AKARI THERAPEUTICS, PLC
CONSOLIDATED ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 2019
Registered in England and Wales, number: 05252842
AKARI THERAPEUTICS, PLC
CONSOLIDATED ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
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
Parent company statement of changes in equity
Consolidated statement of cash flows
Parent company statement of cash flows
Page
1
2 – 4
5 – 11
12-23
24-26
27
28
29
30
30
31
32
Notes to the report and financial statements
33-47
AKARI THERAPEUTICS, PLC
OFFICERS AND PROFESSIONAL ADVISERS
FOR THE YEAR ENDED 31 DECEMBER 2019
Directors
R Prudo-Chlebosz
C Richardson
J Hill
S Ungar
D Byrne
D Williams
M Grissinger
P Feldschreiber
Secretary
Prism Cosec Limited
Registered Office
Independent Auditors
Elder House St George’s Business Park
207 Brooklands Road,
Weybridge,
Surrey,
KT13 0TS
Haysmacintyre LLP
10 Queen Street Place
London
EC4R 1AG
1
AKARI THERAPEUTICS, PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2019
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. All references to “parent company” refer to Akari
Therapeutics, Plc excluding its subsidiaries.
The directors present their report and the audited financial statements for the year ended 31 December 2019.
The Company has chosen, in accordance with section 414C(11) of the Companies Act 2006, and as noted in this directors’
report, to include certain matters in its strategic report that would otherwise be disclosed in this directors’ report. An indication
of likely future developments may be found in the strategic report.
PRINCIPAL ACTIVITY
The principal activity of the Group is developing inhibitors of acute and chronic inflammation, specifically the complement
system, the eicosanoid or leukotriene 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:
R Prudo-Chlebosz
C Richardson
J Hill
S Ungar
D Byrne
D Williams
M Grissinger
P Feldschreiber
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.
SUBSTANTIAL SHAREHOLDERS
On 31 December 2019 the following shareholders held an interest of 3% or more of the ordinary share capital of the
Company:
RPC Pharma Limited
PranaBio Investments, LLC
Yasumitsu Shigeta
Ordinary shares of £0.01 % of issued share capital
35.7%
5.3%
6.7%
800,766,600
119,904,200
150,009,600
As at 31 December 2019 no other person had reported an interest of 3% or more in the Company’s ordinary shares.
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.
The parent company’s articles of association provided for qualifying third party indemnity provision (as defined by section
234 of the Companies Act 2006) throughout the course of the financial year and at the date of this report for the benefit of
the Directors at the relevant times.
2
AKARI THERAPEUTICS, PLC
DIRECTORS’ REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
GOING CONCERN
The Group meets its day-to-day working capital requirements through funding. In assessing the Company’s ability to
continue as a going concern, management prepared a revised forecast for the next twelve months from the date of approval
of the financial statements to reflect the disruption and deferral of clinical trials to the year-end or to next year (i.e May
2021), due to the outbreak of COVID-19, the worldwide pandemic.
The Group’s forecast and projections, show that at present, the Group has insufficient working capital to fulfil its current
business plan without the Group raising additional capital.
We plan to raise additional funds from Aspire Capital and/or other external sources. As of May 25, 2020, $8.3 million
remained available for drawdown under the Company’s equity line with Aspire Capital. This remaining availability of
funds under the Aspire facility could extend the Company’s ability to fund operations into February 2021 without any
subsequent adjustment to the preliminary forecast. Furthermore, the Company currently intends to pursue other external
fundraising sources within the fiscal year 2020.
Based on the availability of funds under the Aspire facility, and ability to reduce both R&D and other administrative
expenditure costs significantly, management believes the Group financial prospects are sufficient to fund future operations
for at least the next twelve months.
The Group will require additional capital in order to develop and commercialise our current product candidates or any
product candidates that we acquire, if any. There can be no assurance that additional funds will be available when we need
them on terms that are acceptable to us, or at all. If adequate funds are not available on a timely basis, we may be required
to terminate or delay development for one or more of our product candidates.
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 have elected to prepare the Group and Parent company 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 IFRS 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.
3
AKARI THERAPEUTICS, PLC
DIRECTORS’ REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
DISCLOSURE OF INFORMATION TO AUDITORS
Each of the directors at the time the report was approved confirms that:
•
•
so far as he is aware, there is no relevant audit information of which the Group’s auditors are unaware; and
he has taken all steps that he ought to have taken to make himself 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 29 May 2020 and signed on its behalf.
Clive Richardson
Director
4
AKARI THERAPEUTICS, PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2019
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 or leukotriene 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, nomacopan inhibits both terminal complement activation and leukotriene B4, or LTB4. It
inhibits terminal complement activation by tightly binding to C5 and preventing its cleavage and activation by complement.
It inhibits LTB4 by capturing the fatty acid within the body of the nomacopan protein. By preventing C5 activation of
complement nomacopan can stop formation of the anaphylatoxin C5a which activates cells, including granulocytes and T
and B cells, via two G protein coupled receptors, or GPCRs, and also prevents formation of the membrane attack complex,
or MAC which activates cells including endothelial cells. C5a and the MAC cause and maintain a proinflammatory and
prothrombotic state. LTB4 also activates cells via two separate GPCRs and can independently cause and maintain a
proinflammatory state. The importance of nomacopan’s (formerly Coversin) dual inhibitory action is therefore twofold.
First, it can prevent inflammatory and prothrombotic activities of two key pathways, and second, the pathways can be
independently activated, for example terminal complement activation can be induced by IgG, IgM, carbohydrates and
damage associated molecular patterns and LTB4 synthesis can be induced by engagement of Fc gamma receptors,
cytokines, toll-like receptors, C5a and MAC.
Nomacopan 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.
Nomacopan 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 hemoglobinuria, or PNH, Guillain Barré Syndrome, or GBS,
high-risk hematopoietic stem cell transplant-associated thrombotic microangiopathy, or HSCT-TMA, and bullous
pemphigoid, or BP. 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 the designation does not mean that marketing approval will be received. We intend to apply in the future for orphan
drug designation in additional indications we deem appropriate.
On August 14, 2019, we received notice from the FDA of Fast Track designation for the investigation of nomacopan for
the treatment of pediatric HSCT-TMA. On March 29, 2017, we received notice from the FDA of Fast Track designation
for the investigation of nomacopan for the treatment of PNH in patients who have polymorphisms conferring Soliris®
(eculizumab) resistance. The Fast Track program was created by the FDA to facilitate the development and expedite the
review of new drugs which show promise in treating a serious or life-threatening disease and address an unmet medical
need. Drugs that receive this designation benefit from more frequent communications and meetings with the FDA to review
the drug’s development plan including the design of the proposed clinical trials, use of biomarkers and the extent of data
needed for approval. Drugs with Fast Track designation may also qualify for priority review to expedite the FDA review
process, if relevant criteria are met.
Our clinical targets for nomacopan are orphan inflammatory diseases where the inhibition of both C5 and LTB4 are
implicated, including bullous pemphigoid, or BP, atopic keratoconjunctivitis, or AKC and thrombotic microangiopathy
bone marrow transplant or TMA-HSCT as well as COVID-19 pneumonia and other COVID related diseases.
5
AKARI THERAPEUTICS, PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
RESULTS AND DIVIDENDS
Research and development expenses for the year ended 31 December 2019 were approximately $16,646,000 (2018:
$15,589,000). This $1,057,000 increase is primarily due to increased expenditure relating to clinical trials.
We expect our clinical expenses to increase in the future as we conduct additional trials to support the development of
nomacopan, and advance other product candidates into pre-clinical and clinical development.
Administrative expenses for the year ended 31 December 2019 were approximately $8,224,000 (2018: $10,897,000). This
$2,673,000 decrease was primarily due to lower expenses of $1,236,000 legal expenses, $622,000 stock-based non-cash
compensation expense, $416,000 for rent expense and $482,000 for professional fees.
We expect our general and administrative expenses to increase due to increased legal, accounting and professional fees
associated with being a publicly reporting company in the United States and rental expense associated with offices in the
United States and London to support the Company’s operations and anticipated growth.
Net cash used in operating activities for the year ended 31 December 2019 was $12,257,000 (2018: $22,536,000). Net cash
flow used in operating activities was primarily attributed to our ongoing research activities to support nomacopan, including
manufacturing, clinical trial and preclinical activities.
Net cash used in investing activities for the year ended 31 December 2019 was $Nil (2018: $Nil).
Net cash provided by financing activities was $11,987,000 (2018: $306,000).
Cash and cash equivalents decreased to approximately $5,732,000 at 31 December 2019 (2018: $5,968,000).
The Group made a loss of $21,764,000 (2018: $19,950,00). 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 (2018: $Nil) and the directors do not propose a final dividend.
PRINCIPAL RISKS AND UNCERTAINTIES
Financing
The Group requires additional funding 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 types of arrangements may require the Group to relinquish rights to internally
developed technology, product candidates or products. If the Group is 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. Additionally, the report of the Group’s statutory audit firm on its financial statements
for the period ended December 31, 2019, includes an explanatory paragraph raising substantial doubt about its ability to
continue as a going concern as a result of recurring losses from operations and net capital deficiency. The Group’s future
is dependent upon its ability to obtain financing in the future. This opinion could materially limit the Group’s ability to
raise funds.
We plan to raise additional funds from Aspire Capital and/or other external sources. As of May 25 2020, $8.3 million was
available for drawdown under the Company’s equity line with Aspire Capital. The availability of funds under the Aspire
facility could extend the Company’s ability to fund operations into February 2021 without any subsequent adjustment to
the preliminary forecast. Furthermore, the Company currently intends to pursue other external fundraising sources within
the fiscal year 2020. There can be no assurance that additional funds will be available when we need them on terms that
are acceptable to us, or at all.
6
AKARI THERAPEUTICS, PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
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.
Departure of and search for executive officers
The Group’s success depends on its ability to hire and retain the services of its current executive officers, directors, principal
consultants and others. In addition, the Group has established relationships with universities and research institutions which
have historically provided, and continue to provide, us with access to research laboratories, clinical trials, facilities and
patients. The loss of the services of any of these individuals or institutions has had and could have a material adverse effect
on the Group’s business. Dov Elefant resigned as our Chief Financial Officer in September 2019. In May 2018, David Horn
Solomon resigned as Chief Executive Officer and member of the Company’s board. Dr. Solomon’s resignation followed
the results of an investigation conducted, with the assistance of an independent law firm, which revealed that Dr. Solomon
incurred personal charges on the Company’s corporate credit cards in violation of Company policy. Clive Richardson, who
was then serving as the Company’s Chief Operating Officer, was appointed to serve as the Company’s Interim Chief
Executive Officer and became the Chief Executive Officer in July 2019.
Retention of key management staff is an underlying risk of the business.
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
7
AKARI THERAPEUTICS, PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
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
Impact of Coronavirus Outbreak
In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the
outbreak was largely concentrated in China, it has now spread to several other countries, including in the United Kingdom
and the United States, and infections have been reported globally. Public health epidemics or outbreaks such as this can
adversely impact the Company’s business as a result of disruptions, such as travel bans, quarantines, and interruptions to
access the trial sites and supply chains, which could result in material delays and complications with respect to our research
and development programs and clinical trials. Moreover, as a result of coronavirus, there is a general unease of conducting
unnecessary activities in medical centers. As a consequence, the Company’s ongoing trials have been halted or disrupted.
It is too early to assess the full impact of the coronavirus outbreak on trials for nomacopan, but coronavirus may affect our
ability to complete recruitment in the original timeframe. For example, the Phase I/II clinical trial in patients with AKC
study has been halted and the Company anticipates that recruitment in the Phase III clinical trial in pediatric patients with
HSCT-TMA will be delayed. The extent to which the coronavirus impacts operations will depend on future developments,
which are highly uncertain and cannot be predicted with confidence, including the duration and continued severity of the
outbreak, and the actions that may be required to contain the coronavirus or treat its impact. In particular, the continued
spread of the coronavirus globally could adversely impact the Company’s operations and workforce, including research
and clinical trials and the ability to raise capital, could affect the operations of key governmental agencies, such as the
FDA, which may delay the development of the Company’s product candidates, and could result in the inability of suppliers
to deliver components or raw materials on a timely basis or at all, each of which in turn could have an adverse impact on
the Company’s business, financial condition and results of operation.
More detailed information about the risks and uncertainties affecting us is contained under the heading "Risk Factors"
included in our Annual Report on Form 20-F filed with the SEC on March 31, 2020 and in other filings that we have made
and may make with the SEC in the future.
8
AKARI THERAPEUTICS, PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
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 or leukotriene 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 – 2019: $16,646,000 (2018: $15,589,000)
Cash and cash equivalents position – 2019: $5,732,000 (2018: $5,968,000)
SECTION 172 STATEMENT
When making decisions, the directors act in the way they consider is most likely to promote the success of the Company,
for the benefit of its members as a whole, while also considering the broad range of stakeholders who interact with the
business.
Our strategy is to clinically develop new drugs for orphan inflammatory diseases.
In striving to achieve our goal to develop new therapeutic medicines, our business touches the lives of many people. We
exist in a complex and evolving regulatory and scientific environment and as a result we have a number of key stakeholder
groups. Considering the interests of our stakeholders is fundamental to the way in which the Company operates. Our values
and Code of Ethics empower employees to make the best decisions in the interest of the Company and our stakeholders,
and help to ensure that these considerations are made not only at Board level, but throughout our organisation.
The directors continue to take into account the Company’s stakeholders, including the potential impact of its future
activities on the community, the environment and the Company’s reputation when making decisions. The directors also
continue to take all necessary measures to ensure the Company is acting in good faith and fairly between members and is
promoting the success of the Company for its members in the long term.
The table below serves as our Section 172 statement by setting out the key stakeholder groups, their interests and how the
Company engages with them. Akari’s key stakeholders include its investors, employees, regulatory bodies and suppliers.
9
AKARI THERAPEUTICS, PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
Stakeholder
Our Investors
Our Employees
Regulatory bodies
Our Suppliers
Why we engage
How we engage
• Annual General Meetings
• Quarterly financial results and
analysis
• One-to-one meetings by
Directors and Management
with analysts and institutional
investors
• Investor outreach programs
including attending conferences
and events and roadshows
• Press releases
• Company website
• Competitive compensation and
reward packages
• Staff are encouraged to attend
relevant conferences and
training courses for personal &
company development
• Direct communications
structure between the Board
and the staff
• Company website
• EDGAR and Regulatory News
Service (RNS) announcements
• Annual Report
• Direct contact and
communications with
regulators
• Compliance updates at Board
Meetings
• Consistent risk review
• Building strong working
relationships with suppliers
through open two-way
discussions and regular
meetings.
The Board
and management
maintain a regular and constructive
to
investors
dialogue with
the Company’s
communicate
strategy
to
performance
and
promote investor confidence and
ensure continued access to capital.
to
Akari
the
staff are key
Company’s success. Fully engaged
staff lead to a more productive,
innovative and happier workplace
benefiting the performance of Akari
as a whole. Our engagement seeks
to address any employee concerns
regarding working
conditions,
training and
health & safety,
development. Engagement with our
employees is led by the CEO and
the Chairman.
regulations,
and
including
Akari is subject to a wide range of
laws,
listing
the
requirements
regulatory framework from FDA,
EMA
regulatory
agencies, the SEC, data protection,
tax, environmental
employment,
and health and safety legislation.
other
and
We have several key suppliers with
whom we have built
strong
relationships. We establish rigorous
tight communication channels to
ensure our working relationship
remains collaborative and forward
– focused, and to create a successful
and fair collaboration.
10
AKARI THERAPEUTICS, PLC
STRATEGIC REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
This report was approved by the Board on 29 May 2020 and signed on its behalf.
Clive Richardson
Director
11
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
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 2019.
Name of Director
Salary
and Fees
($)
Taxable
Benefits
($)
Bonus
($) (4)
Stock
Award
s ($)
Option
Awards
($)(1)
Pension
Benefits
($)
2019 Total
($)
Executive Director
Ray Prudo
Clive Richardson
Non-Employee Director
James Hill, M.D.
Stuart Ungar, M.D.
David Byrne
Donald Williams
Peter Feldschreiber
Michael Grissinger
400,000
432,408
-
9,798 (3)
200,000
177,028
62,752
49,947
52,143
56,838
49,947
39,338
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
43,241(2)
600,000
662,475
17,259
17,259
17,259
17,259
17,259
17,259
-
-
-
-
-
-
80,011
67,206
69,402
74,097
67,206
56,597
(1) These amounts represent the aggregate grant date fair value for option awards for fiscal year 2019 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, under note 15.
(2) Consists of company contributions to pension scheme.
(3) Consists of company contributions to health benefits of $7,401 and life insurance premiums of $2,397.
(4) Bonuses are awarded on the basis of an assessment of the overall performance of the director concerned, rather than specific measures or targets.
In respect of 2019, the annual bonus payments for the Executive Directors reflect their strong personal performance at a critical time for the business.
Ray Prudo and Clive Richardson both received annual bonus payments of 100% of the maximum available respectively, of which 100% will be
deferred in cash until the completion of certain operational activities planned for fiscal year 2020. None of the awards is attributable to share price
appreciation and no discretion was exercised as a result of share price appreciation or depreciation.
The following table shows the compensation paid or accrued during the fiscal year ended 31 December 2018.
Name of Director
Salary
and
Fees ($)
Taxable
Benefits
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)(1)
Pension
Benefits
($)
2018 Total
($)
Executive Director
Ray Prudo (2)
David Solomon (3)
Clive Richardson
Non-Employee Director
James Hill, M.D.
Stuart Ungar, M.D.
David Byrne
Donald Williams
Robert Ward (6)
Peter Feldschreiber
Michael Grissinger (7)
212,180
183,371
354,405
-
4,261
9,793 (4)
106,090
-
131,755
58,792
48,492
48,492
53,642
36,396
35,890
35,890
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
253,123
-
-
32,683 (5)
318,270
187,632
783,759
16,869
16,869
16,869
25,003
-
49,304
49,304
-
-
-
-
-
-
-
75,661
65,361
65,361
78,645
39,396
85,194
85,194
(1) These amounts represent the aggregate grant date fair value for option awards for fiscal year 2018 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 2018.
(2) Dr. Prudo is party to a non-executive contract although he performs executive duties on behalf of Akari.
(3) Dr Solomon was appointed as our Chief Executive Officer on 28 August 2017 and resigned as Chief Executive Officer on 8 May 2018.
(4) Consists of company contributions to health benefits of $7,633 and life insurance premiums of $2,160.
(5) Consists of company contributions to a pension plan.
(6) Mr. Ward resigned as a director on 19 September 2018.
(7) Mr. Feldschreiber and Mr. Grissinger were appointed as a director on 23 January 2018.
12
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
Incentive Plan Awards (subject to audit)
Akari operates an equity incentive plan (the 2014 Equity Incentive Plan, or 2014 Plan) under which directors receive
options to acquire ordinary shares in Akari. Options awards granted during the fiscal year ended 31 December 2019 are
as follows:
Name of Director
James Hill
Stuart Ungar
David Byrne
Donald Williams
Michael Grissinger
Peter Feldschreiber
Option
Awards(1)
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
1,300,000
(1) Option awards are subject to time-based vesting.
Grant Date
Exercise Price
Option Awards ($) (2)
27/06/2019
27/06/2019
27/06/2019
27/06/2019
27/06/2019
27/06/2019
$0.0207
$0.0207
$0.0207
$0.0207
$0.0207
$0.0207
26,910
26,910
26,910
26,910
26,910
26,910
(2) These amounts represent the aggregate grant date fair value for option awards for fiscal year 2019 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, Section 15.
Director’s shareholdings (subject to audit)
The table below shows, for each director, the total number of ordinary shares owned, the total number of share options held
and the number of share options vested within 60 days of 31 March 2020. No director exercised any share options during
the year ended 31 December 2019.
Name of Director
Executive Director
Ray Prudo (2)
Clive Richardson
Non-employee Director
James Hill, M.D
Stuart Ungar, M.D
David Byrne
Donald Williams
Peter Feldschreiber
Michael Grissinger
Ordinary Shares
Owned
Share Options
Vested Share Options
(1)
832,477,100
10
-
10
-
-
-
-
-
40,771,850
6,500,000
6,500,000
6,500,000
7,250,000
3,900,000
3,900,000
-
23,521,850
5,200,000
5,200,000
5,200,000
5,950,000
1,950,000
1,950,000
(1) All share options that were outstanding as at 31 December 2019 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 and Dr. Ray Prudo and includes warrants to purchase 9,210,500 ordinary shares (equivalent
to 92,105 ADSs) at an exercise price of $0.03 per share (or $3.00 per ADS) which expire on July 1, 2024 and warrants to purchase additional 7,500,000
ordinary shares (equivalent to 75,000 ADSs) at an exercise price of $0.02 per share (or $2.20 per ADS) which expire on February 21, 2025. Dr. Prudo
has voting and dispositive control over the ordinary shares held by RPC Pharma Limited and owns approximately 67.8% of RPC’s outstanding shares
(including option grants), including 10.6% 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
The remainder of this Directors’ Remuneration Report is not subject to audit.
13
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
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 ADSs were publicly traded on The Nasdaq
Capital Market through 31 December 2019. 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.
14
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
Chief Executive Total Remuneration History
The table below sets out total remuneration details for the Chief Executive Officer.
Period
Single total
figure of
remuneration
$
Annual
Bonus
Short-term
incentive
payout
against
maximum
Option Awards
($)
Option
Awards
against
maximum (4)
432,408
173,611
1,338,253
177,028
-
119,041 (5)
2019 Clive Richardson (9)
2018 (David Solomon) (1)
2017 (Gur Roshwalb and
David Solomon) (1)
2016 (Gur Roshwalb)
2015 (Gur Roshwalb)
2014 (Gur Roshwalb)
2013 (Gur Roshwalb) (2)
2012 (3)
(1) Dr. Roshwalb resigned as Akari’s Chief Executive Officer on 29 May 2017 and David Solomon was appointed as Akari’s Chief Executive Officer
581,250
7,306,951
410,564
576,389
-
-
6,863,034
60,564
173,396
-
125% (7)
100% (8)
-
-
-
187,500
86,625
-
-
-
-
100% (6)
-
-
-
-
-
-
-
-
-
-
-
on 28 August 2017 and resigned 8 May 2018.
(2) Dr. Roshwalb was appointed as Akari’s Chief Executive Officer on 4 March 2013.
(3) Akari was not a quoted company in 2012.
(4) All options were awarded on a discretionary basis on an annual basis.
(5)
(6) Bonus was awarded in 2017 but calculated from Dr. Solomon’s appointment on 28 August 2017.
(7) 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
Includes a $50,000 signing bonus.
September 2015.
(8) 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.
(9) Clive Richardson was appointed Interim Chief Executive on 8 May 2018 and Chief Executive Officer on 18 July 2019.
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 2018 and the year ended 31 December 2019.
Basic Salary
Annual bonus
Taxable benefits
Relative Importance of Spend on Pay
Percentage increase in remuneration
in year ended 31 December 2019
compared
with remuneration in the year ended
31 December 2018
CEO
8%
106%
5%
All employees
(20%)
(5%)
1%
The following table sets forth the total amounts spent by the Company on remuneration for the year ended 31 December
2019 and the year ended 31 December 2018. 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 2019.
Period
Total spend on remuneration
Shareholder distributions
Research and development costs
Year Ended
31 December
2019
$
3,094,347
-
16,646,000
Year Ended
31 December
2018
$
3,547,493
-
10,897,000
15
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
Implementation of remuneration policy for year ending 31 December 2020
Our director compensation program is administered by our board of directors with the assistance of the compensation
committee. The compensation committee conducts an annual review of director compensation and makes recommendations
to the board with respect thereto.
The shareholders approved our Directors Remuneration Policy on July 14, 2017 to provide a framework for the Directors’
compensation packages. In addition, the Company has a non-employee director compensation policy, which was amended
and restated on November 19, 2015 and was subsequently amended on June 29, 2016, January 26, 2017, January 23, 2018
and on January 8, 2019. On January 9, 2020, our Compensation Committee resolved that the cash compensation and
committee membership fees would remain the same as they were for 2019. As a result, our non-employee directors will be
compensated for service on our board of directors as follows in 2020:
•
•
•
•
•
an annual retainer for service on the board of directors of $39,338;
an annual retainer for service as a member of the compensation committee and nominating and
governance committee of $5,305;
an annual retainer for service as a member of the audit committee of $7,500;
for the chairman of the compensation committee, and nominating and governance committee, an annual
retainer of $10,609;
for the chairperson of the audit committee, an annual retainer of $17,500;
The following table presents the salary increases agreed for the upcoming fiscal year (with the agreed increases for the year
ended 31 December 2019 presented as comparative information)
Director
Executive Director
Ray Prudo (2)
Clive Richardson (3)
Non-employee Director
James Hill, M.D (4)
Stuart Ungar, M.D (5)
David Byrne (4)
Donald Williams (6)
Peter Feldschreiber (7)
Michael Grissinger (8)
31
December
2018
31
December
2019
Increase
%
31
December
2019
31
December
2020 (1)
Increase
%
$212,180
£259,560
$400,000
£337,428
$58,792
$48,492
$48,492
$53,642
$35,890
$35,890
$62,752
$49,947
$52,143
$56,838
$39,338
$49,947
89%
30%
7%
3%
8%
6%
39%
10%
$400,000
£337,428
$412,000
£382,306
3%
13.3%
$62,752
$49,947
$52,143
$56,838
$39,338
$49,947
$62,752
$49,947
$52,143
$56,838
$39,338
$49,947
0%
0%
0%
0%
0%
0%
(1) Additional discretionary bonuses may be awarded in accordance with contractual entitlement and the remuneration policy.
(2) 2018-2019 increase represents an increase in line with increased duties as Executive Chairman and Interim Chief Executive Officer. 2019-2020
increase represents an increase in line with inflation.
(3) 2018-2019 increase reflects Mr Richardson being appointed interim Chief Executive Officer. 2019-2020 increase represents an increase in line with
their increased duties as Chief Executive Officer.
(4) 2018-2019 represents an increase of 3% for board and compensation committee fees in line with inflation with the exception of the increase in audit
committee fees from $5,150 to $7,500.
(5) 2018-2019 represents an increase in line with inflation.
(6) 2018-2019 represents an increase of 3% for board fees in line with inflation with the exception of the increase in audit committee chairman fees
from $15,450 to $17,500.
(7) 2018-2019 represents an increase in line with inflation. Dr. Feldschreiber joined the board on 23 January 2018 and became chairman of the
nominating and governance committee in 2019.
(8) 2018-2019 represents an increase in line with inflation. Mr. Grissinger joined the board on 23 January 2018
16
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
Compensation Committee Approach to Remuneration Matters
The Compensation Committee is comprised of Dr. James Hill (Chairman), Dr. Stuart Ungar, and Mr. David Byrne. Dr.
James Hill, as Chairman of our Compensation Committee, reports, in respect of 2019, that the annual bonus payments for
the Executive Directors reflect their strong personal performance at a critical time for the business. Ray Prudo and Clive
Richardson both received annual bonus payments of 100% of the maximum available respectively, of which 100% will be
deferred in cash until the completion of certain operational activities planned for fiscal year 2020. Fee increases are
explained in the notes to the table above. For the year ending 31 December 2020, our Compensation Committee resolved
that the cash compensation and committee membership fees of Non-Executive Directors would remain the same as they
were for 2019 to reflect the developmental stage of the Company. All members have continued to serve until the date of
this Directors’ Remuneration Report. The charter of
is set forth on Akari’s website at
http://www.akaritx.com.
the Committee
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.
In respect of the last resolution to approve the Directors’ Remuneration Report at the 2019 AGM, of the 836,425,350 votes
cast in respect of the above resolution 792,896,650 votes were in favour of this resolution, 7,314,400 votes against and
36,214,300 votes abstained.
In respect of the last resolution to approve the Directors’ Remuneration Policy at the 2017 AGM, of the 939,527,413 votes
cast in respect of the above resolution 933,105,629 votes were in favour of this resolution, 1,714,228 votes against and
4,707,556 votes abstained.
17
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
PART II - DIRECTORS’ REMUNERATION POLICY
INFORMATION PROVIDED IN THIS SECTION OF THE DIRECTORS’ REMUNERATION REPORT IS
NOT SUBJECT TO AUDIT.
This section sets out the proposed new forward-looking Directors’ Remuneration Policy (“Policy”) of Akari, which has
evolved from the existing policy. The Policy provides, subject to shareholder approval, a framework for execution of
Akari’s compensation framework from the date of its approval at the 2020 Annual General Meeting of Shareholders
(“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. The existing policy, which was approved by shareholders at the 2017 AGM, can be found in our
2018 remuneration report.
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) for the periods for which they apply.
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. Elements of compensation packages which are subject to
performance conditions as noted in the Group’s remuneration policy may include key performance indicators (KPIs), both
financial and non-financial, which are an important component of the information needed to explain a company’s progress
towards its stated goals. Other elements which are not subject to performance measures are considered an important
component of attracting and retaining UK resident employees, including Executive Directors.
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
Operation
Maximum opportunity Performance metrics
Element
Base salary
Purpose and
link to
strategy
Support the
recruitment
and retention
of Executive
Officers
• 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.
Pension
• Akari typically makes
contributions to pension
plans (or retirement savings
plans) to match prevailing
local market practices.
Encourages
and enables
executives to
build savings
for their
retirement
18
• 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 salary per annum.
and recovery
provisions
• None, although
overall performance
of the individual is
considered when
setting and
reviewing salaries.
• No provisions for
recovery or
withholding of sums
as this is not
performance-
related.
• None.
• No provisions for
recovery or
withholding of sums
as this is not
performance-
related.
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
Other
Benefits
Provide market
competitive
benefits in a
cost-effective
way
Bonus
To reward the
delivery of
annual targets
as well as to
recognise the
individual
contributions
towards our
key strategic
achievements
• Provisions include 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 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.
• No prescribed
• None.
maximum. The cost
of benefits will vary
from year to year in
accordance with the
cost of insuring such
benefits.
• No provisions for
recovery or
withholding of sums
as this is not
performance-
related.
• 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.
• No provisions for
recovery or
withholding of sums
as the performance
measures are
considered
adequate.
19
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
Equity
incentive
plan
(2014 Equity
Incentive
Plan)
To motivate
and reward
long-term
performance in
alignment with
the shareholder
interests and
value-creation
• 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.
• There is no specific
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.
• Where performance
conditions are
attached to an
award, these
typically include
key financial,
operational and/or
individual
objectives subject to
overall
Compensation
Committee
discretion.
• No provisions for
recovery or
withholding of sums
as the performance
measures are
considered
adequate.
CSOP
(UK resident
employees
and directors
only)
• Executives are eligible to
• Grant value of
• None.
participate in the all-
employee CSOP Plan under
the same conditions as all
other employees.
£30,000 or local
market rules as
amended from time to
time.
• No provisions for
recovery or
withholding of sums
as this is not
performance-
related.
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. There are no
elements of the non-employee director compensation policy which are subject to performance conditions given the
necessity to maintain directors’ independence and board effectiveness in corporate governance, and accordingly there are
no provisions for recovery or withholding of sums.
The table below sets out some of the features of Akari’s current non-employee director compensation policy:
20
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
Element
Annual Cash
Retainer Fee
Purpose and
link to
strategy
Support the
recruitment
and retention
of Non-
Executive
Directors
Operation
Maximum opportunity Performance metrics
• None.
• There is no prescribed
maximum increase
nor any requirement
to increase salary at
any time.
• Each Non-Executive
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
receive an additional cash
retainer.
• Annual cash retainers are
typically payable on a
quarterly basis with the
exception of the Executive
Chairman who is paid
monthly.
• A Non-Employee Director
may elect to receive annual
cash payments in the form
of fully-vested ordinary
shares.
Share options Strengthens the
• Directors typically receive
alignment to
shareholders’
interests
through share
ownership
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.
• 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.
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.
21
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
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. Akari expects remuneration packages for on-Executive Directors to
include an annual retainer paid in cash for their service (depending on their additional membership and chairman
responsibilities) and an annual grant of stock options. Non-Executive Directors do not participate in the bonus plan to
which Executive Officers are eligible, nor do they typically receive any other performance related payment.
The chart below sets out the level of remuneration that would be received by each Executive Director in accordance with
Akari’s remuneration policy for its Executive Directors in the first year to which the policy applies in each of three
scenarios: if the director receives the minimum remuneration receivable; if the director performs in line with the Company’s
expectations in respect of performance measures; and if the director receives the maximum remuneration receivable (not
allowing for any share price appreciation):
(1) The Minimum Remuneration Receivable consists of salary and fees, taxable benefits, and pension benefits
(2) Annual bonus relates to performance over one financial year. No remuneration has performance measures relating to
more than one financial year.
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).
It is the Company’s policy that Executive Directors should have contracts with an indefinite term. Directors’ notice periods
are set by the compensation committee, having regard to the need to attract and retain talent, ensure an orderly succession
and enable the Company to manage its personnel while avoiding excessive costs. Service contracts are available for
inspection at Akari’s registered office or 75/76 Wimpole Street London W1G 9RT.
22
AKARI THERAPEUTICS, PLC
DIRECTORS’ REMUNERATION REPORT (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
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 employment arrangements for Executive Directors 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,
if any, 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, as well
as the Consumer Price Index and Retail Price Index, when making compensation related decisions for the Directors. The
Compensation Committee does not consult employees, other than Executive Directors, when drafting the Directors’
remuneration policy.
The Compensation Committee also considers shareholder feedback, so far as it relates to compensation, when reviewing
of the appropriateness of its Policy. In addition, the Compensation Committee considers potential conflicts of interest and
directors do not have sole discretion over their own remuneration.
This report was approved by the board on 29 May 2020 and signed on its behalf.
Clive Richardson
Director
23
INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDER OF
AKARI THERAPEUTICS, PLC
Opinion
We have audited the financial statements of Akari Therapeutics, Plc (the ‘parent company’) and its subsidiaries (the
‘group’) for the year ended 31 December 2019 which comprise the consolidated statement of comprehensive loss, the
consolidated statement of financial position, the parent company statement of financial position, the consolidated statement
of changes in equity, the parent company statement of changes in equity, the consolidated statement of cash flow, the parent
company statement of cash flows and notes to the financial statements, including a summary of significant accounting
policies. 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.
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 2019 and of
the group’s loss for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty relating to going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the
disclosures made in note 1(c) of the financial statements concerning the group’s ability to continue as a going concern.
The disclosures indicate that in the short term the group would require additional funding to meet its liabilities as they fall
due. These circumstances indicate the existence of a material uncertainty which may cast significant doubt on the group’s
ability to continue as a going concern. The financial statements do not include any adjustments that would result if the
company or group was unable to continue as a going concern.
We have identified going concern as a key audit matter based on our assessment of the significance of the risk and the
effect on our audit strategy. Our response to this risk is outlined in the following section.
Key audit matters
In addition to the matter described in the material uncertainty relating to going concern section, key audit matters are those
matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
24
INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDER OF
AKARI THERAPEUTICS, PLC (continued)
Key audit matter
How the matter was addressed
Going concern
The Group has reported a
total comprehensive loss of
$21,760,000 (2018:
$20,105,000) and operating
cash outflow of $12,257,000
(2018: $22,536,000). These
factors indicate that a risk that
use of the going concern
basis of preparation of the
financial statements may not
be appropriate.
• We reviewed post year end trading and fundraising activity.
• We reviewed the cash flow forecast prepared by management and challenged
management on the assumptions and judgements made.
• We assessed the Company’s ability to scale back operations and reduce costs should
cash levels become low in the twelve months from the approval of the financial
statements.
• We considered the adequacy of the securities purchase agreement with Aspire
Capital Fund, LLC which provides that, upon the terms and subject to the conditions
and limitations set forth therein, Aspire Capital Fund, LLC is committed to purchase
up to an aggregate of $20 million of the group’s ADS over the 30 month period of
the purchase agreement from its commencement on 26 Septermber 2018.
• We considered the impact of the COVID-19 pandemic on the group’s ability to carry
out research and raise funds for at least the next twelve months from the date of
approval of these financial statements.
Our application of materiality
The scope and focus of our audit were influenced by our assessment and application of materiality. We define materiality
as the magnitude of misstatement that could reasonably be expected to influence the readers and the economic decisions
of the users of the financial statements. We use materiality to determine the scope of our audit and the nature, timing and
extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements
as a whole. We considered expenditure and expenditure growth to be the main focus for the readers of the financial
statements, accordingly this consideration influenced our judgement of materiality. Based on our professional judgement,
we determined materiality for the group to be $500,000. This value was derived from a benchmark of 2% of predicted
expenditure.
On the basis of our risk assessments, together with our assessment of the overall control environment, our judgement was
that performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the Company was
75% of materiality, namely $375,000.
An overview of the scope of our audit
Our audit approach is based on obtaining and maintaining a thorough understanding of the Group and Parent company’s
business, structure and operations in order to undertake a risk-based audit approach. This approach requires us to identify
relevant and appropriate key and significant risks of misstatement and determine the most appropriate tailored responses
to this risk assessment. The extent of our work is determined by the level of risk in each area and our assessment of
materiality as discussed above.
Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
25
INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDER OF
AKARI THERAPEUTICS, PLC (continued)
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the
course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which 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 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.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 2, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company's members, 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.
Christopher Cork (Senior statutory auditor)
for and on behalf of Haysmacintyre LLP,
Statutory Auditors
10 Queen Street Place
London
EC4R 1AG
Date: 29 May 2020
26
AKARI THERAPEUTICS, PLC
COMPANY NUMBER: 05252842
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED 31 DECEMBER 2019
Research and development expenses
Administrative expenses
Contingent costs
OPERATING LOSS
Net finance income/(loss)
LOSS BEFORE INCOME TAX
Income Tax Credit
LOSS FOR THE YEAR
Other Comprehensive (Loss)/Income:
Currency translation differences
COMPREHENSIVE LOSS FOR THE YEAR
Notes
3
4
2019
$000
(16,646)
(8,224)
-
---------------
(24,870)
117
---------------
(24,753)
2,989
---------------
(21,764)
=======
4
---------------
(21,760)
=======
2018
$000
(15,589)
(10,897)
2,700
---------------
(23,786)
286
---------------
(23,500)
3,550
---------------
(19,950)
=======
(155)
---------------
(20,105)
=======
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 33 to 47 form an integral part of the consolidated financial statements.
27
AKARI THERAPEUTICS, PLC
COMPANY NUMBER: 05252842
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
ASSETS
Non-current assets
Property, plant and equipment
Intangible Assets
Current assets
Trade and Other receivables
Cash and cash equivalents
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
Other long term liabilities
Current liabilities
Trade and other payables
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
2019
$000
2018
$000
7
6
9
12
13
13
13
13
13
13
11
10
5
30
---------------
35
4,540
5,732
---------------
10,272
---------------
10,307
=======
31,987
108,865
(387)
9,128
13,462
(20,983)
(138,236)
---------------
3,836
---------------
20
33
---------------
53
10,431
5,968
---------------
16,399
---------------
16,452
=======
23,651
106,030
(391)
9,128
12,413
(20,983)
(116,472)
---------------
13,376
---------------
1,015
-
5,456
---------------
6,471
---------------
10,307
=======
3,076
---------------
3,076
---------------
16,452
=======
The financial statements were approved and authorised for issue by the Board of Directors on 29 May 2020
and were signed below on its behalf by:
Clive Richardson
Director
The notes on pages 33 to 47 form an integral part of these consolidated financial statements.
28
AKARI THERAPEUTICS, PLC
COMPANY NUMBER: 05252842
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
ASSETS
Non-current assets
Property, plant and equipment
Investment in subsidiaries
Current assets
Trade and Other receivables
Cash and cash equivalents
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
Other long term liabilities
Current liabilities
Trade and other payables
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
2019
$000
2018
$000
7
8
9
12
13
13
13
13
11
10
5
20,339
---------------
20,344
8,474
5,716
---------------
14,910
---------------
34,534
=======
31,987
108,865
9,128
13,462
(135,273)
---------------
28,169
---------------
1,015
5,350
---------------
6,365
---------------
34,534
=======
20
20,339
---------------
20,359
14,452
5,914
---------------
20,366
---------------
40,725
=======
23,651
106,030
9,128
12,413
(113,484)
---------------
37,738
---------------
-
2,987
---------------
2,987
---------------
40,725
=======
As permitted by Section 408 of the Companies Act 2006, the income statement of the parent company is not presented
as part of these financial statements. The parent company’s loss for the financial year was $21,789,000 (2018: loss
of $20,083,000).
The financial statements were approved and authorised for issue by the Board of Directors on 29 May 2020
and were signed below on its behalf by:
Clive Richardson
Director
The notes on pages 33 to 47 form an integral part of these consolidated financial statements.
29
AKARI THERAPEUTICS, PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
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
At I January 2018
22,928
105,863
(236)
9,128
10,764
(20,983)
(96,522)
30,942
Comprehensive gain/ loss for the
year
Share based payments
Shares Issued
At 31 December 2018
Comprehensive gain/ (loss) for
the year
Share based payments
Shares Issued
At 31 December 2019
-
-
(155)
-
-
-
(19,950)
(20,105)
-
723
--------------
23,651
=======
-
167
--------------
106,030
=======
-
--------------
(391)
=======
-
-
--------------
9,128
=======
1,649
-
--------------
12,413
=======
-
-
--------------
(20,983)
=======
-
-
--------------
(116,472)
=======
1,649
890
--------------
13,376
=======
-
-
4
-
-
-
(21,764)
(21,760)
-
8,336
--------------
31,987
=======
-
2,835
--------------
108,865
=======
-
-
--------------
(387)
=======
-
-
--------------
9,128
=======
1,049
-
--------------
13,462
=======
-
-
--------------
(20,983)
=======
-
-
--------------
(138,236)
=======
1,049
11,171
--------------
3,836
=======
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
Share
Capital
$000
Share
Premium
$000
Merger
Reserve
$000
Share Based
Payment
Reserve
$000
Retained
Loss
$000
Total
$000
At I January 2018
22,928
105,863
9,128
10,764
(93,401)
55,282
Total comprehensive loss for the year
Share based payments
Shares Issued
At 31 December 2018
Total comprehensive loss for the year
Share based payments
Shares Issued
At 31 December 2019
-
-
723
--------------
23,651
=======
-
-
8,336
--------------
31,987
=======
-
-
167
--------------
106,030
=======
-
-
2,835
--------------
108,865
=======
-
-
-
--------------
9,128
=======
-
-
-
--------------
9,128
=======
-
1,649
-
--------------
12,413
=======
-
1,049
-
--------------
13,462
=======
(20,083)
-
-
--------------
(113,484)
=======
(21,789)
-
-
--------------
(135,273)
=======
(20,083)
1,649
890
--------------
37,738
=======
(21,789)
1,049
11,171
--------------
28,169
=======
The notes on pages 33 to 47 form an integral part of these consolidated financial statements.
30
AKARI THERAPEUTICS, PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities
Loss before income tax
Adjustments for:
Changes in fair value of warrants
Share-based payment
Foreign currency exchange gains
Depreciation and amortization
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Tax credit
Other liabilities
Net cash flows used in operating activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Issue costs
Other liabilities
Cash generated from financing activities
Exchange losses on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
2019
$000
2018
$000
(24,753)
(23,500)
199
1,049
(30)
18
5,891
2,380
2,989
-
------------
(12,257)
11,791
(620)
816
------------
11,987
34
236
5,968
------------
5,732
========
1,649
(105)
39
(451)
(3,670)
3,550
(48)
------------
(22,536)
891
(585)
-
------------
306
(51)
(22,281)
28,249
------------
5,968
========
The notes on pages 33 to 47 form an integral part of these consolidated financial statements.
31
AKARI THERAPEUTICS, PLC
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities
Loss before income tax
Adjustments for:
Changes in fair value of warrants
Share based payments
Depreciation
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Tax credit
Other liabilities
Net cash flows used in operating activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Issue costs
Other liabilities
Cash generated from financing activities
Exchange gains on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
2019
$000
2018
$000
(24,778)
(23,633)
199
1,049
14
5,979
2,363
2,989
-
------------
(12,185)
11,791
(620)
816
------------
11,987
-
(198)
5,914
------------
5,716
========
-
1,649
36
3,063
(3,604)
(48)
------------
(22,537)
891
(585)
------------
306
(2)
(22,233)
28,147
------------
5,914
========
The notes on pages 33 to 47 form an integral part of these consolidated financial statements.
32
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
1.
ACCOUNTING POLICIES
(a)
(b)
(c)
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.
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).
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”).
Going Concern
For the year ended 31 December 2019 the Group reported a comprehensive loss of $21,760,000 and expects to
continue to incur substantial losses over the next several years during its development phase. To fully execute its
business plan, the Group will need, among other things, to complete its research and development efforts and
clinical and regulatory activities. These activities may take several years and will require significant operating and
capital expenditures in the foreseeable future. There can be no assurance that these activities will be successful. If
the Group is not successful in these activities it could delay, limit, reduce or terminate preclinical studies, clinical
trials or other research and development activities. To fund its working capital needs, the Group plans to raise
funds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing
arrangements, and in the long term, from the proceeds from sales.
In the current business climate, Management acknowledge the COVID-19 pandemic and have implemented
logistical and organisational changes to underpin the Group’s resilience to COVID-19, with the key focus being
protecting all personnel, minimising the impact on critical work streams and ensuring business continuity. COVID-
19 may impact the Group in varying ways leading to potential impairments of assets held which could have a direct
bearing on the Group’s ability to generate sufficient cash flows for working capital purposes. Management are closely
monitoring commercial and technical aspects of the Group’s operations to mitigate the impact from the COVID-19
pandemic. The inability to gauge the length of such disruption further adds to this uncertainty. For these reasons the
generation of sufficient operating cash flows remain a risk. Management believes the Group will generate sufficient
working capital and cash flows to continue in operational existence and will have the ongoing support of its
shareholders, if required, for the foreseeable future.
As a result of COVID-19, there is a general unease of conducting unnecessary activities in medical centers. As a
consequence, our ongoing trials have been halted or disrupted. It is too early to assess the full impact of the
coronavirus outbreak on trials for nomacopan, but coronavirus may affect our ability to complete recruitment in
our original timeframe. For example, we have halted our Phase I/II clinical trial in patients with AKC study and
we anticipate that recruitment in our Phase III clinical trial in pediatric patients with HSCT-TMA will be delayed.
The extent to which the coronavirus impacts our operations will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the
actions that may be required to contain the coronavirus or treat its impact.
33
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
1.
ACCOUNTING POLICIES (continued)
In particular, the continued spread of the coronavirus globally could adversely impact our operations and
workforce, including our research and clinical trials and our ability to raise capital, could affect the operations of
key governmental agencies, such as the FDA, which may delay the development of our product candidates, and
could result in the inability of our suppliers to deliver components or raw materials on a timely basis or at all, each
of which in turn could have an adverse impact on our business, financial condition and results of operation.
On September 26 2018, the Group entered into an equity line agreement (the “Purchase Agreement”) with Aspire
Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), which provides that, upon the terms
and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an
aggregate of $20.0 million of the Company’s American Depository Shares over the 30-month term of the Purchase
Agreement. As of December 31, 2019, $10,731,875 of the original purchase commitment remains available under
the facility.
On July 3, 2019, the Company sold to certain institutional investors, accredited investors and an existing
shareholder, RPC Pharma Ltd., an affiliated entity of Dr. Ray Prudo, the Company’s Chairman, an aggregate of
2,368,392 ADSs in the Registered Direct Offering. The Company also entered into a letter agreement with the
Placement Agent to serve as the placement agent for the Company in connection with this offering. In connection
with the sale of the ADSs in this Registered Direct Offering, the Company issued unregistered warrants to
investors and the Placement Agent to purchase an aggregate of 1,361,842 ADSs in a private placement at $3.00
per ADS and $2.85 per ADS respectively.
The Group will require additional capital in order to develop and commercialise our current product candidates
or any product candidates that we acquire, if any. There can be no assurance that additional funds will be available
when we need them on terms that are acceptable to us, or at all. If adequate funds are not available on a timely
basis, we may be required to terminate or delay development for one or more of our product candidates.
Therefore, having reviewed the Group’s forecast and projections, and having made appropriate enquiries, the
Directors acknowledge that there is a substantial doubt about our ability to continue as a going concern as a result
of our recurring losses from operations and net capital deficiency. Our future is dependent upon our ability to
obtain financing in the future. The auditor’s opinion could materially limit our ability to raise funds. As a result,
in the absence of sufficient new capital, we may have to liquidate our business and you may lose your investment
in our ADSs.
We plan to raise additional funds from Aspire Capital and/or other external sources. The availability of funds
under the Aspire facility could extend the Group’s ability to fund operations into February 2021 without any
subsequent adjustment to the preliminary forecast. Furthermore, the Group currently intends to pursue other
external fundraising sources within the fiscal year 2020. Based on the availability of funds under the Aspire
facility, the Group’s track record of other external fundraising during the reported year and subsequently and its
ability to reduce both R&D and other administrative expenditure as may be appropriate, management believes
that despite these material uncertainties, the Group’s financial prospects are sufficient for future operations to be
sufficiently funded for at least the next twelve months. On this basis, while there is a material uncertainty that
may cast significant doubt on the Group’s ability to continue as a going concern, the Directors consider it
appropriate to continue to prepare the financial statements on a going concern basis without adjustment
(d)
Standards and interpretations adopted during the year
The adoption of the following mentioned amendments in the current year have not had a material impact on the
Group’s and Company’s financial statements:
IFRS 16: Leases
EU effective date–
periods beginning on
or after
1 January 2019
The Group assessed the lease commitments the Company holds, and since no lease committed is longer than a
year, there is no IFRS 16 impact, assuming the Group’s lease commitments remain at this level.
34
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
1. ACCOUNTING POLICIES (continued)
There are several standards, amendments to standards, and interpretations which have been issued by the IASB
that are effective in future accounting periods that the group has decided not to adopt early. The most significant
of these are as follows, which are all effective for the period beginning 1 January 2020:
•
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors (Amendment – Definition of Material)
IFRS 3 Business Combinations (Amendment – Definition of Business)
•
• Revised Conceptual Framework for Financial Reporting
•
Interest Rate Benchmark Reform (IBOR) reform Phase 1 (Amendments to IFRS 9, IAS 39 and IFRS 7)
Akari Therapeutics, Plc is currently assessing the impact of these new accounting standards and amendments.
(e)
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) assets and liabilities at the balance sheet date are translated at the closing rate as at that balance sheet date;
b)
c) all resulting exchange differences are recognised in other comprehensive income.
income and expenses for each income statement are translated at average exchange rates; and
(f)
Financial instruments
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks.
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 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.
35
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
1. ACCOUNTING POLICIES (continued)
(g)
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.
(h)
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.
(i)
Intangible assets
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.
(j)
(k)
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.
36
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
1. ACCOUNTING POLICIES (continued)
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.
Where warrants and options issued with settlement criteria that outside fixed for fixed criteria as outlined by IAS
32 (ie. fixed number of shares for fixed amount of cash) the resulting fair value of the instruments issued will be
classified in financial liabilities.
(l)
Finance income and expenses
Interest income and expenses are recognised using the effective interest method. It mainly comprises 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) Leases
In the current year, the standard IFRS 16 Leases is effective. IFRS 16 introduces new or amended requirements
with respect to lease accounting. It introduces significant changes to the lessee accounting by removing the
distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease
liability at the lease commencement for all leases, except for short-term leases and lease of low value assets.
The Group have assessed the lease commitments The Group holds, and since no lease committed to is longer than
a year in addition to the non-specific character of the space that the Company currently leases, the Company have
concluded that this does not fall under the remit of IFRS 16 and subsequently there is no IFRS 16 impact. The
Group will continue to monitor all leases going forward.
The Group continues to charge the income statement on a straight-line basis for any leases less than 12 months.
(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.
(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.
37
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
1.
ACCOUNTING POLICIES (continued)
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.
Research and Development: Under IAS 38: Intangible Assets, the Group must determine whether to recognise
research costs incurred as an expense or asset. Depending on the development stage of a project determines
whether an expense can be capitalised. Difficultly can arise at determining the stage of a project.
Intangibles: The Group must determine the useful economic life of the intangibles held in order to allocate the
correct amortisation charge of the useful life of the economic asset. Failure to correctly value the intangible can
result in an overstatement of assets and understatement of amortisation.
Share based payments: The Group issues share options and warrants to employees, service providers and investors.
Where share options and warrants are issued in return for services, appropriate valuation methods are used to
recognise an appropriate expense is recognised in the financial statements. These valuation methods are subject to
significant estimation as outlined in note 15. Where warrants issued to investors are classified as free-standing
liabilities, they are remeasured to fair value at each reporting date for which both judgement and estimation is
required.
Investment in subsidiary: The Parent must continually assess the carrying value of investments in subsidiaries for
indications of impairment. Indications of impairment are considered with reference to the Group’s market
capitalisation, internal assessment of the ongoing contribution of intellectual property and any other indications of
obsolescence and progress in line with the Group’s business plan.
(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 is recognised in the income statement.
38
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
2.
EXPENSES BY NATURE
Employee benefit expense (see below)
Depreciation
Amortisation
Exchange (loss)/ gain
Auditors’ remuneration
- audit fees
- other services
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
2019
$000
3,469
15
4
(67)
31
-
=======
2019
$000
3,094
375
--------------
3,469
=======
16
=======
1,528
=======
2018
$000
3,841
36
3
82
28
7
======
2018
$000
3,547
294
--------------
3,841
=======
22
=======
1,641
=======
The key management is considered to be the directors and senior management team. Details of directors’
remuneration and share based compensation can be seen within the Directors’ Remuneration Report on pages 12 to
23.
3.
NET FINANCE INCOME/(LOSS)
Change in value of liability related to options
Net foreign exchange (losses)/gains
Interest Income
Other taxes
2019
$000
198
(67)
5
(19)
---------------
117
=======
2018
$000
-
82
222
(18)
---------------
286
=======
39
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
4.
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 19% in 2019 (2018: 19%)
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
Expenses not deductible for tax purposes
Surrender of tax loses for R&D tax credit refund
Additional deduction for R&D tax credit
Adjustment in respect of prior years
Tax credit
2019
$000
(3,505)
516
-------------
(2,989)
=======
(24,753)
=======
(4,703)
2,397
309
1,997
(3,505)
516
--------------
(2,989)
=======
2018
$000
(3,540)
(10)
-------------
(3,550)
=======
(23,500)
=======
(4,490)
2,436
49
1,106
(2,641)
(10)
--------------
(3,550)
=======
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 had a loss for the year of $21,789,000
(2018: $20,083,000).
40
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
6.
INTANGIBLE ASSETS
GROUP
Cost
At 1 January 2019
Additions
At 31 December 2019
Amortisation
At 1 January 2019
Charge for the year
At 31 December 2019
Net Book Value
At 31 December 2019
At 31 December 2018
Patent
acquisition costs
$000
95
-
---------------
95
---------------
(62)
(3)
---------------
(65)
---------------
30
=======
33
=======
7.
PROPERTY PLANT AND EQUIPMENT
GROUP & COMPANY
Office furniture
and equipment
$000
Cost
At 1 January 2019
Additions
At 31 December 2019
Depreciation
At 1 January 2019
Charge for the year
At 31 December 2019
Net Book Value
At 31 December 2019
At 31 December 2018
172
-
---------------
172
---------------
(152)
(15)
---------------
167
---------------
5
=======
20
=======
41
Total
$000
95
-
----------------
95
---------------
(62)
(3)
---------------
(65)
---------------
30
=======
33
=======
Total
$000
172
-
---------------
172
---------------
(152)
(15)
---------------
167
---------------
5
=======
20
=======
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
8.
INVESTMENTS IN SUBSIDIARIES
Company
At 1 January 2019
Additions
At 31 December 2019
Investments in
Subsidiary
Undertakings
$000
20,339
-
----------
20,339
======
The Company directly owns 100% of the issued share capital of the following subsidiaries, which have been
included in the consolidated financial statements:
Volution Immuno
Pharmaceuticals SA
Celsus Therapeutics Inc.
Morria Biopharma Ltd.
Akari Malta Limited
Principal activity
Development of
pharmaceutical drugs
Dormant
Dormant
Regulatory
compliance
Country of
incorporation
Holdings
Switzerland
Ordinary
United States
Israel
Malta
Ordinary
Ordinary
Ordinary
%
100
100
100
100
Registered office addresses of subsidiaries:
Volution Immuno Pharmaceuticals SA: Place Des Eaux-Vives 6, 1207 Geneva, Switzerland
Celsus Therapeutics Inc: 1209 Orange Street, Wilmington, DE 19801
Morria Biopharma Ltd: 1209 Orange Street, Wilmington, DE 19801
Akari Malta Limited: Gasan Centre, Level 3, Mriehel By Pass, Mriehel, BKR 3000, Malta
9.
TRADE AND OTHER
RECEIVABLES
Trade and other receivables
Prepayments and accrued income
Income tax receivable
Group
Company
2019
$000
-
856
3,684
-----------
4,540
=====
2018
$000
585
1,286
8,560
-----------
10,431
=====
2019
$000
3,975
818
3,681
----------
8,474
=====
2018
$000
4,590
1,414
8,448
----------
14,452
=====
10.
TRADE AND OTHER PAYABLES
Group
Company
Trade payables
Accrued expenses
2018
$000
1,586
1,490
---------------
3,076
=======
2019
$000
1,130
4,220
-------------
5,350
======
2018
$000
1,607
1,380
-------------
2,987
======
2019
$000
1,228
4,228
---------------
5,456
=======
42
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
11.
NON-CURRENT LIABILITIES
Warrants (Note 14)
Group
Company
2019
$000
1,015
-------------
1,015
=======
2018
$000
-
-------------
-
=======
2019
$000
1,015
-------------
1,015
=======
2018
$000
-
------------
-
=======
12.
CALLED UP SHARE CAPITAL
Issued and fully paid
Akari Therapeutics, Plc
As at 1 January 2019
Issued during the year (Ordinary shares of £0.01 each)
As at 31 December 2019
No of shares
1,580,693,413
665,172,500
-------------------------
2,245,865,913
==============
Share
Capital
$
23,651,277
8,335,739
------------------------
31,987,016
============
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.
43
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
14.
WARRANTS
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.
Warrants to service providers and investors -
On July 3, 2019, the Company sold to certain institutional investors, accredited investors and an existing
shareholder, RPC Pharma Ltd., an affiliated entity of Dr. Ray Prudo, the Company’s Chairman, an aggregate of
2,368,392 ADSs in a registered direct offering at $1.90 per ADS, resulting in gross proceeds of approximately
$4.5 million. The Company also entered into a letter agreement with Paulson Investment Company, LLC (the
“Placement Agent”) to serve as the placement agent for the Company in connection with this offering. In
connection with the sale of the ADSs in this registered direct offering, the Company issued to the investors
unregistered warrants to purchase an aggregate of 1,184,213 ADSs in a private placement (“Investor Warrants”).
The Investor Warrants are immediately exercisable and will expire five years from issuance at an exercise price
of $3.00 per ADS, subject to adjustment as set forth therein. Subject to certain conditions, the Company has the
option to “call” the exercise of the warrants from time to time after any 10-consecutive trading day period during
which the daily volume weighted average price of the ADSs exceeds $4.50. The Company paid to the Placement
Agent an aggregate of $337,496 in placement agent fees and expenses and issued unregistered warrants to the
Placement Agent to purchase an aggregate of 177,629 ADS (“Placement Agent Warrants”) on the same terms as
the Investor Warrants, except that the Placement Agent Warrants are exercisable at $2.85 per ADS and expire on
June 28, 2024. Both the Investor Warrants and the Placement Agent Warrants (together the “Paulson Warrants”)
may be exercised on a cashless basis if six months after issuance there is no effective registration statement
registering the ADSs underlying the warrants. Pursuant to the cashless exercise provision, the warrant holder must
make an additional payment to the Company equal to the nominal value of an ADS (i.e., £1) per warrant ADS
actually to be issued pursuant to the cashless exercise. The total amount of Paulson Warrants issued in connection
with this registered direct offering amounted to 1,361,842, all of which were outstanding as of December 31,
2019. The fair value at the date of grant was $1,213,800. A fair value revaluation gain was recognised during the
year of $199,000. As of 31 December 2019, the fair value of the warrants was $1,015,000 (2018: $0).
During the twelve months ended 31 December 31, 2019, no warrants to purchase Ordinary Shares expired.
15
SHARE OPTIONS
In accordance with the Company’s 2014 Equity Incentive Plan (the “Plan”), the number of shares that may be issued
upon exercise of options under the Plan shall not exceed 183,083,207 Ordinary Shares. At December 31, 2019,
88,734,172 Ordinary Shares are available for future issuance under the Plan. The option plan is administered by the
Company’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 Company’s Ordinary Shares on the grant date and set forth in the individual option agreement.
Options expire ten years after the grant date and typically vest over one to four years.
44
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
15
SHARE OPTIONS (continued)
The following is a summary of the Group's share options granted separated into ranges of exercise price:
Exercise
price in $
Number of
options
outstanding
as of 31
December
2019
Weighted
average
remaining
contractual
life in years
Weighted
average
exercise price
in $
Number of
options
exercisable
as of 31
December
2019
Remaining
contractual
life in years
for
exercisable
options
Weighted
average
exercise
price in $
0.0175-0.05
0.12-0.19
0.32
59,300,000
18,334,629
16,714,406
94,349,035
8.54
6.30
5.72
0.02
0.15
0.32
24,975,000
17,553,379
16,714,406
58,992,785
8.29
6.29
5.72
0.03
0.16
0.32
The Company measures compensation cost for all share-based awards at fair value on the date of grant and
recognizes compensation expense in general administrative and research and development expenses within 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
peer companies. 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 stock-based payments as either liability-classified awards or as equity-classified awards.
The Company re-measures 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 does not subsequently re-
measure them. The Company has classified its stock-based payments, which are settled in ordinary shares 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 amortized 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 amounts from one balance sheet date to another to stock-based compensation expense.
Below are the assumptions used for the options granted in the year ended 31 December 2019:
Expected dividend yield
Expected volatility
Risk-free interest
Expected life
2019
0%
75.40%
1.76%
5.5 years
During the year the Group recognized $1,049,000 (2018: $1,649,000) in share-based compensation expenses for
employees and directors. At 31 December 2019, there was approximately $448,000 of unrecognized compensation
cost related to unvested share-based compensation arrangements granted under the Group’s share option plans.
45
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
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 IFRS 9 are:
Financial assets:
Other receivables
Financial liabilities:
Trade payables, other payables, warrants and other long term liabilities
2019
$000
2018
$000
-
=======
1,228
=======
585
=======
1,586
=======
b.
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 British 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 British Pounds. Such
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.
46
AKARI THERAPEUTICS, PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
17. RELATED PARTY TRANSACTIONS
The following transactions were carried out with related parties:
Premises rental space - A non-employee director of the Company is also the CEO of The Doctors Laboratory
(“TDL”). The Company rents its UK office space from TDL and has incurred expenses of approximately $134,000
(2018: $139,000) during the year ended 31 December 2019.
Laboratory Testing Services: The Company has received laboratory testing for its clinical trials provided by TDL
and has incurred expenses of approximately $186,000 (2018: $84,000) during the year end 31 December 2019.
Consulting – A non-employee director of the Company began providing business development consulting services
in January 2018. The Company has incurred expenses of approximately $100,000 (2018: $84,000) for the year ended
31 December 2019.
18. POST BALANCE SHEET EVENTS
In January 2020, the Company sold to Aspire Capital 650,000 ADSs of the Company for gross proceeds of
approximately $1,108,000 under the Purchase Agreement.
In February 2020, the Company sold to certain accredited investors including Dr. Ray Prudo, the Company’s
Chairman, an aggregate of 5,620,296 ADSs in a private placement at $1.70 per ADS, resulting in aggregate gross
proceeds of approximately $9.5 million. In addition, the Company issued to the investors unregistered warrants to
purchase an aggregate of 2,810,136 ADSs in a private placement. The warrants are immediately exercisable and
will expire five years from issuance at an exercise price of $2.20 per ADS, subject to adjustment as set forth therein.
The warrants may be exercised on a cashless basis if six months after issuance there is no effective registration
statement registering the ADSs underlying the warrants. Subject to certain conditions, the Company has the option
to “call” the exercise of the warrants from time to time after any 10-consecutive trading day period during which
the daily volume weighted average price of the ADSs exceeds $3.30. The Company paid an aggregate of approx.
$808,362 in placement agent fees and expenses and issued unregistered placement agent warrants to purchase an
aggregate of 449,623 ADS on the same terms as the warrants to investors, except that the placement agent warrants
are exercisable at $2.55 per ADS.
In May 2020, the Company sold to Aspire Capital a total of 75,000,000 ordinary shares of the Company for total
gross proceeds of $1,305,480 under the Purchase Agreement.
In the current business climate, Management acknowledge the COVID-19 pandemic and have implemented logistical
and organisational changes to underpin the Group’s resilience to COVID-19, with the key focus being protecting all
personnel, minimising the impact on critical work streams and ensuring business continuity. COVID-19 may impact
the Group in varying ways leading to potential impairments of assets held which could have a direct bearing on the
Group’s ability to generate sufficient cash flows for working capital purposes. Management are closely monitoring
commercial and technical aspects of the Group’s operations to mitigate the impact from the COVID-19 pandemic. The
inability to gauge the length of such disruption further adds to this uncertainty. For these reasons the generation of
sufficient operating cash flows remain a risk. Management believes the Group will generate sufficient working capital
and cash flows to continue in operational existence and will have the ongoing support of its shareholders, if required,
for the foreseeable future. No adjustment has been made to the financial statements in respect of the COVID-19
pandemic as it is considered to be a non-adjusting event. Management continues to quantify the financial impact of
COVID-19 on the Group prospectively which remains uncertain at the date of approval of these financial statements.
19. ULTIMATE CONTROLLING PARTY
The ultimate controlling party of the Group is RPC Pharma Ltd who holds a 36% stake in the Group.
47