share, 6,500,000 which will vest in full
on the date of the Company’s 2017 Annual General Meeting and 1,300,000 of which will vest over three years. On
13 October 2016, the Company granted 1,300,000 options to a director at an exercise price of $0.080621 per share
which will vest equally over three years on the date of the Company’s 2017-2019 Annual General Meetings, with the
first vesting on the date of the Company’s 2017 Annual General Meeting. On 13 October 2016, the Company
granted 1, 300,000 options to a resigning director at an exercise price of $0.080621 per share which vested
immediately upon grant. On October 13, 2016, the Company granted 1,300,000 options to a resigning director at an
exercise price of $0.080621 per share which vested immediately upon grant.
to
The Company accounts for awards of equity instruments issued to employees and directors under the fair value
method of accounting and recognise such amounts in its Consolidated Statements of Comprehensive Loss. The
Company measures compensation cost for all share-based awards at fair value on the date of grant and recognise
compensation expense in its Consolidated Statements of Comprehensive Loss using the straight-line method over the
service period over which it expects the awards to vest.
34
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
15. SHARE OPTIONS (Continued)
The Company accounts for awards of equity instruments issued to employees and directors under the fair value
method of accounting and recognise such amounts in its Consolidated Statements of Comprehensive Loss. The
Company measures compensation cost for all share-based awards at fair value on the date of grant and recognise
compensation expense in its Consolidated Statements of Comprehensive Loss using the straight-line method over the
service period over which it expects the awards to vest.
The Company estimates the fair value of all time-vested options as of the date of grant using the Black-Scholes
option valuation model, which was developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective
assumptions, including the expected share price volatility, which is calculated based on the historical volatility of the
Company’s common share. The Company uses a risk-free interest rate, based on the U.S. Treasury instruments in
effect at the time of the grant, for the period comparable to the expected term of the option. Given its limited history
with share option grants and exercises, the Company uses the “simplified” method in estimating the expected term,
the period of time that options granted are expected to be outstanding, for its grants.
The Company classifies its share-based payments as either liability-classified awards or as equity-classified awards.
The Company remeasures liability-classified awards to fair value at each balance sheet date until the award is settled.
The Company measures equity-classified awards at their grant date fair value and do not subsequently remeasure
them. The Company has classified its share-based payments which are settled in common share as equity-classified
awards and share-based payments that are settled in cash as liability-classified awards. Compensation costs related to
equity-classified awards generally are equal to the grant-date fair value of the award amortised over the vesting
period of the award. The liability for liability-classified awards generally is equal to the fair value of the award as of
the balance sheet date multiplied by the percentage vested at the time. The Company charges (or credits) the change
in the liability amount from one balance sheet date to another to compensation expense. Below are the assumptions
used for the options assumed and granted in the year ended 31 December 2016:
Expected dividend yield
Expected volatility
Risk-free interest
Expected life
2016
0%
74.18%-80.71%
1.03%-1.52%
5.50-6.25 years
During the year the Group recognised $3,933,000 in share based compensation expenses for employees and
directors. As of 31 December 2016, there was $8,957,000 unrecognised compensation cost relating to unvested share
options granted under the Group’s share option plans.
16. FINANCIAL INSTRUMENTS
a.
Classification of financial assets and liabilities:
The financial assets and financial liabilities in the statement of financial position are classified by groups of financial
instruments pursuant to IAS 39 are:
Financial assets:
Other receivables
Financial liabilities:
Trade payables, other payables, warrants and other long term liabilities
2016
$000
2015
$000
176
=======
2,407
=======
10
=======
5,055
=======
35
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
16. FINANCIAL INSTRUMENTS (continued)
Financial risks factors:
The Group's activities are exposed to foreign exchange risk. The Group's comprehensive risk management plan
focuses on activities and strategies that reduce adverse effects on the financial performance of the Group to a
minimum.
1.
Foreign currency risk:
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates
relates primarily to the Group's operating activities when expenses are denominated in a different currency from the
Group's functional currency. The Group believes that no reasonable change in foreign currency exchange rates would
have a material impact on the income statement or statement of changes in equity. The Group manages its foreign
currency risk by managing bank accounts that are denominated in a currency other than its respective functional
currency, primarily the Great Britain Pound (GBP).
2.
Credit risk:
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or supplier
contract, leading to a financial loss. Financial instruments that potentially subject the Group to concentrations of
credit risk consist principally of cash and cash equivalents. Cash and cash equivalents and short-term deposits are
deposited with major banks in Europe and the United States, and invested mostly in U.S. dollars and Great Britain
Pounds. Such deposits may be in excess of insured limits and are not insured in other jurisdictions. Generally, these
deposits may be redeemed upon demand and therefore bear low risk.
3.
Market risk:
The Group's financial instruments comprise equity investments, cash and various items such as trade debtors and
trade creditors that arise directly from its operations. The main risk arising from the Groups financial instruments is
liquidity risk. The Group has not entered into any derivative transactions.
17. OPERATING LEASE COMMITMENTS
The future minimum lease payable under non-cancelable office operating lease are as follows:
2017
2018
2019
Total
London
$000
129
129
26
----------
284
=====
United States
$000
313
330
225
----------
868
=====
36
AKARI THERAPEUTICS PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2016
18. RELATED PARTY TRANSACTIONS
The following transactions were carried out with related parties:
Accounting Services - An entity related to a shareholder provided accounting and bookkeeping services of
$45,000 and $131,000, respectively, to the Group during the years ended 31 December 2016 and 2015,
respectively.
Other – At 31 December 2015, there was a receivable balance in the amount of $10,366 with RPC Pharma
Limited (“RPC”), a major shareholder. The Group paid certain registration fees on RPC’s behalf and is treating
this as short-term in nature with no interest. This amount is recorded under “Receivable from related party” within
current assets on the statement of financial position. At 31 December 2016, the balance was $nil.
Office Lease - A non-employee director of the Group is also the CEO of The Doctors Laboratory (“TDL”). The
Group leases its UK office space from TDL and has incurred expenses of approximately $142,000 and $10,000
plus VAT during the years ended 31 December 2016 and 2015, respectively.
19. POST BALANCE SHEET EVENTS
During April 2017, the Group granted 7,150,000 share options to certain employees.
On 12 May 2017, a putative securities class action captioned Derek Da Ponte v. Akari Therapeutics, PLC, Gur
Roshwalb, and Dov Elefant (Case 1:17-cv-03577) was filed in the U.S. District Court for the Southern District of
New York against the Company, the Company’s Chief Executive Officer and the Company’s Chief Financial
Officer. The plaintiff asserted claims alleging violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 based primarily on the Company’s press release issued on 27 April 2017 stating that investors should
not rely on a research report about the Company prepared by a research company. The purported class covers the
period from 30 March 2017 to 11 May 2017. The action seeks unspecified damages and costs and fees. The
Company intends to vigorously defend itself against this lawsuit. At this time, the Company is unable to estimate
the ultimate outcome of this legal matter and its impact on the Company.
20.
STANDARDS ISSUED BUT NOT YET EFFECTIVE
Standards, amendments and interpretations issued but not yet effective up to the date of issuance of the Annual
Report are listed below. This listing is of standards, amendments and interpretations issued, which the group
reasonably expects to be applicable at a future date. The group intends to adopt those standards when they become
effective.
IFRS 15 ‘Revenue from contracts with customers’.
IFRS 9 ‘Financial instruments’.
Amendment to IAS 1, ‘Presentation of financial statements’ on the disclosure initiative.
IFRS 16 ‘Leases’.
The impact on the Group’s financial statements of the future adoption of these and other new standards and
interpretations is under review. With the exception of the IFRS 16 the Group does not expect the impact of such
changes on the financial statements to be material.
21. ULTIMATE CONTROLLING PARTY
The ultimate controlling party of the Group is RPC who holds a 61% stake in the Group.
37