Akari Therapeutics Plc Income Taxes Disclosure

Note 12. Income Taxes

 

The components of net loss before income tax are as follows:

 Schedule of Components of Income/(Loss) Before Income Taxes

(In thousands)		2025				2024
		Year Ended December 31,
(In thousands)		2025				2024
Domestic (UK)		$	(19,678	)		$	(19,424	)
Foreign			1,377				(367	)
Net loss before income tax		$	(18,301	)		$	(19,791	)

 

The components of income tax expense are as follows:

 Schedule of Components of Income Tax Expense

		2025				2024
		Year Ended December 31,
		2025				2024
Current income taxes
Domestic (UK)		$	—			$	—
U.S.			84				—
Foreign			1				—
Current income taxes
Deferred income taxes
Domestic (UK)			(1,088	)			—
U.S.			—				—
Foreign			—				—
Income tax expense		$	(1,003	)		$	—

 

 

The following table presents a reconciliation of the Company’s statutory federal rate and our effective tax rate, after the adoption of ASU 2023-09 on a prospective basis, for the year ended December 31, 2025:

 Schedule of Reconciliation of Statutory Federal Rate and Our Effective Tax Rate

		Amount (in thousands)				Percentage
		Year Ended December 31, 2025
		Amount (in thousands)				Percentage
UK federal statutory tax rate		$	(4,575	)			25.0	%
Change in valuation allowance			3,121				-17.1	%
Non-taxable or non-deductible items
Stock-based compensation			722				-3.9	%
Other permanent differences			(192	)			1.0	%
Foreign tax effects:
United States
Foreign rate differential			(833	)			4.6	%
Non-taxable or non-deductible items:
Stock-based compensation			58				-0.3	%
Other permanent differences			1				0.0	%
Change in valuation allowance			1,078				-5.9	%
Other			(562	)			3.1	%
Other foreign jurisdictions			1				0.0	%
Other UK adjustments			178				-1.0	%
Effective Tax Rate		$	(1,003	)			5.5	%

 

The following table presents a reconciliation of the Company’s statutory federal rate and our effective tax rate, prior to the adoption of ASU 2023-09, for the year ended December 31, 2024:

 

		Year Ended December 31,
(In thousands)		2024
Net loss before income tax		$	(19,791	)
Statutory income tax rate			25.00	%
Expected income tax benefit			(4,948	)
Impact on income tax expense/(benefit)
Change in valuation allowance			7,434
Permanent differences			1
U.S. state income taxes, net of U.S. federal benefit of state			949
Tax rate difference in foreign jurisdictions			(1,295	)
Change in stock-based compensation			685
Sec. 382 limitation			1,035
Return to provision true-up			(4,158	)
Non-deductible transaction costs			818
Revaluation of warrant liabilities			(521	)
Income tax expense		$	—

 

Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows:

 Schedule of Deferred Tax Assets and Liabilities

(In thousands)		2025				2024
		December 31,
(In thousands)		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	61,191			$	56,704
Accrued expenses			171				700
Capitalized research and development			—				1,023
Stock-based compensation			1,062				809
Intangibles			692				863
Research and development tax credits			339				331
Other			7				6
Total gross deferred tax assets			63,462				60,436
Valuation allowance			(63,356	)			(60,340	)
Deferred tax assets, net of valuation allowance			106				96
Deferred tax liabilities:
In-process research and development			(6,952	)			(8,040	)
Other			(106	)			(96	)
Total deferred tax liabilities			(7,058	)			(8,136	)
Net deferred tax liabilities		$	(6,952	)		$	(8,040	)

 

As of December 31, 2025, the Company had cumulative U.K., U.S. federal, various U.S. state, and South Korea net operating loss carryforwards (“NOLs”) of approximately $153.2 million, $47.2 million, $76.6 million, and $91.6 million, respectively, available to reduce U.K., U.S. federal, U.S. state, and South Korea taxable income, respectively. The U.K. NOLs do not expire. Of the $47.2 million of U.S. federal NOLs, $46.3 million have an unlimited carryforward and the remaining NOLs are subject to expiration through 2038. Of the $76.6 million of U.S. state NOLs, $1.1 million have an unlimited carryforward and the remaining NOLs are subject to expiration through 2045. The South Korea NOLs are subject to expiration through 2039.

 

In connection with the Company’s acquired IPR&D assets, the Company recognized a deferred tax liability of $8.0 million because the Company does not have sufficient indefinite-lived deferred tax assets to fully offset the indefinite-lived deferred tax liability. During the year ended December 31, 2025, the Company recorded an income tax benefit of $1.1 million in connection with the impairment loss on one of the Company’s IPR&D assets as described in Note 4. 

 

A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. Based on the weight of the available evidence, which includes our historical operating losses and forecast of future losses, we provided a valuation allowance against the U.S. federal, state, and foreign deferred tax assets resulting from the tax losses and credits carried forward.

 

During the years ended December 31, 2025 and 2024, the Company’s valuation allowance increased by $3.0 million and $18.1 million, respectively.

 

Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to an ownership change limitation as provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. In the event that we have a change of ownership, utilization of the net operating loss and tax credit carryforwards may be restricted.

 

As of December 31, 2025 and 2024, there were no known domestic or foreign uncertain tax positions, and the Company has not identified any tax positions for which it is reasonably possible that a significant change will occur during the next 12 months. The Company’s position is to record penalties and interest on any uncertain tax position, if any, to general and administrative expense in the consolidated statements of operations.

 

Research and development credits

 

The Company conducts extensive research and development activities and may benefit from the U.K. research and development tax relief regime, whereby the Company can receive an enhanced U.K. tax deduction on its research and development activities. Qualifying expenditures comprise of chemistry and manufacturing consumables, employment costs for research staff, clinical trials management, and other subcontracted research expenditures. When the Company is loss-making for a period, it can elect to surrender taxable losses for a refundable tax credit. The losses available to surrender are equal to the lower of the sum of the research and development qualifying expenditure and enhanced tax deduction and the Company’s taxable losses for the period with the tax credit for December 31, 2025 available at a rate of 14.5%. The credit therefore gives a cash flow advantage to the Company at a lower rate than would be available if the enhanced losses were carried forward and relieved against future taxable profits.

 

 

The Company accounts for research and development tax credits at the time its realization becomes probable (Note 2). Due to the uncertainty of the approval of these tax credit claims and the potential that an election for a tax credit in the form of cash is not made, the Company did not record a receivable for the 2025 tax year as of December 31, 2025.