Akari Therapeutics : 2023 Annual Report

AKARI THERAPEUTICS, PLC

ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 DECEMBER 2023

Registered in England and Wales, number: 05252842

AKARI THERAPEUTICS PLC

CONSOLIDATED ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2023

CONTENTS	Page
Officers and professional advisers	1
Directors' report	2
Strategic Report	6
Director's Remuneration Report	13
Independent Auditor's report to the shareholders of Akari Therapeutics Plc	30
Consolidated statement of comprehensive loss	35
Consolidated statement of financial position	36
Parent company statement of financial position	37
Consolidated statement of changes in equity	38
Parent company statement of changes in equity	39
Consolidated statement of cash flows	40
Parent company statement of cash flows	41
Notes to the report and financial statements	42

AKARI THERAPEUTICS PLC

OFFICERS AND PROFESSIONAL ADVISERS

FOR THE YEAR ENDED 31 DECEMBER 2023

Directors	R Prudo-Chlebosz
	M Hashad
	D Williams
	M Grissinger
	S Patel
Secretary	Prism Cosec Limited
Registered Office	Highdown House,
	Yeoman Way,
	Worthing,
	West Sussex
	BN99 3HH
Independent Auditors	Haysmacintyre LLP
	10 Queen Street Place
	London
	EC4R 1AG

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 of the Company ("Directors") present their report and the audited financial statements for the year ended 31 December 2023.

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AKARI THERAPEUTICS PLC

DIRECTORS' REPORT

FOR THE YEAR ENDED 31 DECEMBER 2023

The Company has chosen, in accordance with section 414C(11) of the Companies Act 2006, to include in its strategic report the following matters that would otherwise be required to be disclosed in this Directors' report: information on material financial instruments; information on research and development activities; and an indication of likely future developments in the business of the Company.

PRINCIPAL ACTIVITY

The principal activity of the Group is developing advanced therapies for autoimmune and inflammatory diseases involving the complement (C5) and leukotriene (LTB4) pathways. Each of these systems has scientifically well-supported causative roles in the diseases the Company is targeting. Management believes that blocking early mediators of inflammation will prevent initiation and continual amplification of the processes that cause certain diseases. The Group's activities since inception have consisted of performing research and development activities and raising capital.

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

M Hashad (Appointed on 30 June 2023)

1. Williams M Grissinger
   R Jacques (Resigned on 7 May 2024) D Byrne (Resigned on 30 June 2023) J Hill (Resigned on 30 June 2023)
   S Ungar (Resigned on 30 June 2023)
   S Patel (Appointed 29 November 2023)

DIRECTORS' INDEMNITY

The Company's Articles of Association provide, subject to the provisions of UK legislation, an indemnity for directors and officers of the Company in respect of liabilities they may incur in the discharge of their duties or in the exercise of their powers, including any liabilities relating to the defence of any proceedings brought against them which relate to anything done or omitted, or alleged to have been done or omitted, by them as officers or employees of the Company.

Appropriate directors and officer's liability insurance cover is in place in respect of all Company directors.

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AKARI THERAPEUTICS PLC

DIRECTORS' REPORT

FOR THE YEAR ENDED 31 DECEMBER 2023

ENVIRONMENTAL DISCLOSURES

We are a group with a small number of employees. We have serviced offices and we currently outsource our research, development, testing and manufacturing activities. As a result, the group itself consumed 40,000 kWh of energy or less during the year ended 31 December 2023. For this reason, no disclosures concerning greenhouse gas emissions, energy consumption and energy efficiency action are made under the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.

AUDITORS

Haysmacintyre LLP have indicated their willingness to continue in office as auditor for another year. In accordance with section 489 of the Companies Act 2006, a resolution proposing that Haysmacintyre LLP be reappointed as auditors of the Company will be put to the Annual General Meeting.

SUBSTANTIAL SHAREHOLDERS

On 31 December 2023 the following shareholders held an interest of 3% or more of the ordinary share capital of the Company:

	Ordinary shares of $0.0001	% of issued share capital
Ray Prudo, M.D. (1)	3,171,056,800	24.0%
PranaBio Investments, LLC (2)	2,085,237,500	15.8%

1. Represents the entire holdings of RPC Pharma Limited, Praxis Trustees Limited As trustee of The Sonic Healthcare Holding Company and Dr. Ray Prudo as reported on the Amendment No. 7 Schedule 13D filed with the U.S. Securities and Exchange Commission ("SEC") on January 4, 2024. The principal business office of RPC Pharma Limited is c/o Landmark Fiduciare (Suisse) SA, 6 Place des Eaux-Vives, P.O. Box 3461, Geneva, V8 1211, Switzerland. Dr. Ray Prudo has shared 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.
2. Represents the holdings of Pranabio Investments, LLC as reported on Form 4 filed with the SEC on January 2, 2024. Pranabio Investments, LLC is a Texas limited liability company. Samir R. Patel, M.D., is the managing member and has sole voting and investment power with respect to the shares.

As at 31 December 2023 no other person had reported an interest of 3% or more in the Company's ordinary shares.

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AKARI THERAPEUTICS PLC

DIRECTORS' REPORT

FOR THE YEAR ENDED 31 DECEMBER 2023

CORPORATE GOVERNANCE

The Group is not required to implement the provisions of the UK Corporate Governance Code (the "Code").

Regular Board of Directors meetings are held. The Board of Directors meets regularly and is responsible for overseeing management, formulating strategy and monitoring the Group's performance.

GOING CONCERN

The Group meets its day-to-day working capital requirements through funding. In assessing the Group's ability to continue as a going concern, Management has prepared financial forecasts covering at least the next twelve months from the date of approval of the financial statements.

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.

As of 31 December 2023, the Group's cash balance was $3.8 million. To date, the Group has incurred substantial losses and negative cash flows since inception and had an accumulated deficit of $203.6 million as of 31 December 2023.

The Group anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development. The Group is subject to a number of risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as uncertainty of clinical trial outcomes, uncertainty of additional funding, and history of operating losses. Substantial additional financing will be needed by the Group to fund its operations and to commercially develop its product candidates and there can be no assurance that additional funds will be available when the Group need them on terms that are acceptable to it, or at all. As of May 31, 2024, the Group's cash balance of $5.9 million, which includes net proceeds received from the May 2024 Private Placement (see note 19 of the notes to financial statements), is not sufficient to fund its operations for the one-year period after the date these consolidated financial statements are issued.

Management is currently evaluating different strategies to obtain the required funding for future operations. These strategies may include, but are not limited to: product development financing, private placements and/or public offerings of equity and/or debt securities, and strategic research and development collaborations and/or similar arrangements. Further, closing of the Group's proposed merger with Peak Bio, Inc. as contemplated in the associated Merger Agreement is contingent on the PIPE Investment (as defined in the Merger Agreement) which shall have been consummated simultaneously with, and conditioned only upon, the occurrence of the closing, and shall result in net proceeds to the Group of least $10 million. Management also expects that further sources of funding will also be made available for the Group to draw on (if required) as a result of the merger.

While management is confident in the Company's ability to obtain future funding, there can be no assurance that these future funding efforts, including the PIPE Investment (as defined in the Merger Agreement), will be successful.

Based on the requirement for Group to raise additional capital to finance future operations and for it to manage its working capital position, particularly in relation to accounts payable balances, until further such capital can be raised, management has concluded that these outcomes represent material uncertainties that cast significant doubt regarding the Group's ability to continue as a going concern within one year after the date that these consolidated financial statements are issued.

Notwithstanding these uncertainties, the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realisation of assets and the satisfaction of liabilities in the normal course of business. As such, the accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary if the Group is unable to continue as a going concern.

SUBSEQUENT EVENTS

Events occurring after the year end and required to be disclosed are detailed in note 19 of the notes to the financial statements.

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AKARI THERAPEUTICS PLC

DIRECTORS' REPORT

FOR THE YEAR ENDED 31 DECEMBER 2023

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 United Kingdom. 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 their profit or loss for that period.

The financial statements are required by law and IFRS as adopted by the United Kingdom to present fairly the financial position and performance of the Group.

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 United Kingdom subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and Parent company and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They have general responsibility for taking such steps as are reasonably open to safeguard the assets of the Group and Parent company and to prevent and detect fraud and other irregularities.

The directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

DISCLOSURE OF INFORMATION TO AUDITORS

Each of the directors at the time the report is approved confirms that, as at that time:

• so far as the director is aware, there is no relevant audit information of which the Company's auditors are unaware; and
• the director has taken all steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

This report was approved by the board on 3 June 2024 and signed on its behalf.

Samir R. Patel

Samir R. Patel

Director and Interim Chief Executive Officer

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AKARI THERAPEUTICS PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 31 DECEMBER 2023

REVIEW OF BUSINESS

The Group is a clinical-stage biotechnology company focused on developing advanced therapies for autoimmune and inflammatory diseases involving the complement ("C5") and leukotriene ("LTB4") pathways. Each of these pathways has scientifically well-supported causative roles in the diseases the Group is targeting. Management believes that blocking early mediators of inflammation will prevent initiation and continual amplification of the processes that cause certain diseases. The Group's activities since inception have consisted of performing research and development activities and raising capital.

The Group's lead product candidate, nomacopan, is a recombinant small protein (16,769 Da) derived from a protein originally discovered in the saliva of the Ornithodoros moubata tick, which modulates the host immune system to allow the parasite to feed without alerting the host to its presence or provoking an immune response. Nomacopan is a second - generation complement inhibitor which acts on complement C5, preventing release of C5a and formation of C5b-9 (also known as the membrane attack complex ("MAC")), and also independently and specifically inhibit LTB4 activity, both elements that are often co-located as part of the immune/inflammatory response. Management believes the importance of nomacopan's therapeutic potential is twofold. First, its dual inhibitory action may be able to prevent inflammatory and prothrombotic activities of two key pathways, and second, nomacopan's bio-physical properties may allow it to be used in a variety of formulations and routes of administration, including subcutaneous, intravenous, topical to eye, inhaled and intravitreous.

Up until May 2024, the Group was conducting a clinical trial of subcutaneous nomacopan for the treatment of hematopoietic stem cell transplant-related thrombotic microangiopathy ("HSCT-TMA") in pediatrics. Following completion of a portfolio prioritization review, the Group announced that its HSCT-TMA program will be suspended, as more fully described below. The Group is currently investigating long-actingPASylated-nomacopan("PAS-nomacopan") for treatment of Geographic Atrophy ("GA") secondary to dry age-related macular degeneration ("dry AMD") in preclinical studies and expect to hold a pre-investigational new drug application meeting in the third quarter of 2024.

The U.S. Food and Drug Administration ("FDA") has granted Rare Pediatric Disease, Orphan Drug, and Fast Track designations to nomacopan for the treatment of pediatric HSCT-TMA. Additionally, nomacopan has been granted Orphan Drug designation by the European Commission as a treatment for hematopoietic stem cell transplantation ("HSCT").

Merger Agreement and Pipeline Prioritization

On March 5, 2024, Akari announced that it entered into an Agreement and Plan of Merger (the "Merger Agreement") with Peak Bio, Inc. ("Peak Bio") and Pegasus Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Akari ("Merger Sub"), pursuant to which, upon the terms and subject to the conditions thereof, Merger Sub will be merged with and into Peak Bio (the "Merger"), with Peak Bio surviving the Merger as a wholly-owned subsidiary of Akari.

On May 1, 2024, the Group announced the completion of a joint portfolio prioritization review pursuant to which the anticipated combined entity, following completion of the previously announced Merger (as defined below), will focus on Peak Bio's antibody drug conjugate ("ADC") platform technology and the Group's PAS-nomacopan GA program. As a result, the Group's HSCT-TMA program will be suspended, with enrollment in its currently active pediatric clinical study discontinued due to cost and timeline. Following closing of the Merger, management plans to work closely with the FDA to define the best path for this technology and consider the opportunity for partnership and licensing, specifically as it relates to the potential eligibility for a priority review voucher in connection with future marketing applications for nomacopan, including as a treatment for pediatric HSCT-TMA.

Also on May 1, 2024, management began to implement a reduction-in-force of approximately 67% of the Group's total workforce, as a result of the recently announced program prioritization under which the Group's HSCT-TMA program was suspended. The reduction-in-force is part of an operational restructuring plan and includes the elimination of certain senior management positions. The purpose of the restructuring plan, including the reduction-in-force, is to reduce HSCT-TMA related operating costs, while supporting the execution of our long-term strategic plan.

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AKARI THERAPEUTICS PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 31 DECEMBER 2023

RESULTS AND DIVIDENDS

Research and development expenses for the year ended 31 December 2023 were approximately $9,083,000 (2022: $10,816,000). The decrease was the result of the net impact of multiple factors. The Group's research and development expenses decreased primarily due to decreases in clinical trial costs resulting from the Group's decision to close the bullous pemphigoid ("BP") trial in August 2022 and decreases in nompacopan manufacturing costs due to timing of manufacturing; partially offset by increases in personnel costs due to changes in our organizational structure, including a shift to U.S. - based employees and consultants, and increases in external HSCT-TMA costs as a result of the prioritization of the HSCT- TMA program in 2023.

Administrative expenses for the year ended 31 December 2023 were approximately $11,358,000 (2022: $13,075,000). The decrease was the result of the net impact of multiple factors. The Group's administrative expenses decreased primarily due to decreases in (i) financing-related costs of approximately $1,700,000 as a result of costs incurred during the 2023 period being classified in shareholders' equity, (ii) directors' and officers' insurance premiums of approximately $600,000, and (iii) personnel costs (including directors and consultants) of approximately $1,500,000. These decreases were partially offset by increases in other expenses, including legal and professional fees of approximately $1,400,000, of which approximately $800,000 are costs incurred related to the proposed Merger.

Net cash used in operating activities for the year ended 31 December 2023 was approximately $17,440,000 (2022: $21,504,000). Net cash flow used in operating activities was primarily attributed to ongoing research activities to support nomacopan and PAS-nomacopan, including manufacturing, clinical trial and preclinical activities, as well as administrative expenses and the change in fair value of the warrants issued in 2022, which have been classified as liabilities.

Net cash generated from financing activities was approximately $6,967,000 (2022: $25,288,000).

Cash and cash equivalents decreased to approximately $3,845,000 at 31 December 2023 (2022: $13,250,000).

The Group made a loss of approximately $12,240,000 (2022: $17,011,000). The loss for the Group is in line with the expected performance and the Directors are satisfied with the results for the year.

No dividends were paid during the year (2022: $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 favorable terms and the terms of the Group's finance arrangements may be dilutive. The Group may also seek additional funding through partnership 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, 2023, 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.

The Group plans to raise additional funds through equity or debt financings or other sources, such as strategic partnerships, alliance and/or licensing arrangements and government grants. There can be no assurance that additional funds will be available when the Group needs them on terms that are acceptable, or at all.

Clinical development stage

The Company is a clinical development stage 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. It is not unusual that clinical development stage companies fail to achieve their business plans 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.

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AKARI THERAPEUTICS PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 31 DECEMBER 2023

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Up until May 2024, the Group was conducting a clinical trial of subcutaneous nomacopan for the treatment of HSCT-TMA in pediatrics. Following completion of a portfolio prioritization review, the Group announced that its HSCT-TMA program will be suspended. The Group is currently investigating long-actingPASylated-nomacopan("PAS-nomacopan") for treatment of GA secondary to dry AMD in preclinical studies.

Drug development

The Group's drug development activities are complex, and all of the product candidates are in clinical development with a significant risk of failure. It is impossible to predict when or if any of the product candidates will prove effective or safe in humans and/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 assays for the products for formulations 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 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 in a timely fashion to make product candidates, or manufacture clinical trial drug supplies.

Departure of and search for executive officers

The Group's success depends upon the continued service and performance of our senior management and other key personnel. The loss of the services of these personnel could delay or prevent the successful completion of our planned clinical trials or the commercialization of our therapeutic candidates or otherwise affect our ability to manage our company effectively and to carry out our business plan. The Group does not maintain key-man life insurance. Although the Group has entered into employment agreements with all the members of its senior management team, members of its senior management team may resign at any time. High demand exists for senior management and other key personnel in the biopharmaceutical industry. There can be no assurance that the Group will be able to continue to attract and retain such personnel.

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 selected based on screening, animal testing or 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 clinical studies and provide more evidence substantiating the safety and efficacy of the doses selected in a significant patient population.

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