Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

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Note 1. Description of Business

Business Overview

Akari Therapeutics, Plc, (the "Company" or "Akari") is incorporated in the United Kingdom. The Company is a biotechnology company focused on developing advanced therapies for autoimmune and inflammatory diseases involving the complement component 5 ("C5") and leukotriene B4 ("LTB4") pathways. The Company's activities since inception have consisted of performing research and development activities and raising capital.

The Company is subject to a number of risks similar to those of preclinical stage companies, including dependence on key individuals, uncertainty of product development and generation of revenues, dependence on outside sources of capital, risks associated with preclinical trials of products, dependence on third-party collaborators for research and development operations, need for marketing authorization of products, risks associated with protection of intellectual property, and competition with larger, better-capitalized companies.

To fully execute its business plan, the Company 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 Company is not successful in these activities it could delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities.

Merger with Peak Bio

As further described in Note 10, on November 14, 2024, the Company closed the previously announced merger with Peak Bio, Inc. ("Peak Bio"). As a result, the Company expanded its pipeline of assets spanning early and late development stages with the addition of Peak Bio's antibody drug conjugate ("ADC") toolkit with novel payload and linker technologies as well as the Peak Bio PHP-303 small molecule selective and reversible neutrophil elastase inhibitor. By combining chemotherapy with immunotherapy strategies, the Company aims to develop cutting-edge solutions for cancer patients.

Liquidity and Financial Condition

The Company follows the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 205-40, Presentation of Financial Statements-Going Concern, which requires management to assess the Company's ability to continue as a going concern within one year after the date the consolidated financial statements are issued.

The Company has incurred substantial losses and negative cash flows since inception and had an accumulated deficit of $243.5millionas of September 30, 2024. The Company's cash balance of $2.2millionas of September 30, 2024 is not sufficient to fund its operations for the one-year period after the date these condensed consolidated financial statements are issued. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development. The Company 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

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clinical trial outcomes, uncertainty of additional funding, and history of operating losses. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its product candidates. 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. There can be no assurance that these future funding efforts will be successful.

Nasdaq Continued Listing Rules

On April 5, 2024, the Company received a letter ("Letter") from the Listing Qualifications Staff (the "Staff") of The Nasdaq Capital Market ("Nasdaq") notifying the Company that the Company's shareholders' equity as reported in its Form 10-K is no longer in compliance with the minimum shareholders' equity requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain shareholders' equity of at least $2.5million (the "Shareholders' Equity Requirement"). As reported on the Form 10-K, the Company's shareholders' deficit as of December 31, 2023 was approximately $0.2million. As of September 30, 2024, the Company had a shareholders' deficit of $6.7millionand was not in compliance with the Shareholders' Equity Requirement.

In accordance with the Nasdaq Listing Rules, on May 20, 2024, the Company submitted a plan to regain compliance with the Stockholders' Equity Requirement (the "Compliance Plan") for the Staff's consideration. On August 5, 2024, the Company was notified by the Staff that it has been granted an extension until September 30, 2024 to comply with the Compliance Plan and evidence compliance with the Shareholders' Equity Requirement. On October 1, 2024, the Company received a delisting determination letter ("Delisting Determination Letter") from the Staff notifying the Company that it did not meet the terms of an extension granted by Nasdaq to regain compliance with the Shareholders' Equity Requirement. On October 8, 2024, the Company requested a hearing (the "Hearing") before the Nasdaq Listing Qualifications Panel ("Panel") to appeal the Staff's delisting determination.

On November 18, 2024, the Company received a letter from the Nasdaq Office of General Counsel notifying the Company that the Company has regained compliance with the Shareholders' Equity Requirement, and that the Hearing, originally scheduled for November 21, 2024, has been canceled.

Note 2. Summary of Significant Accounting Policies

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The carrying values of the Company's cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. The Company's liability-classified warrants are recorded at their estimated fair value. See Note 4.

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Note 3. Agreement and Plan of Merger

Agreement and Plan of Merger

On March 4, 2024, the Company entered into an Agreement and Plan of Merger with Peak Bio and Pegasus Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Akari ("Pegasus Merger Sub"), as amended by that certain side letter dated August 15, 2024 (the "Merger Agreement"), pursuant to which, on November 14, 2024, Pegasus Merger Sub merged with and into Peak Bio (the "Merger"), with Peak Bio surviving the Merger as a wholly owned subsidiary of Akari.

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, at the effective time of the Merger (the "Effective Time"), each issued and outstanding share of Peak Bio common stock, par value $0.0001per share (the "Peak Common Stock") (other than (x) shares of Peak Common Stock held by Peak Bio as treasury stock, or shares of Peak Common Stock owned by Akari, Pegasus Merger Sub or any direct or indirect wholly owned subsidiaries of Akari and (y) Dissenting Shares (as defined in the Merger Agreement)), was converted into the right to receive the Company's ADSs representing a number of Akari ordinary shares, par value $0.0001per share (the "Akari Ordinary Shares") equal to 0.2935(the "Exchange Ratio"), each such share duly and validly issued against the deposit of the requisite number of Akari Ordinary Shares in accordance with the Deposit Agreement (as defined in the Merger Agreement). The Exchange Ratio was calculated in accordance with the terms of the Merger Agreement, such that the total number of shares of Akari ADSs issued in connection with the merger was approximately 48.4% of the outstanding shares of Akari ADSs on a fully diluted basis.

The board of directors of each of Akari and Peak has unanimously approved the Merger Agreement and the transactions contemplated thereby. On November 14, 2024, the Company closed the business combination contemplated by the Merger Agreement, as more fully described in Note 10.

Note 4. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company's Level 3 liabilities consist of the Series B Warrants as of September 30, 2024 and the Series A and Series B Warrants as of December 31, 2023, which were determined to be liability-classified instruments. There were no transfers between Level 1, Level 2, and Level 3 during the nine months ended September 30, 2024 and 2023.

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Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

Assumptions Used in Determining Fair Value of Liability-Classified Warrants

The fair value of the warrant liability is based on significant inputs, which represents a Level 3 measurement within the fair value hierarchy. The fair value of both the Series A Warrants and the Series B Warrants was determined using the Black-Scholes Option Pricing Model, which uses various assumptions, including (i) fair value of the Company's ADSs, (ii) exercise price of the warrant, (iii) expected term of the warrant, (iv) expected volatility and (v) expected risk-free interest rate.

Note 5. Accrued Expenses

Accrued restructuring expenses of approximately $0.5million as of September 30, 2024 relate to one-time termination benefits payable to former employees, including an executive, which are payable in the fourth quarter of 2024. See Note 2.

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Note 6. Shareholders' (Deficit) Equity

Ordinary Shares

On September 30, 2023, the Company's shareholders approved an increase to the number of authorized ordinary shares,par value $0.0001(the "Ordinary Shares"),the Company can issue by 35,000,000,000ordinary shares in addition to the number of shares outstanding on June 30, 2023. Accordingly, as of September 30, 2024 and December 31, 2023, the Company was authorized to issue up to 45,122,321,523ordinary shares.

Currently, each ADS represents 2,000Ordinary Shares (the "ADS Ratio"). All ADS and per ADS amounts in the accompanying condensed consolidated financial statements reflect the ADS Ratio.

May 2024 Private Placement

In May 2024, the Company entered into a definitive purchase agreement with certain investors, Dr. Prudo and Dr. Patel, pursuant to which the Company sold and issued in a private placement an aggregate of 4,029,754ADSs, and Series C Warrants (the "Series C Warrants") to purchase up to 4,029,754ADS, at a per unit price of $1.885per ADS and Series C Warrant for aggregate gross proceeds of approximately $7.6million (the "May 2024 Private Placement"). The Series C Warrants have3-year terms ranging from May 31, 2027 to June 21, 2027 and have cashless exercise provisions in limited circumstances. The Series C Warrants (other than those issued to Dr. Prudo and Dr. Patel) have an exercise price of $1.76per ADS. The Series C Warrants issued to Dr. Prudo and Dr. Patel have an exercise price of $1.79per ADS. Net proceeds from the May 2024 Private Placement were approximately $7.0million after deducting placement agent fees and other expenses.

At close of the May 2024 Private Placement, the Company issued to Paulson Investment Company, LLC ("Paulson"), as placement agent for the May 2024 Private Placement, warrants to purchase 332,380ADSs at an exercise price of $1.885per ADS and a term expiring on May 31, 2029(the "May 2024 Placement Agent Warrants"). The estimated fair value of the May 2024 Placement Agent Warrants on the issuance date was approximately $0.4million.

The Company determined that the Series C Warrants and May 2024 Placement Agent Warrants met all of the criteria for equity classification. Accordingly, upon closing of the May 2024 Private Placement, each of the Series C Warrants and May 2024 Placement Agent Warrants were recorded as a component of additional paid-in capital.

March 2024 Private Placement

In March 2024, the Company entered into a definitive purchase agreement with certain existing investors, pursuant to which the Company sold and issued in a private placement an aggregate of 1,320,614ADSs at $1.48per ADS, for aggregate gross proceeds of approximately $2.0million (the "March 2024 Private Placement"). Net proceeds from the March 2024 Private Placement were approximately $1.7million after deducting placement agent fees and other expenses.

At close of the March 2024 Private Placement, the Company issued to Paulson, as placement agent for the March 2024 Private Placement, warrants to purchase 132,061ADSs at an exercise price of $1.85per ADS (representing 125% of the purchase price per ADS sold in the March 2024 Private Placement) and a term expiring on March 27, 2029 (the "March 2024 Placement Agent Warrants"). The estimated fair value of the March 2024 Placement Agent Warrants on the issuance date was approximately $0.2million.

The Company determined that the March 2024 Placement Agent Warrants met all of the criteria for equity classification. Accordingly, upon closing of the March 2024 Private Placement, each of the March 2024 Placement Agent Warrants were recorded as a component of additional paid-in capital.

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December 2023 Private Placement

In December 2023, the Company entered into purchase agreements to sell, in a private placement, to existing investors, Dr. Ray Prudo and Dr. Patel, (the "December 2023 Private Placement") an aggregate of 947,868ADSs at $2.11per ADS, for aggregate gross proceeds of approximately $2.0million. Net proceeds from the December 2023 Private Placement were approximately $1.8million after deducting placement agent fees and other expenses.

September 2023 Private Placement

In September 2023, the Company entered into purchase agreements to sell in a private placement to existing investors and directors, including Dr. Prudo and Ms. Rachelle Jacques, the Company's then President and Chief Executive Officer (the "September 2023 Private Placement") an aggregate of 551,816ADSs at $3.30per ADS, and pre-funded warrants (the "Pre-Funded Warrants") to purchase up to 48,387ADSs at a purchase price per Pre-Funded Warrant of $3.10, for aggregate gross proceeds of approximately $2.0million. The Pre-Funded Warrants are exercisable at an exercise price of $0.20per ADS and will not expire until exercised in full. The September 2023 Private Placement closed in October 2023 resulting in net proceeds of approximately $1.7million after deducting placement agent fees and other expenses.

At close of the September 2023 Private Placement, the Company issued to Paulson, as placement agent for the September 2023 Private Placement, warrants to purchase 42,550ADSs at an exercise price of $4.13per ADS (representing 125% of the purchase price per ADS sold in the September 2023 Private Placement) and a term expiring on October 6, 2028(the "October 2023 Placement Agent Warrants"). The estimated fair value of the October 2023 Placement Agent Warrants on the issuance date was approximately $0.1million.

The Company determined that the Pre-Funded Warrants and October 2023 Placement Agent Warrants met all of the criteria for equity classification. Accordingly, upon closing of the September 2023 Private Placement, each of the Pre-Funded Warrants and October 2023 Placement Agent Warrants were recorded as a component of additional paid-in capital.

March 2023 Registered Direct Offering

On March 31, 2023, the Company entered into securities purchase agreements with certain accredited and institutional investors, including Dr. Prudo (the "March Registered Direct Offering") providing for the issuance of an aggregate of 1,333,333ADSs in a registered direct offering at $3.00per ADS, resulting in gross proceeds of approximately $4.0million. Net proceeds from the March Registered Direct Offering were approximately $3.5million after deducting placement agent fees and expenses.

Warrants

In connection with various financing transactions, the Company has issued warrants to purchase the Company's ordinary shares represented by ADSs. The Company accounts for such warrants as equity instruments or liabilities, depending on the specific terms of the warrant agreement. See Note 2 for further details on accounting policies related to the Company's warrants.

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Capital Redemption Reserve

In December 2020, for the purpose of changing the nominal value of the Company's ordinary shares from £0.01to $0.0001the Company issued 3,847,331,913deferred shares (the "Deferred Shares") of $0.01315. The Deferred Shares were created for technical reasons of company law and did not increase the aggregate value of share capital. Also in December 2020, the Deferred Shares were purchased by the Company in accordance with their terms of issue for aggregate consideration of $0.01and immediately cancelled. The aggregate nominal value at cancellation was $50.6million.

Amounts transferred from share capital on the redemption of the Deferred Shares of $50.6million, along with the resulting foreign currency effect of the redenomination of Company ordinary shares of $1.6million, are classified as "capital redemption reserve" within the Company's condensed consolidated balance sheets and condensed statements of shareholders' (deficit) equity.

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Note 7. Share-Based Compensation

2023 Equity Incentive Plan

On June 30, 2023, the Company's shareholders approved the 2023 Equity Incentive Plan (the "2023 Plan"), which provides for the grant of stock options, both incentive stock options and nonqualified stock options, stock, with and without vesting restrictions, restricted stock units ("RSUs") and stock appreciation rights, to be granted to employees, directors and consultants. The Company is permitted to issue up to 980,000,000ordinary shares under the 2023 Plan, plus such additional number of ordinary shares (up to 855,637,300ordinary shares) subject to awards granted under the 2014 Equity Incentive Plan (the "2014 Plan"), to the extent such awards are forfeited, cancelled, or expire unexercised.

As of September 30, 2024, the Company had 498,903,915ordinary shares underlying outstanding equity awards under the 2023 Plan, consisting of stock options and RSUs, and 569,501,522ordinary shares remained available for future grants under the 2023 Plan.

The 2023 and 2014 Plans provide that they be administered by the compensation committee of the board of directors. The exercise price for stock option awards may not be less than 100% of the fair market value of the Company's ordinary shares on the date of grant and the term of awards may not be greater than ten years. The Company determines the fair value of its ordinary shares based on the quoted market price of its ADSs. Vesting periods are determined at the discretion of the compensation committee. Awards granted to employees typically vest over twoto four yearsand directors over one year.

2014 Equity Incentive Plan

Under the 2014 Plan the Company was authorized to grant stock options, RSUs and other awards, to employees, members of the board of directors and consultants. Upon effectiveness of the 2023 Plan no further awards were available to be issued under the 2014 Plan. As of September 30, 2024, the Company had 259,934,688ordinary shares underlying outstanding equity awards under the 2014 Plan, consisting of stock options.

Stock Options

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company's ordinary shares for those options that had exercise prices lower than the fair value of the Company's ordinary shares.

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The weighted-average grant-date fair value per ordinary share of options granted during each of the nine months ended September 30, 2024 and 2023 was less than $0.01.

Option Valuation

Restricted Stock Units

The 2014 Plan provided, and the 2023 Plan provides, for the award of RSUs. RSUs are granted to employees that are subject to time-based vesting conditions that lapse between one yearandfour yearsfrom date of grant, assuming continued employment. Compensation cost for time-based RSUs, which vest only on continued service, is recognized on a straight-line basis over the requisite service period based on the grant date fair of the RSUs, which is derived from the closing price of the Company's ADSs on the date of grant.

The fair value of time-based RSUs that vested during the nine months ended September 30, 2024 and 2023 was approximately $0.5million and $0.2million, respectively.

Share-Based Compensation Expense

The Company classifies share-based compensation expense in the statement of operations in the same manner in which the award recipients' payroll costs are classified or in which the award recipients' service payments are classified. Total share-based compensation expense attributable to share-based payments made to employees, consultants and directors included in operating expenses in the Company's condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023, was as follows:

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During the nine months ended September 30, 2024, 276,000,000ordinary shares underlying unvested time-based RSUs held by a former executive upon termination of employment were accelerated, resulting in additional stock-based compensation expense of $0.3million.

As of September 30, 2024, total unrecognized compensation cost related to unvested stock options and time-based RSUs was $0.2million and $0.2million, respectively.The Company expects total unrecognized compensation costs related to unvested stock options and RSUs to be recognized over a weighted average period of 1.7and 1.8years, respectively.

Note 8. Related Party Transactions

The Doctors Laboratory

The Company leases office space for its U.K. headquarters in London from The Doctors Laboratory ("TDL") and has incurred expenses of less than $0.1million plus Value Added Tax ("VAT") during each of the three months ended September 30, 2024 and 2023, and approximately $0.1million plus VAT during each of the nine months ended September 30, 2024 and 2024. David Byrne, a former non-employee director of the Company, is the Chief Executive Officer of TDL and Dr. Prudo is the non-Executive Chairman of the Board of Directors of TDL.

The Company received certain laboratory testing services for its clinical trials and other administrative services provided by TDL and incurred expenses of less than $0.1million during each of the three months ended September 30, 2024 and 2023 and less than $0.1million and approximately $0.1million during each of the nine months ended September 30, 2024 and 2023, respectively.

The Company recorded payable balances owed to TDL of less than $0.1million as of September 30, 2024 and December 31, 2023.

Interim CEO Agreement

On May 31, 2024, the Company and Dr. Patel entered into an Interim Chief Executive Officer Agreement, effective as of May 1, 2024 (the "Interim CEO Agreement"). Pursuant to the Interim CEO Agreement, Dr. Patel serves as the Company's Interim President and Chief Executive Officer as an independent contractor on an at-will basis. The Interim CEO Agreement can be terminated by the Company immediately for any reason. As the sole compensation for services provided under the Interim CEO Agreement, Dr. Patel was to be paid $50,000per month in the form of fully vested ordinary shares. On September 16, 2024, the Company entered into an amendment to the Interim CEO Agreement (the "Amendment"), effective July 1, 2024, to revise Dr. Patel's compensation in connection with the services as Interim President and Chief Executive Officer. Pursuant to the Amendment, in lieu of receiving the stated monthly compensation of $50,000in the form of fully vested ordinary shares, Dr. Patel shall be paid in the form of fully vested non-qualified stock options to purchase ordinary shares ("NQSO"), with the number of ADSs underlying each such monthly NQSOs grant to be equal to two times the number determined by dividing (i) $50,000by (ii) the closing price of the Company's ADSs on the Nasdaq Capital Market on the last day of each month (or partial month)Dr. Patel serves as the Company's Interim President and Chief Executive Officer.

During the three and nine months ended September 30, 2024, the Company recognized approximately $0.1million and $0.3million, respectively, in non-cash share-based compensation costs pursuant to the Interim CEO Agreement, as amended, pertaining to (i) NQSOs granted to Dr. Patel to purchase 87,540,000ordinary shares at an exercise price of less than $0.01per ordinary share with a grant date fair value of approximately $0.2million, and (ii) 91,396,000fully vested ordinary shares granted to Dr. Patel.

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Note 9. Commitments and Contingencies

Leases

The Company is currently party to a short-term lease for its U.S headquarters, which currently expires in May 2025, and a short-term lease with TDL for its London offices, which currently expires in July 2025. The Company is not party to any material lease agreements.

For each of the three months ended September 30, 2024 and 2023, the Company incurred lease costs of less than $0.1million. For each of the nine months ended September 30, 2024 and 2023, the Company incurred leases costs of approximately $0.2million.

Employee Benefit Plans

The Company adopted an employee benefit plan under Section 401(k) of the Internal Revenue Code for its U.S.-based employees. The plan allows employees to make contributions up to a specified percentage of their compensation. Under the plan, the Company matches 100% of employees' contributions up to 5% of the annual eligible compensation contributed by each employee, subject to Internal Revenue Code limitations.

The Company also adopted a defined contribution pension scheme which allows for U.K. employees to make contributions and provides U.K. employees with a Company contribution of 10% of compensation, subject to U.K. law.

During each of the three months ended September 30, 2024 and 2023, the Company charged less than $0.1million to operating expenses related to the Company's contributions to employee benefit plans. During the nine months ended September 30, 2024 and 2023, the Company charged $0.1million and $0.2million, respectively, to operating expenses related to the Company's contributions to employee benefit plans.