UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,December 31, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
For the transition period from N/A to N/A
Commission File Number: 000-54986000-54986
ARCH THERAPEUTICS, INC. |
(Exact name of registrant as specified in its charter) |
Nevada | 46-0524102 |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
235 Walnut Street, Suite 6 | |
Framingham, MA | 01702 |
(Address of principal executive offices) | (Zip Code) |
(617) 431-2313 |
Registrant’s telephone number, including area code |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N|A | N|A | N|A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 11, 2023, 3,094,370February 20, 2024, 4,742,364 shares of the registrant’s common stock were outstanding.
ARCH THERAPEUTICS, INC.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Page No. | |
PART I – FINANCIAL INFORMATION | |
Item 1. Condensed Consolidated Financial Statements |
|
|
|
| 2 |
Condensed Consolidated Balance Sheets as of December 31, 2023 (unaudited) and September 30, 2023 | 2 |
Condensed Consolidated Statements of | 3 |
Condensed Consolidated Statements of | 4 |
Condensed Consolidated Statements of Cash Flows for the Three Months ended December 31, 2023 and December 31, 2022 (unaudited) | 5 |
Notes to Condensed Consolidated Financial Statements (unaudited) |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
|
Item 4. Controls and Procedures |
|
PART II - OTHER INFORMATION |
|
Item 1. Legal Proceedings |
|
Item 1A. Risk Factors |
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
|
Item 6. Exhibits |
|
|
|
|
June 30, 2023 | September 30, 2022 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 86,542 | $ | 746,940 | ||||
Inventory | 1,382,938 | 1,414,848 | ||||||
Prepaid expenses and other current assets | 90,538 | 436,407 | ||||||
Total current assets | 1,560,018 | 2,598,195 | ||||||
Long-term assets: | ||||||||
Property and equipment, net | 728 | 2,044 | ||||||
Other assets | 3,500 | 3,500 | ||||||
Total long-term assets | 4,228 | 5,544 | ||||||
Total assets | $ | 1,564,246 | $ | 2,603,739 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,471,162 | $ | 1,328,000 | ||||
Shareholder advances | 50,000 | - | ||||||
Shareholder and Third-Party Advances related to Bridge Financing | 690,015 | - | ||||||
Accrued expenses and other liabilities | 200,522 | 318,505 | ||||||
Insurance premium financing | - | 247,933 | ||||||
Current Portion of Series 2 convertible note | 550,000 | 550,000 | ||||||
Current Portion of Series 1 convertible note | 450,000 | - | ||||||
Current Portion of Unsecured convertible notes | 1,401,618 | - | ||||||
Current Portion of 2022 Notes | 2,945,448 | - | ||||||
Current Portion of Accrued Interest | 820,509 | 127,781 | ||||||
Current portion of derivative liability | - | 748,275 | ||||||
Total current liabilities | 9,579,274 | 3,320,494 | ||||||
Long-term liabilities: | ||||||||
Unsecured convertible notes | - | 699,781 | ||||||
Series 2 convertible notes | - | 450,000 | ||||||
2022 Notes | - | 1,662,492 | ||||||
Accrued interest | - | 204,575 | ||||||
Derivative liability | - | 459,200 | ||||||
Total long-term liabilities | - | 3,476,048 | ||||||
Total liabilities | 9,579,274 | 6,796,542 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Common stock, $0.001 par value, 12,000,000 and 4,000,000 shares authorized as of June 30, 2023 and September 30, 2022, 1,285,213 and 1,252,734 shares issued as of June 30, 2023 and September 30, 2022 and 1,285,213 and 1,249,432 shares outstanding as of June 30, 2023 and September 30, 2022, each respectively | 1,285 | 1,252 | ||||||
Additional paid-in capital | 51,582,100 | 50,878,718 | ||||||
Accumulated deficit | (59,598,413 | ) | (55,072,773 | ) | ||||
Total stockholders’ deficit | (8,015,028 | ) | (4,192,803 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 1,564,246 | $ | 2,603,739 |
|
Arch Therapeutics, Inc. and Subsidiary |
Condensed Consolidated |
|
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||||||||
Revenue | $ | 13,293 | $ | 6,261 | $ | 36,207 | $ | 14,086 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of revenues | 18,529 | 17,140 | 54,882 | 51,363 | ||||||||||||
Selling, general and administrative expenses | 870,053 | 836,215 | 3,225,753 | 3,308,227 | ||||||||||||
Research and development expenses | 139,048 | 159,846 | 471,135 | 922,120 | ||||||||||||
Total costs and expenses | 1,027,630 | 1,013,201 | 3,751,770 | 4,281,710 | ||||||||||||
Loss from operations | (1,014,337 | ) | (1,006,940 | ) | (3,715,563 | ) | (4,267,624 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (808,770 | ) | (39,890 | ) | (1,968,274 | ) | (119,671 | ) | ||||||||
Gain on extinguishment of derivative liabilities | - | - | 1,158,197 | - | ||||||||||||
Expiration of derivative liability/Series F warrant | - | - | - | 1,000,000 | ||||||||||||
Total other income (expense) | (808,770 | ) | (39,890 | ) | (810,077 | ) | 880,329 | |||||||||
Net loss | $ | (1,823,107 | ) | $ | (1,046,830 | ) | $ | (4,525,640 | ) | $ | (3,387,295 | ) | ||||
Loss per share - basic and diluted | ||||||||||||||||
Net loss per common share - basic and diluted | $ | (1.42 | ) | $ | (0.88 | ) | $ | (3.58 | ) | $ | (2.86 | ) | ||||
Weighted common shares - basic and diluted | 1,279,967 | 1,184,738 | 1,265,340 | 1,184,266 |
December 31, | September 30, | |||||||
2023 | 2023 | |||||||
ASSETS | (unaudited) | |||||||
Current assets: | ||||||||
Cash | $ | 205,850 | $ | 222,720 | ||||
Inventory | 1,335,849 | 1,364,504 | ||||||
Prepaid expenses and other current assets | 272,799 | 362,866 | ||||||
Total current assets | 1,814,498 | 1,950,090 | ||||||
Long-term assets: | ||||||||
Property and equipment, net | 3,949 | 4,599 | ||||||
Other assets | 3,500 | 3,500 | ||||||
Total long-term assets | 7,449 | 8,099 | ||||||
Total assets | $ | 1,821,947 | $ | 1,958,189 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,772,424 | $ | 2,304,207 | ||||
Shareholders and third-party advances related to bridge financing | 950,000 | - | ||||||
Accrued expenses and other liabilities | 486,062 | 467,496 | ||||||
Insurance premium financing | 139,020 | 243,285 | ||||||
Convertible notes payable, senior secured, current portion, net of discount | 4,183,035 | 3,519,103 | ||||||
Convertible notes payable, unsecured, current portion, net of discount | 2,010,338 | 1,658,702 | ||||||
Convertible notes payable, Series 2, unsecured, current portion | - | 450,000 | ||||||
Accrued interest, current portion | 856,584 | 823,128 | ||||||
Total current liabilities | 11,397,463 | 9,465,921 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding as of December 31, 2023 and September 30, 2023 | - | - | ||||||
Common stock, $0.001 par value, 350,000,000 authorized as of December 31, 2023 and September 30, 2023, 4,742,364 and 4,689,446 shares issued and outstanding as of December 31, 2023 and September 30, 2023 | 4,742 | 4,689 | ||||||
Additional paid-in capital | 55,157,003 | 54,543,188 | ||||||
Accumulated deficit | (64,737,261 | ) | (62,055,609 | ) | ||||
Total stockholders’ deficit | (9,575,516 | ) | (7,507,732 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 1,821,947 | $ | 1,958,189 |
The accompanying notes are an integral part of these condensed consolidated financial statements. |
Arch Therapeutics, Inc. and Subsidiary |
Condensed Consolidated Statements of |
For the Three |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
Three Months Ended June 30, 2023 | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||
Balance at March 31, 2023 | 1,274,605 | $ | 1,275 | $ | 51,387,943 | $ | (57,775,306 | ) | (6,386,088 | ) | ||||||||||
Net loss | - | - | - | (1,823,107 | ) | (1,823,107 | ) | |||||||||||||
Stock-based compensation expense | - | - | 41,259 | - | 41,259 | |||||||||||||||
Issuance of common stock and warrants, net of financing costs | 10,608 | 10 | 152,898 | - | 152,908 | |||||||||||||||
Exchange of warrants into common stock | - | - | - | - | - | |||||||||||||||
Balance at June 30, 2023 | 1,285,213 | $ | 1,285 | $ | 51,582,100 | $ | (59,598,413 | ) | $ | (8,015,028 | ) |
For the three months ended | ||||||||
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
Revenue | $ | 45,867 | $ | 6,261 | ||||
Operating expenses: | ||||||||
Cost of revenues | 23,606 | 17,635 | ||||||
Selling, general and administrative expenses | 1,311,350 | 1,102,916 | ||||||
Research and development expenses | 205,580 | 161,453 | ||||||
Total operating expenses | 1,540,536 | 1,282,004 | ||||||
Loss from operations | (1,494,669 | ) | (1,275,743 | ) | ||||
Other (expense) : | ||||||||
Interest expense | (1,186,983 | ) | (524,313 | ) | ||||
Net loss | $ | (2,681,652 | ) | $ | (1,800,056 | ) | ||
Loss per share - basic and diluted | ||||||||
Net loss per common share - basic and diluted | $ | (0.57 | ) | $ | (1.44 | ) | ||
Weighted common shares - basic and diluted | 4,707,473 | 1,249,432 |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
Nine Months Ended June 30, 2023 | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||
Balance at September 30, 2022 | 1,252,734 | $ | 1,252 | $ | 50,878,718 | $ | (55,072,773 | ) | (4,192,803 | ) | ||||||||||
Net loss | - | - | - | (4,525,640 | ) | (4,525,640 | ) | |||||||||||||
Vesting of restricted stock | 250 | - | - | - | - | |||||||||||||||
Stock-based compensation expense | - | - | 213,809 | - | 213,809 | |||||||||||||||
Issuance of common stock and warrants, net of financing costs | 20,210 | 20 | 440,308 | - | 440,328 | |||||||||||||||
Exchange of warrants into common stock | 12,019 | 13 | 49,265 | - | 49,278 | |||||||||||||||
Balance at June 30, 2023 | 1,285,213 | $ | 1,285 | $ | 51,582,100 | $ | (59,598,413 | ) | $ | (8,015,028 | ) |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
Three Months Ended June 30, 2022 | Shares | Amount | Capital | Deficit | Equity (Deficit) | |||||||||||||||
Balance at March 31, 2022 | 1,184,599 | $ | 1,185 | $ | 49,076,775 | $ | (52,137,384 | ) | $ | (3,059,424 | ) | |||||||||
Net loss | - | - | - | (1,046,830 | ) | (1,046,830 | ) | |||||||||||||
Vesting of restricted stock | 375 | - | - | - | - | |||||||||||||||
Stock-based compensation expense | - | - | 90,755 | - | 90,755 | |||||||||||||||
Balance at June 30, 2022 | 1,184,974 | $ | 1,185 | $ | 49,167,530 | $ | (53,184,214 | ) | $ | (4,015,499 | ) |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
Nine Months Ended June 30, 2022 | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||
Balance at September 30, 2021 | 1,183,599 | $ | 1,184 | $ | 48,770,061 | $ | (49,796,919 | ) | $ | (1,025,674 | ) | |||||||||
Net loss | - | - | - | (3,387,295 | ) | (3,387,295 | ) | |||||||||||||
Vesting of restricted stock | 1,375 | 1 | (1 | ) | - | - | ||||||||||||||
Stock-based compensation expense | - | - | 397,470 | - | 397,470 | |||||||||||||||
Balance at June 30, 2022 | 1,184,974 | $ | 1,185 | $ | 49,167,530 | $ | (53,184,214 | ) | $ | (4,015,499 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
Arch Therapeutics, Inc. and Subsidiary |
Condensed Consolidated Statements of |
For the |
Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (4,525,640 | ) | $ | (3,387,295 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation | 1,316 | 2,397 | ||||||
Stock-based compensation | 213,809 | 397,470 | ||||||
Decrease to fair value of derivative | - | (1,000,000 | ) | |||||
Gain on extinguishment of derivative liabilities | (1,158,197 | ) | - | |||||
Accretion of discount and debt issuance costs on 2022 Notes and Unsecured convertible notes | 1,480,121 | - | ||||||
Inventory obsolescence charge | - | 248,073 | ||||||
Changes in operating assets and liabilities: | ||||||||
(Increase) decrease in: | ||||||||
Inventory | 31,910 | (582,572 | ) | |||||
Prepaid expenses and other current assets | 345,869 | 223,854 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable | 1,143,162 | 1,288,130 | ||||||
Accrued interest | 488,153 | 119,671 | ||||||
Accrued expenses and other current liabilities | (167,983 | ) | (96,370 | ) | ||||
Net cash used in operating activities | (2,147,480 | ) | (2,786,642 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayment of insurance premium financing | (247,933 | ) | - | |||||
Proceeds from shareholder advances | 1,228,015 | 575,000 | ||||||
Proceeds from Unsecured convertible notes | 507,000 | - | ||||||
Net cash provided by financing activities | 1,487,082 | 575,000 | ||||||
Net decrease in cash | (660,398 | ) | (2,211,642 | ) | ||||
Cash, beginning of year | 746,940 | 2,266,639 | ||||||
Cash, end of period | $ | 86,542 | $ | 54,997 | ||||
Non-cash financing activities: | ||||||||
Exchange of Series G and Series H warrants for common stock | $ | 49,278 | $ | - | ||||
Issuance of restricted stock | $ | 3,019 | $ | 29,831 | ||||
Fair value of warrants issued - second close | $ | 256,439 | $ | - | ||||
Fair value of inducement shares issued - second close | $ | 25,840 | $ | - | ||||
Fair value of placement agent warrants - second close | $ | 28,093 | $ | - | ||||
Fair value of warrants issued - third close | $ | 137,252 | $ | - | ||||
Fair value of inducement shares issued - third close | $ | 15,656 | $ | - | ||||
Conversion of shareholder advance into unsecured convertible note | $ | 488,000 | $ | - |
Preferred Stock Shares | Amount | Common Stock Shares | Amount | Additional Paid- in Capital | Accumulated Deficit | Total Stockholders' Deficit | ||||||||||||||||||||||
Balance at September 30, 2023 | - | $ | - | 4,689,446 | $ | 4,689 | $ | 54,543,188 | $ | (62,055,609 | ) | $ | (7,507,732 | ) | ||||||||||||||
Net loss | - | - | - | - | - | (2,681,652 | ) | (2,681,652 | ) | |||||||||||||||||||
Issuance of common stock upon conversion of convertible notes | - | - | 52,918 | 53 | 587,906 | - | 587,959 | |||||||||||||||||||||
Stock-based compensation expense | - | - | - | - | 25,909 | - | 25,909 | |||||||||||||||||||||
Balance at December 31, 2023 | - | $ | - | 4,742,364 | $ | 4,742 | $ | 55,157,003 | $ | (64,737,261 | ) | $ | (9,575,516 | ) | ||||||||||||||
Balance at September 30, 2022 | - | $ | - | 1,249,432 | $ | 1,249 | $ | 50,878,718 | $ | (55,072,773 | ) | $ | (4,192,806 | ) | ||||||||||||||
Net loss | - | - | - | - | - | (1,800,056 | ) | (1,800,056 | ) | |||||||||||||||||||
Stock-based compensation expense | - | - | - | - | 104,026 | - | 104,026 | |||||||||||||||||||||
Balance at December 31, 2022 | - | $ | - | 1,249,432 | $ | 1,249 | $ | 50,982,744 | $ | (56,872,829 | ) | $ | (5,888,836 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
Arch Therapeutics, Inc. and Subsidiary |
Condensed Consolidated Statements of Cash Flows (Unaudited) |
For the Three Months Ended December 31, 2023 and 2022 |
For the Three Months Ended | ||||||||
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,681,652 | ) | $ | (1,800,056 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation | 650 | 663 | ||||||
Stock-based compensation | 25,909 | 104,026 | ||||||
Accretion of discount and debt issuance costs on convertible notes payable | 1,015,568 | 371,755 | ||||||
Changes in operating assets and liabilities: | ||||||||
Inventory | 28,655 | 3,211 | ||||||
Prepaid expenses and other current assets | 90,067 | 147,492 | ||||||
Accounts payable | 468,217 | 433,482 | ||||||
Accrued interest | 171,414 | 152,558 | ||||||
Accrued expenses and other liabilities | 18,567 | (63,196 | ) | |||||
Net cash used in operating activities | (862,605 | ) | (650,065 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayment of insurance premium financing | (104,265 | ) | (106,257 | ) | ||||
Proceeds from shareholders and third-party advances related to bridge financing | 950,000 | - | ||||||
Proceeds from issued common stock and warrants, net of financing costs | - | 20,000 | ||||||
Net cash provided by (used in) financing activities | 845,735 | (86,257 | ) | |||||
Net decrease in cash | (16,870 | ) | (736,322 | ) | ||||
Cash, beginning of period | 222,720 | 746,940 | ||||||
Cash, end of period | $ | 205,850 | $ | 10,618 | ||||
Non-cash financing activities: | ||||||||
Conversion of Series 2 convertible notes and accrued interest into common stock | $ | 587,959 | $ | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
ARCH THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
(Unaudited)
1. BASISSUMMARY OF PRESENTATION AND DESCRIPTION OF BUSINESS
Organization and Description of BusinessSIGNIFICANT ACCOUNTING POLICIES
Arch Therapeutics, Inc. (together with its subsidiary, the “Company”“Company” or “Arch”“Arch”) was incorporated under the laws of the State of Nevada on September 16, 2009, under the name “Almah, Inc.”. Effective June 26, 2013, the Company completed a merger (the “Merger”) with Arch Biosurgery, Inc. (formerly known as Arch Therapeutics, Inc.), a Massachusetts corporation (“ABS”), and Arch Acquisition Corporation (“Merger Sub”), the Company’s wholly owned subsidiary formed for the purpose of the transaction, pursuant to which Merger Sub merged with and into ABS and ABS thereby became the wholly owned subsidiary of the Company. As a result of the acquisition of ABS, the Company abandoned its prior business plan and changed its operations to the business ofis a biotechnology company.company developing and marketing a product based on our innovative AC5® self-assembling technology platform. The Company’s principal offices are locatedCompany believes that its products can be important advances in Framingham, Massachusetts.
ABS was incorporated under the lawsfield of the Commonwealth of Massachusetts on March 6, 2006, as Clear Nano Solutions, Inc. On April 7, 2008, ABS changed its namestasis and barrier applications, which includes managing wounds created during surgery, trauma or interventional care, or from Clear Nano Solutions, Inc. to Arch Therapeutics, Inc. Effective upon the closing of the Merger, ABS changed its name from Arch Therapeutics, Inc. to Arch Biosurgery, Inc.
In the first quarter of 2021, the Company commenced commercial sales of our first product, AC5® Advanced Wound System,disease; stopping bleeding (hemostasis); and has devoted substantially all of the Company’s operational effort to the research, development and regulatory programs necessary to turn the Company’s core technology into commercial products. To date, the Company has principally raised capital through the issuance of convertible debt, and the issuance of units consisting of its common stock, $0.001 par value per share (“Common Stock”) and warrants to purchase Common Stock (“warrants”)controlling leaking (sealant).
The Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercializationBasis of its potential future products. However, there can be no assurance that the Company will be successful in securing additional resources when needed, on terms acceptable to the Company, if at all. Therefore, there exists substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability of assets that might be necessary despite this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESpresentation
The accompanying unaudited interimcondensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”U.S. GAAP”). The and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim consolidatedfinancial reporting. Certain information and note disclosures normally included in the financial statements included herein are unaudited; however, they contain all normal recurring accrualsprepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations and financial position for the interim periods.
Although the Company believesregulations. We believe that the disclosures contained in these unaudited interim consolidatedcondensed financial statements are adequate to make the information presented herein not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”).misleading. These unaudited interim consolidatedcondensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto includedcontained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022,2023, filed with the SEC onSEC. The accompanying condensed financial statements are unaudited, but in the opinion of management contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of Dec ember 31, 2023, and the results of its operations and its cash flows for the three months ended December 28, 2022 (the “Annual Report”).31, 2023 and 2022. The balance sheet as of September 30, 2023 is derived from the Company’s audited financial statements. The results of operations for the three months ended December 31, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending September 30, 2024.
For a complete summaryIn accordance with the “Segment Reporting” Topic of the Company’s significant accounting policies, please refer to Note 2 included in Item 8 ofAccounting Standards Codification, the Company’s Annual Report. There have been no material changes tochief operating decision maker (the Company’s President and Chief Executive Officer) determined that the Company’s significant accounting policies during the nine months ended June 30, 2023.
Basis of PresentationCompany has only one reporting unit.
The condensed consolidated financial statements include the accounts of Arch Therapeutics, Inc. and its wholly owned subsidiary, Arch Biosurgery, Inc., a biotechnology company. All intercompany accounts and transactions have been eliminated in consolidation.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has not yet generated sufficient revenues to fund operations and relies on issuance of debt and equity instruments to generate working capital. As reflected in the accompanying financial statements, for the three months ended December 31, 2023, the Company recorded a net loss of $2,681,652 and used cash in operations of $862,605. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercialization of its potential future products. The Company has not yet generated sufficient revenues to fund operations and relies on issuance of debt and equity instruments to generate working capital. In evaluating the going concern position of the Company, management has considered potential funding providers and believes that financing to fund future operations could be provided by equity and/or debt financing. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
Reverse stock split
On January 6, 2023, the directors of the Company authorized a reverse share split of the issued and outstanding Common Shares in a ratio of 1:200,, effective January 17, 2023 (the “Reverse Share Split”). All information included in these consolidated financial statements has2023. Accordingly, all share and per share amounts presented herein with respect to common stock have been retroactively adjusted on a retrospective basis, to reflect the Reverse Share Split, unless otherwise stated. All outstanding securities entitling their holders to purchase shares of Common Stock or acquire shares of Common Stock, includingabove-described reverse stock options, restricted stock units, and warrants, were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities.split for all periods presented.
Use of Estimates
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting periods. Significant estimates include the assumptions used in the accrual for potential liabilities, the net realizable value of inventory, the valuation of debt and equity instruments, the fair value of derivative liabilities, valuation of equity instruments issued for services, and deferred tax valuation allowances. Actual results could differ from those estimates.
Cash and Cash EquivalentsRevenue
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents as of June 30, 2023 and September 30, 2022.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of inventories comprises expenditures incurred in acquiring the inventories, the cost of conversion and other costs incurred in bringing them to their existing location and condition. The cost of raw materials, goods-in-process and finished goods are determined on a First in First out (FiFo) basis. When determining net realizable value, appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash. The Company maintains its cash in bank deposits accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the related asset. Upon sale or retirement, the cost and accumulated depreciation are eliminated from their respective accounts, and the resulting gain or loss is included in income or loss for the period. Repair and maintenance expenditures are charged to expense as incurred.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverablerecognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant and Equipment. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. For the nine months ended June 30, 2023 and 2022 there has not been any impairment of long-lived assets.
Leases
The Company determines if an arrangement is a lease at its inception. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s lease does not provide an implicit interest rate, the Company used an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Income Taxes
In accordance with FASB ASC Topic 740, Income Taxes, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences or events that have been included in the Company’s consolidated financial statements and/or tax returns. Deferred tax assets and liabilities are based upon the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions when management determines that it is more likely than not that a loss will be incurred related to these matters and the amount of the loss is reasonably determinable.
Revenue
In accordance with FASB ASC Topic(ASC) 606, Revenue from Contracts with Customers Recognition(“ASC 606”), the Company recognizes revenue through a five-step process: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) a performance obligation is satisfied.
The Company’s source of revenue is product sales. Contracts with customers contain a single performance obligation and the Company recognizes revenue from product sales when the Company has satisfied our performance obligation by transferring control of the product to the customers. Control of the product transfers to the customer upon shipment from the Company’s third-party warehouse. In circumstances where the transaction price is not able to be determined at the time of shipment, the Company does not recognize revenue or any receivable amount until such time that the final transaction price is established.
Cost of Revenue
Cost of revenue includes product costs, warehousing, overhead allocation and royalty expense.
Research and Development
The Company expenses internal and external research and development costs, including costs of funded research and development arrangements, in the period incurred.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation-Stock Compensation (“ASC 718”), which requires all share-based payments be recognized in the condensed consolidated financial statements based on their fair values. In accordance with ASC 718, the Company has elected to use the Black-Scholes Option Pricing Model (the “Black-Scholes Model”) to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straight-line basis over the vesting period of the award.
The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the fair value of the Common Stock and a number of other assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The expected life for awards uses the simplified method for all “plain vanilla” options, as defined in ASC 718-10-S99, and the contractual term for all other employee and non-employee awards. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of the Company’s awards. The dividend yield assumption is based on history and the expectation of paying no dividends. Stock-based compensation expense, when recognized in the condensed consolidated financial statements, is based on awards that are ultimately expected to vest.
Fair Value Measurements
The Company measures both financial and nonfinancial assets and liabilities in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, including those that are recognized or disclosed in the condensed consolidated financial statements at fair value on a recurring basis. The standard created a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs that reflect the Company’s own views about the assumptions market participants would use in pricing the asset or liability.
At June 30,December 31, 2023 and September 30, 2022,2023, the carrying amounts of cash, accounts payables and accrued expense and other liabilities approximate fair value because of their short-term nature. The carrying amounts for the Series Convertible Notes (See Note 12)10), 2022 Notes (see Note 11)8), and Second Notes (see Note 11)9), and Third Notes (see Note 11)9) approximate fair value because borrowing rates and terms are similar to comparable market participants.
Derivative LiabilitiesWarrants
The Company accounts for its warrants and other derivative financial instruments as either equityequity-classified or liabilitiesliability-classified instruments based uponon an assessment of the characteristicswarrant’s specific terms and provisions of each instrument,applicable authoritative guidance in accordance with FASB Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC Topic480”), and ASC 815, Derivatives and Hedging (“(“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815,”). Warrants including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted when the warrants are issued and at the end each subsequent quarterly period while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be liability classified as equity areand recorded at fair value as of the date of issuance on the Company’s consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded on the Company’s consolidated balance sheets at theirinitial fair value on the date of issuance and will be revalued onremeasured at fair value at each subsequent balance sheet date until such instruments are exercised or expire, with any changesthereafter. Changes in the fair value between reporting periods recorded as other income or expense. Management estimates theestimated fair value of these liabilities using option pricing models and assumptions thatthe warrants are basedrecognized as a non-cash gain or loss on the individual characteristicsstatements of operations. The Company has determined that the warrants or instruments onissued in June 2018 and May 2019 equity financing (see Note 3) meet the valuation date, as well as assumptionsrequirements for future financings, expected volatility, expected life, yield, and risk-free interest rate. During the nine months ended June 30, 2023, $1,158,197 was recorded to gain on extinguishment of derivative liability for the exchange of the Series G warrants and Series H warrants and $49,278 was recorded as part of shareholder's deficit.classification.
Complex Loss per Common Share
Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year, excluding shares of unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted earnings (loss) per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted. Potential common shares are excluded from the computation when their effect is antidilutive.
For the periods ended December 31, 2023 and 2022, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:
December 31, 2023 | December 31, 2022 | |||||||
Stock Options | 100,300 | 104,325 | ||||||
Stock Warrants | 26,284,002 | 789,577 | ||||||
Convertible notes payable | 771,340 | 652,202 | ||||||
Unvested restricted common stock | - | 250 | ||||||
Total | 27,155,642 | 1,546,354 |
Concentration of Credit Risk
Financial Instrumentsinstruments that potentially subject the Company to concentration of credit risk consist primarily of cash. The Company maintains its cash in bank deposits accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash.
Risks and uncertainties – Geopolitical Conflicts
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluatessources its financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company values its derivatives using the Black-Scholes option-pricing model or other acceptable valuation models, including Monte-Carlo simulations. Derivative instruments are valued at inception, upon events such as an exercise of the underlying financial instrument,materials and at subsequent reporting periods. The classification of derivative instruments, including whether such instruments should be recorded as liabilities, is re-assessed at the end of each reporting period.
The Company reviews the terms of debt instruments, equity instruments, and other financing arrangements to determine whether there are embedded derivative features, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Additionally, in connection with the issuance of financing instruments, the Company may issue freestanding options and warrants, including options or warrants to non-employees in exchange for consulting or other services performed.
The Company accounts for its common stock warrants in accordance with Accounting Standards Codification (“ASC”) 815, Derivativesproducts and Hedging (“ASC 815”). Based upon the provisions of ASC 815, the Company accounts for common stock warrants as liabilities if the warrant requires net cash settlement or gives the holder the option of net cash settlement, or it fails the equity classification criteria. The Company accounts for common stock warrants as equity if the contract requires physical settlement or net physical settlement or if the Company has the option of physical settlement or net physical settlement and the warrants meet the requirements to be classified as equity. Common stock warrants classified as liabilities are initially recorded at fair value on the grant date and remeasured at fair value each balance sheet date with the offset adjustments recorded in change in fair value of warrant liability within the consolidated statements of operations. Common stock warrants classified as equity are initially measured at fair value on the grant date and are not subsequently remeasured.
Financial Statement Reclassification
Certain balances in the prior year consolidated financial statements have been reclassified for comparison purposes to conform to the presentation in the current period consolidated financial statements. During the nine-month period ended June 30, 2023, the Company reclassified the carrying amount of Exchanged Notes of $699,781 (see Note 12) that were previously included in the 2022 Notes payable to Unsecured convertible notes.
Subsequent Events
The Company evaluated all events or transactions through August 11, 2023, the date which these consolidated financial statements were issued. See note 15 for matters deemed to be subsequent events.
Going Concern Basis of Accounting
As reflected in the consolidated financial statements, the Company has an accumulated deficit as of June 30, 2023, has suffered significant net losses and negative cash flows from operations, only recently commenced generating limited operating revenues, and has limited working capital. The continuation of the Company’s business as a going concern is dependent upon raising additional capital, the ability to successfully market and sell its product and eventually attaining and maintaining profitable operations. In particular, as of June 30, 2023, the Company will be required to raise additional capital, obtain alternative means of financial support, or both, in order to continue to fund operations, and therefore there is substantial doubt about the Company’s ability to continue as a going concern. The Company expects to incur substantial expenses into the foreseeable future for the research, development and commercialization of its current and potential products. In addition, the Company will require additional financing in order to seek to license or acquire new assets, research and develop any potential patents and the related compounds, and obtain any further intellectual property that the Company may seek to acquire. Finally, some of our product candidates or the materials contained therein (such as the Active Pharmaceutical Ingredients for our AC5® product line), are manufactured from facilities in areas impacted or which may be impacted by the outbreak of geopolitical conflicts. The Company’s ability to obtain future inventory may be impacted, therefore potentially affecting the COVID-19, which could result in shortages due to ongoing efforts to address the outbreak. Historically,Company’s future revenue stream. In addition, the Company has historically and principally funded its operations through debt borrowings, the issuance of convertible debt, and the issuance of units consisting of common stockCommon Stock and warrants. Provisionswarrants which may also be impacted by economic conditions beyond the Company’s control as well as uncertainties resulting from geopolitical conflicts. The extent to which recent events, including COVID-19 and the recent war in Ukraine, will impact the global economy and the Company is uncertain and cannot be reasonably measured.
2. INVENTORIES
Inventories consist of the following:
December 31, | September 30, | |||||||
2023 | 2023 | |||||||
Finished Goods | $ | 13,971 | $ | 40,969 | ||||
Goods-in-Process | 1,321,878 | 1,323,535 | ||||||
Total | $ | 1,335,849 | $ | 1,364,504 |
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. The cost of inventories comprises expenditures incurred in acquiring the inventories, the cost of conversion and other costs incurred in bringing them to their existing location and condition. The Company records adjustments to its inventory for estimated obsolescence or diminution in net realizable value equal to the difference between the cost of the inventory and the estimated net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the Securities Purchase Agreementsperiod in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not subsequently written up. For the periods ended December 31, 2023 and 2022, the Company did not record any write-down of inventories.
3. WARRANT DERIVATIVE LIABILITY
As of December 31, 2023 and September 30, 2023, there are no instruments accounted as a derivative liability.
The Company previously issued warrants (Series G and Series H warrants) that were accounted for the in accordance with ASC 815-10 as the Company is required to purchase the Series G, and Series H warrants for an amount of cash per share equal to $22.00 and $10.66, respectively, (the "Minimum Value"). Accordingly, the warrants were recorded as liabilities at the greater of the Minimum Value or fair value, and are marked to market each reporting period.
At December 31, 2022, the derivative liabilities were valued at their minimum value of $1,207,475, which was greater than the fair value determined using the Black Scholes Model. In March 2023, the Company entered into onexchange agreements with the holders of the Series G warrants and the Series H warrants to exchange all outstanding warrants in shares of common stock.
4. CONVERTIBLE NOTES PAYABLE, SENIOR SECURED
December 31, 2023 | September 30, 2023 | |||||||
Senior Secured Convertible Promissory Notes (the “2022 Notes”) | $ | 4,230,000 | $ | 4,230,000 | ||||
Unamortized debt discount | (46,965 | ) | (710,897 | ) | ||||
Net Balance | 4,183,035 | 3,519,103 | ||||||
Current Balance | (4,183,035 | ) | (3,519,103 | ) | ||||
Non-Current Balance | - | - |
In July 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional and accredited individual investors and issued Senior Secured Convertible Promissory Notes (the “2022 Notes”) in the aggregate of $4,230,000 in exchange for cash proceeds of $3,525,000, net of original issue discount (OID) of $705,000.
The 2022 Notes are secured by tangible and intangible assets of the Company, bears interest at a rate of 10% per annum payable at maturity or upon conversion, matures January 6, 2022 (“2022 SPA”)2024 (subsequently extended to March 15, 2024), and July 7, 2023 (the “2023 SPA”) restrictare convertible into shares of the Company’s ability to effect or enter into an agreement to effect any issuance by the Company or its subsidiary of Common Stock or securities convertible, exercisable or exchangeable for Common Stock (orcommon stock at a combination of units thereof) with respect to (i) any variable rate debt transactions (as defined in the 2022 SPA), for a period of six months after the date of the 2022 SPA, involving any transaction where the conversion or exercise of the security issued by the Company varies based on the market price of the Common Stock that does not$9.14 per share. The 2022 Notes contain a floor price that is more than 50%customary events of the closing pricedefault. Further, events of the Common Stock on the trading day immediately prior to the date of the 2022 SPA, and (ii) any Variable Rate Transaction (as defined in the 2023 SPA) including, but not limited to, an equity line of credit or “At-the-Market” financing facility until twelve (12) months after the closing date of the 2023 SPA. Furthermore, initially,default under the 2022 SPA, we were requiredNotes also include (i) the unavailability of Rule 144 on or after January 6, 2023; (ii) our failure to deliver the shares of common stock to the 2022 Note holder upon exercise by such holder of its conversion rights under the 2022 Note; (iii) our loss of the “bid” price for its common stock and/or a market and such loss is not cured during the specified cure periods; and (iv) our failure to complete an uplistuplisting of our Common Stock to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American by FebruaryMarch 15, 2023. This deadline has been subsequently extended on numerous occasions. Most recently, on July2024 (the “Uplist Transaction”). During the year ended September 2023, for no additional consideration, the 2022 Notes were amended several times in order to allow the Company to issue additional notes payable, extend the completion date for the Uplist Transaction, and amend certain provisions with regards to mandatory conversion of the notes upon the Uplist Transaction.
In connection with the issuance of the 2022 Notes, the Company granted the 2022 Notes noteholders 425,555 warrants to purchase shares of common stock. The warrants are fully vested, exercisable at $9.94 per share and expire in 5 years. The Company estimated the relative fair value of the warrants to be $1,470,000 using the Black Scholes option pricing model. The Company also issued note holders 63,834 shares of the Company’s common stock with a relative fair value of $315,000. The Company also issued 31,510 warrants to purchase shares of common stock to the placement agent that assisted in the 2022 Notes offering. The placement agent warrants are fully vested, exercisable at $10.06 per share and will expire in 5 years. The Company estimated the relative fair value of the placement agent warrants to be $108,000 using the Black Scholes option pricing model. The Company incurred direct legal and professional fees of $271,000 as part of this offering.
The Company recorded 2022 Notes with total principal of $4,230,000. In addition, total debt discount of $2,870,000 was recorded to account for the 2022 Notes OID of $705,000, the relative fair value of the warrants of $1,578,000, the relative fair value of common stock issued of $315,000, and direct legal and professional fees incurred in the 2022 Notes offering of $271,000. The debt discount is being amortized over the term of the notes using the effective interest rate method. During the year ended September 30, 2022, the Company amortized debt discount of $302,000.
As of September 30, 2023, outstanding balance of the 2022 Notes payable was $4,230,000 and unamortized debt discount was $710,897, or a net balance of $3,519,103. During the three months ended December 31, 2023, the Company secured waivers from the required holdersamortized debt discount of $663,932. As of December 31, 2023, outstanding balance of the 2022 Notes Second Notespayable amounted to $4,230,000 and Third Notes to extend the deadline to complete an Uplisting Transaction to August 31, 2023. See Note 11 for more information regarding the 2022 Convertible Note Offering including the termsunamortized debt discount was $46,965, or a net balance of the 2022 Warrants and 2022 Placement Agent Warrants, as well as for more information regarding the Amendment No. 1 to the 2022 SPA, and Amendment No. 2 to the 2022 SPA.
The 2023 SPA contains certain restrictions on our ability to conduct subsequent sales of any future securities (See Note 15). The continued spread of COVID-19 and uncertain market conditions may also limit the Company’s ability to access capital. If the Company is unable to obtain adequate capital, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned activities. These conditions, in the aggregate, raise substantial doubt as to the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might result from this uncertainty.
3. PROPERTY AND EQUIPMENT
At June 30, 2023 and September 30, 2022, property and equipment consisted of:
Estimated | ||||||||||||
Useful Life (in years) | June 30, 2023 | September 30, 2022 | ||||||||||
Furniture and fixtures | 5 | $ | 9,357 | $ | 9,357 | |||||||
Leasehold improvements | Life of Lease | 8,983 | 8,983 | |||||||||
Computer equipment | 3 | 14,416 | 14,416 | |||||||||
Lab equipment | 5 | 1,000 | 1,000 | |||||||||
33,756 | 33,756 | |||||||||||
Less – accumulated depreciation | 33,028 | 31,712 | ||||||||||
Property and equipment, net | $ | 728 | $ | 2,044 |
For the three months ended June 30, 2023 and 2022, depreciation expense recorded was $273 and $799, respectively. For the nine months ended June 30, 2023 and 2022, depreciation expense recorded was $1,316 and $2,397, respectively.
4. INVENTORIES
Inventories consist of the following:
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
Finished Goods | $ | 56,828 | $ | 9,063 | ||||
Goods-in-process | 1,326,110 | 1,405,785 | ||||||
Total | $ | 1,382,938 | $ | 1,414,848 |
The Company capitalizes inventory that has been produced for commercial sale and has been determined to have a probable future economic benefit. The determination of whether or not the inventory has a future economic benefit requires estimates by management. To the extent that inventory is expected to expire prior to being sold or used for research and development or used for samples, the Company will write down the value of inventory. In evaluating the net realizable value of the inventory, appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors.$4,183,035.
5. INSURANCE PREMIUM FINANCINGCONVERTIBLE NOTES PAYABLE, UNSECURED
December 31, 2023 | September 30, 2023 | |||||||
Exchanged notes (July 2022) | $ | 699,781 | $ | 699,781 | ||||
Second closing notes (January 2023) | 636,000 | 636,000 | ||||||
Third closing notes (March, April, May, 2023) | 702,720 | 702,720 | ||||||
Total | 2,038,501 | $ | 2,038,501 | |||||
Unamortized debt discount | (28,163 | ) | (379,799 | ) | ||||
Net Balance | 2,010,338 | 1,658,702 | ||||||
Current Balance | (2,010,338 | ) | (1,658,702 | ) | ||||
Non-Current Balance | - | - |
Exchanged Notes (July 2022)
In Julyrelation to the issuance of the 2022 Notes (see Note 4), certain noteholders of the Company entered into a finance agreement with First Insurance Funding in orderCompany’s Series 2 note payable (see Note 6) agreed to fund a portionexchange their Series 2 notes payable consisting of its insurance policies.$600,000 principal and accrued interest of $99,781 for $699,781 of Unsecured Convertible Promissory Notes (the “Exchanged Notes”) on substantially the same terms as the 2022 Notes, except that the Exchanged Notes are subordinate to the 2022 Notes and are unsecured. The amount financed was approximately $354,000 and incurrednotes bear interest at a rate of 2.99%. The Company made monthly payments10% per annum payable at maturity or upon conversion, mature January 6, 2024 (which was subsequently extended to March 15, 2024), and are convertible into shares of approximately $35,000 through April 2023. The outstanding balance asthe Company’s common stock at a conversion price of June 30,$9.14 per share. At December 31, 2023 and September 30, 2023, there was no discount recorded for the Exchanged Notes.
Second Closing Notes (January 2023)
In January 2023, pursuant to the SPA (see Note 8), as amended, investors agreed to purchase Unsecured Convertible Promissory Notes (the “Second Closing Notes”) in the aggregate of $636,000 in exchange for cash proceeds of $530,000, net of original issue discount (OID) of $106,000. The notes are unsecured, bear interest at a rate of 10% per annum, mature January 6, 2024 (which was subsequently extended to March 15, 2024), and are convertible into shares of the Company’s common stock with a conversion price of $9.14 per share.
In connection with the issuance of the Second Closing Notes, the Company granted the Second Closing Notes noteholders (i) 127,968 warrants to purchase shares of common stock. The warrants are fully vested, exercisable at $9.94 per share and expire in 5 years. The Company determined the relative fair value of the warrants to be $256,000 using the Black Scholes option pricing model; and (ii) 9,598 shares of common stock with a relative fair value of $26,000. The Company also issued 6,565 warrants to purchase shares of the Company’s common stock to the placement agent who assisted in the Second Closing offering. The placement agent warrants are fully vested, exercisable at $10.06 per share and will expire in 5 years. The Company determined the relative fair value of the placement agent warrants to be $13,000 using the Black Scholes option pricing model. Furthermore, the Company also incurred direct legal and professional fees of $31,000 as part of this offering.
ThirdClosing Notes (March, April and May 2023)
In March, April and May 2023, pursuant to the SPA, as amended, investors agreed to purchase Unsecured Convertible Promissory Notes (the “Third Closing Notes”) in the aggregate of $703,000 in exchange for cash proceeds of $488,000, net of original issue discount (OID) of $215,000. The notes are unsecured, bear interest at a rate of 10% per annum, originally matured January 6, 2024 (which was subsequently extended to March 15, 2024), and are convertible into shares of the Company’s common stock with a conversion price of $9.14 per share.
In connection with the issuance of the Third Closing Notes, the Company granted the Third Closing Notes noteholders (i) 141,396 warrants to purchase shares of common stock. The warrants are fully vested, exercisable at $9.94 per share and expire in 5 years. The Company determined the relative fair value of the warrants to be $164,000 using the Black Scholes option pricing model; and (ii) 10,608 shares of common stock with a relative fair value of $18,000. The Company also incurred direct legal and professional fees of $5,000 as part of this offering.
The Second Closing Notes and Third Closing Notes contain events of default similar to the 2022 was approximately $0Notes. Subsequent to issuance, for no additional consideration, the Second Closing Notes and $248,000, respectively. Third Closing Notes were amended several times in order to allow the Company to issue additional notes payable, extend the completion date of the Uplist Transaction, and amend certain provisions with regards mandatory conversion of the notes upon the Uplist Transaction.
Debt discount on unsecured convertible promissory notes
As a result of the issuance of the Second Closing and the Third Closing Notes, the Company recorded debt discount in the aggregate of $834,000 to account for the Second Closing and the Third Closing Notes OID of $321,000, the relative fair value of the warrants issued of $433,000, the relative fair value of common stock issued of $44,000, and direct legal and professional fees incurred of $36,000. The debt discount is being amortized over the term of the notes using the effective interest rate method.
As of JuneSeptember 30, 2023, outstanding balance of the Exchange notes, Second Closing Notes, and Third Closing Notes was $2,039,000 and unamortized debt discount of $380,000, or a net balance of $1,659,000. During the three month period ended December 31, 2023, the Company had not entered intoamortized debt discount of $351,636. As of September 30, 2023, outstanding balance of the Exchange notes, Second Closing Notes, and Third Closing Notes was $2,039,000 and unamortized debt discount of $28,163, or a new finance agreement with First Insurance Funding, or any other similar provider.net balance of $2,010,338.
6. STOCK-BASED COMPENSATIONCONVERTIBLE NOTES PAYABLE, SERIES 2
December 31, 2023 | September 30, 2023 | |||||||
Series 2 Convertible Notes (converted in November 2023) | $ | - | $ | 450,000 | ||||
Total | - | 450,000 | ||||||
Current Balance | - | (450,000 | ) | |||||
Non-Current Balance | $ | - | $ | - |
Series 2 Convertible Notes
On November 6, 2020, the Company issued its unsecured Series 2 10% Convertible Notes Payable in exchange for cash proceeds of $450,000. The notes matured on November 30, 2023, and the notes were all converted in November 2023.
During the year ended September 30, 2022, as a part of a separate 2022 Convertible Note Offering (see Note 4), certain holders of the Series 2 Notes agreed to exchange their Series 2 Notes with an aggregate principal amount of $600,000 and accrued interest of approximately $99,781 for promissory notes of the Company on substantially similar terms to those of the 2022 Notes (the “Exchanged Notes”, see Note 5).
As of September 30, 2023, outstanding balance of the Series 2 Convertible Notes amounted to $450,000. On November 30, 2023, the Series 2 Convertible Notes of $450,000 and outstanding accrued interest of $137,946, were converted into 52,918 shares of the Company’s common stock.
7. STOCKHOLDERS DEFICIT
Common Stock
On November 30, 2023, the Company issued a total of 52,918 shares of Common Stock in full satisfaction of all previously outstanding Series 2 Convertible Notes with the principal balance of $450,000 and outstanding accrued interest of $137,946.
2013 Stock Incentive Plan
On June 18, 2013, the Company established the 2013 Stock Incentive Plan (the “2013 Plan”). Under the 2013 Plan, as of September 30, 2022, a maximum number of 170,571 shares of the Company’s authorized and available common stock could be issued in the form of options, stock appreciation rights, sales or bonuses of restricted stock, restricted stock units or dividend equivalent rights, and an award may consist of one such security or benefit, or two or more of them in any combination or alternative. The 2013 Plan provides that on the first business day of each fiscal year commencing with fiscal year 2014, the number of shares of our common stock reserved for issuance under the 2013 Plan for all awards except for incentive stock option awards will be subject to increase by an amount equal to the lesser of (A) 15,000 Shares, (B) four (4) percent of the number of shares outstanding on the last day of the immediately preceding fiscal year of the Company, or (C) such lesser number of shares as determined by the Company’s Board of Directors (the “Board”). The exercise price of each option shall be the fair value as determined in good faith by the Board at the time each option is granted. On October 1, 2022, the aggregate number of authorized shares under the Plan was further increased by 15,000 shares to a total of 185,571 shares. On June 18, 2023, the 2013 Stock Incentive Plan expired.
The exercise price of each option is equal to the closing price of a share of the Company’s Common Stock on the date of grant.
Share-Based Awards
During the nine months ended June 30, 2023, the Company awarded 20,875 options to employees and directors and 3,625 options to consultants to purchase shares of Common Stock under the 2013 Plan.
Share-based compensation expense for awards granted during the nine months ended June 30, 2023 was based on the grant date fair value estimated using the Black-Scholes Model.
Common Stock Options
Stock compensation activity under the 2013 Plan for the ninethree months ended June 30,December 31, 2023 follows:
Option Shares Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at September 30, 2022 | 98,626 | $ | 52.00 | 1.36 | $ | 16,900 | ||||||||||
Awarded | 24,500 | $ | 8.00 | |||||||||||||
Forfeited/Cancelled | (19,101 | ) | $ | 70.00 | ||||||||||||
Outstanding at June 30, 2023 | 104,025 | $ | 39.00 | 5.72 | — | |||||||||||
Vested at June 30, 2023 | 79,409 | $ | 48.00 | 4.85 | — | |||||||||||
Vested and expected to vest at June 30, 2023 | 104,325 | $ | 39.00 | 5.72 | — |
Option Shares Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at September 30, 2023 | 102,125 | $ | 38.00 | |||||||||||||
Awarded | - | |||||||||||||||
Forfeited/Cancelled | (1,825 | ) | (67,000 | ) | ||||||||||||
Outstanding at December 31, 2023 | 100,300 | $ | 38.00 | 4.0 | $ | 11,000 | ||||||||||
Vested at December 31, 2023 | 86,119 | $ | 42.00 | 3.5 | — | |||||||||||
Vested and expected to vest at December 31, 2023 | 100,300 | $ | 38.00 | 4.5 | — |
On June 18, 2023, the 2013 Stock Incentive Plan expired. Therefore, no shares are available for future grants under the 2013 Plan as of June 30,December 31, 2023.
Share-based compensation expense recorded in the Company’s Condensed Consolidated Statements of Operations for the three months ended June 30,December 31, 2023 and 2022 resulting from options awarded to the Company’s employees, directors and consultants was approximately $41,000$29,000 and $81,000,$104,000, respectively. Of this amount, during the three months ended June 30,December 31, 2023 and 2022, $7,000$6,000 and $29,000,$14,000, respectively, were recorded as research and development expense, and $34,000$23,000 and $52,000,$90,000, respectively were recorded as general and administrative expense in the Company’s Consolidated Statements of Operations. Share-based compensation expense recorded in the Company’s Consolidated Statements of Operations for the nine months ended June 30, 2023 and 2022 resulting from options awarded to the Company’s employees, directors and consultants was approximately $211,000 and $367,000, respectively. Of this amount, during the nine months ended June 30, 2023 and 2022, $55,000 and $123,000, respectively, were recorded as research and development expense, and $156,000 and $245,000, respectively were recorded as general and administrative expense in the Company’sCondensed Consolidated Statements of Operations.
.
During the ninethree months ended June 30,December 31, 2023 and 2022, no options awarded were exercised.
As of June 30,December 31, 2023, there is approximately $200,000$85,000 of unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the 2013 Plan. That cost is expected to be recognized over a weighted average period of 2.111.09 years.
Restricted Stock
Restricted stock activity under the 2013 Plan for the three months ended June 30, 2023 and 2022, in shares, follows:
| ||||||||
|
| |||||||
| ||||||||
|
| |||||||
|
The weighted grant date fair value average of the restricted stock for the three months ended June 30, 2023 and 2022 follows:
Three months Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
Non Vested at March 31, 2023 and 2022 | $ | — | $ | 20.00 | ||||
Vested | — | (20.00 | ) | |||||
Non Vested at June 30, 2023 and 2022 | $ | — | $ | 20.00 |
Restricted stock activity under the 2013 Plan for the nine months ended June 30, 2023 and 2022, in shares, follows:
Nine months Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
Non Vested at September 30, 2022 and 2021 | 250 | 2,250 | ||||||
Vested | (250 | ) | (1,375 | ) | ||||
Non Vested at June 30, 2023 and 2022 | — | 875 |
The weighted grant date fair value average of the restricted stock for the nine months ended June 30, 2023 and 2022 follows:
Nine months Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
Non Vested at September 30, 2022 and 2021 | $ | 18.00 | $ | 20.00 | ||||
Vested | (18.00 | ) | (20.00 | ) | ||||
Non Vested at June 30, 2023 and 2022 | $ | — | $ | 20.00 |
For the three months ended June 30,December 31, 2023 and 2022, compensation expense recorded for the restricted stock awards was approximately $0 and $10,000,$2,000, respectively. For the nine months ended June 30,As of December 31, 2023, and 2022, compensation expense recorded for the restrictedthere were no unvested stock awards was approximately $3,000 and $30,000, respectively.options.
7. REGISTERED DIRECT OFFERINGS
On September 30, 2016, the Company filed a registration statement with the SEC utilizing a “shelf” registration process, which was subsequently declared effective by the SEC on October 20, 2016 (such registration statement, the “Shelf Registration Statement”). Under the Shelf Registration Statement, the Company may offer and sell any combination of its Common Stock, warrants, debt securities, subscription rights, and/or units comprised of the foregoing to raise up to $50,000,000 in gross proceeds.
On February 20, 2017, the Company entered into a Securities Purchase Agreement (the “2017 SPA”) with six accredited investors (collectively, the “2017Investors”) providing for the issuance and sale by the Company to the 2017 Investors of an aggregate of 50,833 units at a purchase price of $120.00per unit in a registered offering (the “2017 Financing”). The securities comprising the units sold in the 2017 Financing were issued under the Shelf Registration Statement, and consisted of a share of Common Stock, a warrant equal to 55% of the shares of Common Stock at an exercise price of $150.00 per share (“Series F Warrant”) at any time prior to the fifth anniversary of the issuance date of the Series F Warrant subject to certain restrictions on exercise (the “2017Warrants”) and the shares issuable upon exercise of the 2017 Warrants (the “2017Warrant Shares”).
On June 28, 2018, the Company entered into a Securities Purchase Agreement (“2018SPA”) with eight accredited investors (collectively, the “2018Investors”) providing for the issuance and sale by the Company to the 2018 Investors of an aggregate of 45,350 units at a purchase price of $100.00 per unit in a registered offering (“2018Financing”). The securities comprising the units sold in the 2018 Financing were issued under the Shelf Registration Statement, and consisted of a share of Common Stock, a warrant to purchase up to a number of shares of the Company’s Common Stock equal to 75% of the shares of Common Stock at an exercise price of $140.00 per share (“Series G Warrant”) at any time prior to the fifth anniversary of the issuance date of the Series G Warrant subject to certain restrictions on exercise (the “2018Warrants”) and the shares issuable upon exercise of the 2018 Warrants (the “2018Warrant Shares”).
On May 12, 2019, the Company entered into a Securities Purchase Agreement (“2019SPA”) with five accredited investors (collectively, the “2019Investors”) providing for the issuance and sale by the Company to the 2019 Investors of an aggregate of 43,077 units at a purchase price of $65.00 per unit in a registered offering (“2019Financing"). The securities comprising the units sold in the 2019 Financing were issued under the Shelf Registration Statement, and consisted of a share of Common Stock, a warrant to purchase one share of Common Stock at an exercise price of $80.00 per share (“Series H Warrant”) at any time prior to the fifth anniversary of the issuance date of the Series H Warrant subject to certain restrictions on exercise (the “2019Warrants”) and the shares issuable upon exercise of the 2019 Warrants (the “2019 Warrant Shares”).
On March 10, 2023, the Company entered into exchange agreements (the “Exchange Agreements”) with each holder (the “Warrantholders”) of the Company’s outstanding Series G Warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at an exercise price of $140.00 per share (the “Series G Warrants”) and the Company’s outstanding Series H Warrants to purchase shares of Common Stock at an exercise price of $80.00 per share (the “Series H Warrants” and, together with the Series G Warrants, the “Warrants”). Pursuant to the Exchange Agreements, the Warrantholders exchanged 34,013 Series G Warrants for 3,402 shares of Common Stock and 43,077 Series H Warrants for 8,617 shares of Common Stock. All 27,958 remaining Series F Warrants expired during the fiscal year ended September 30, 2022.
8. Derivative Liabilities
The Company accounted for the Series F Warrants, Series G Warrants and the Series H Warrants in accordance with ASC 815-10. Since the Company was required to purchase its Series F Warrants, Series G Warrants and Series H Warrants for an amount of cash equal to $36.00, $22.00 and $10.66, respectively, for each share of Common Stock (the "Minimum Value") they are recorded as liabilities at the greater of the Minimum Value or fair value. They are marked to market each reporting period through the Consolidated Statement of Operations.
On the respective closing dates of June 28, 2018 and May 12, 2019, respectively, the derivative liabilities related to the Series G Warrants and Series H Warrants were recorded at an aggregate fair value of $1,628,113. Given that the fair value of the derivative liabilities was less than the net proceeds, the remaining proceeds were allocated to Common Stock and additional paid-in-capital.
On March 10, 2023, Arch Therapeutics, Inc. entered into exchange agreements (the “Exchange Agreements”) with each holder (the “Warrantholders”) of the Company’s outstanding Series G Warrants to purchase shares of the Company’s common stock, par value $0.001 per share at an exercise price of $140.00 per share and the Company’s outstanding Series H Warrants to purchase shares of Common Stock at an exercise price of $80.00 per share. Pursuant to the Exchange Agreements, the Warrantholders exchanged 34,013 Series G Warrants for 3,402 shares of Common Stock and 43,077 Series H Warrants for 8,617 shares of Common Stock.
During the three and nine months ended June 30, 2023, $0 and $1,158,197, respectively was recorded to gain on extinguishment of derivative liability for the exchange of the Series G warrants and Series H warrants and $49,278 was recorded as part of shareholder’s deficit. During the three and nine months ended June 30, 2022, $0 and $1,000,000, respectively was recorded to decrease the fair value of derivative liability related to the expired Series F warrants.
Fair Value Measurements Using Significant Unobservable Inputs – Nine Months Ended June 30, 2023 | ||||||||
(Level 3) | Series G | Series H | ||||||
Beginning balance at September 30, 2022 | $ | 748,275 | $ | 459,200 | ||||
Exchange of warrants into common stock | (13,948 | ) | (35,330 | ) | ||||
Extinguishment of derivative liabilities | (734,327 | ) | (423,870 | ) | ||||
Ending balance at June 30, 2023 | $ | — | $ | — |
Fair Value Measurements Using Significant Unobservable Inputs - Nine Months Ended June 30, 2022 | ||||||||||||
(Level 3) | Series F | Series G | Series H | |||||||||
Beginning balance at September 30, 2021 | $ | 1,000,000 | $ | 748,275 | $ | 459,200 | ||||||
Issuances | — | — | — | |||||||||
Adjustments to estimated fair value | — | — | — | |||||||||
Expiration of derivative liability | (1,000,000 | ) | — | — | ||||||||
Ending balance at June 30, 2022 | $ | — | $ | 748,275 | $ | 459,200 |
As of March 10, 2023 and September 30, 2022, the derivative liabilities were valued at the greater of their minimum value or by using the Black Scholes Model with the following assumptions.
|
Series G | Series H | |||||||
Closing price per share of Common Stock | $ | 4.10 | $ | 4.10 | ||||
Exercise price per share | $ | 140.00 | $ | 80.00 | ||||
Expected volatility | 179.41 | % | 141.03 | % | ||||
Risk-free interest rate | 4.91 | % | 4.75 | % | ||||
Dividend yield | — | — | ||||||
Remaining expected term of underlying securities (years) | 0.24 | 1.31 |
As of September 30, 2022, the derivative liabilities are recorded at their minimum value.
Series G | Series H | |||||||
Closing price per share of Common Stock | $ | 3.84 | $ | 3.84 | ||||
Exercise price per share | $ | 140.00 | $ | 80.00 | ||||
Expected volatility | 132.97 | % | 122.50 | % | ||||
Risk-free interest rate | 4.05 | % | 4.14 | % | ||||
Dividend yield | — | — | ||||||
Remaining expected term of underlying securities (years) | 0.69 | 1.57 |
9. OCTOBER 2019 REGISTERED DIRECT OFFERING
On October16,2019,the Company entered into a Securities Purchase Agreement (the “October 2019 SPA”) with seven accredited investors (collectively, the “October 2019 Investors”) providing for the issuance and sale by the Company to the 2019 Investors of an aggregate of 71,429 units at a purchase price of $35.00 per unit in a registered offering (“October 2019 Financing”). The securities comprising the units sold in the October 2019 Financing were issued under the Shelf Registration Statement, and consisted of a share of Common Stock, a warrant to purchase one share of Common Stock at an exercise price of $44.00 per share (“Series I Warrant”) at any time prior to the fifth anniversary of the issuance date of the Series I Warrant subject to certain restrictions on exercise and the shares issuable upon exercise of the Series I Warrants (collectively, the “October 2019 Warrant Shares”). As of October 18, 2019, the Company recorded the 71,429 shares as Common Stock. Pursuant to the Engagement Agreement (as defined below), the Company also agreed to issue to the Placement Agent, or its designees, warrants to purchase up to 5,358 shares (the “Placement Agent Warrants”). The 2019 Placement Agent Warrants have substantially the same terms as the Series I Warrants, except that the exercise price of the Placement Agent Warrants is $43.75 per share and the term of the Placement Agent Warrants is five years.
The gross proceeds to the Company from the October 2019 Financing, which were received as of October 18, 2019, were approximately $2.5 million before deducting financing costs of approximately $333,000 which includes approximately $158,000 of placement fees. The number of shares of the Company’s Common Stock into which each of the Series I Warrants is exercisable and the exercise price therefore are subject to adjustment, as set forth in the Series I Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise).
The Company engaged H.C. Wainwright as its exclusive institutional investor placement agent (the “Placement Agent”) in connection with the October 2019 SPA pursuant to an engagement agreement dated as of October 10, 2019 (the “2019 Engagement Agreement”). In consideration for the services provided by the Placement Agent, the Placement Agent was entitled to receive cash fees ranging from 6.0% to 8.2% of the gross proceeds received by the Company, as well as reimbursement for all reasonable expenses incurred by it in connection with its engagement. The Company received gross proceeds of approximately $2.5 million in the aggregate, resulting in a fee of approximately $158,000.
During the three and nine months ended June 30, 2023 and 2022, no Series I Warrants or Placement Agent Warrants were exercised. As of June 30, 2023, up to 71,429 and 5,358 shares may be acquired upon the exercise of the Series I Warrants and Placement Agent Warrants, respectively.
Equity Value of Warrants
The Company accounted for the Series I Warrants and the Placement Agent Warrants relating to the aforementioned October 2019 Financing in accordance with ASC 815-40. Because the Series I Warrants and the Placement Agent Warrants are indexed to the Company’s Common Stock, they are classified within stockholders’ deficit in the accompanying consolidated financial statements.
10. 2021 REGISTERED DIRECT OFFERING
On February 11, 2021, the Company entered into a Securities Purchase Agreement (the “2021 SPA”) with certain institutional and accredited investors (collectively, “2021 Investors”) providing for the issuance and sale by the Company to the 2021 Investors of an aggregate of 215,625 shares (the “Shares”) of the Company’s Common Stock, and warrants (the “Series K Warrants”) to purchase an aggregate of 161,719 shares (the “Warrant Shares”) of Common Stock, at a combined offering price of $32.00 per share (the “2021 Financing”). The Series K Warrants have an exercise price of $34.00 per share and are exercisable for a period of 5.5 years. The aggregate gross proceeds for the sale of the Shares and Series K Warrants were approximately $6.9 million, before deducting the Placement Agent’s fees and expenses and other offering expenses payable by the Company, of approximately $700,000. Pursuant to an engagement agreement dated as of February 8, 2021 (the “2021 Engagement Agreement”), by and between the Company and the Placement Agent, the Company agreed to pay the Placement Agent cash fees equal to (i) 7.5% of the gross proceeds received by the Company from certain investors in the 2021 Financing, and (ii) 6.0% of the gross proceeds received by the Company from certain investors that had pre-existing relationships with the Company. In addition, the Placement Agent received a one-time non-accountable expense fee of $10,000, up to $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses and $10,000 for clearing expenses. Pursuant to the 2021 Engagement Agreement, the Company also agreed to issue to the Placement Agent, or its designees, warrants to purchase up to 7.5% of the aggregate number of Shares sold to the 2021 Investors, or warrants to purchase up to 16,172 shares (the “2021 Placement Agent Warrants”) of the Company’s Common Stock. The 2021 Placement Agent 2 Warrants have substantially the same terms as the Series K Warrants, except that the exercise price of the 2021 Placement Agent Warrants is $40.00 per share. The 2021 Engagement Agreement contained indemnity and other customary provisions for transactions of this nature.
The 2021 SPA contained certain restrictions on the Company’s ability to conduct subsequent sales of the Company’s equity securities. In particular, we were prohibited from entering into or effecting a Variable Rate Transaction (as defined in the 2021 SPA) until February 11, 2022; provided, however, the Company may enter into and effect an at-the-market offering facility with the Placement Agent.
The number of shares of the Company’s Common Stock into which each of the Series K Warrants is exercisable and the exercise price therefore are subject to adjustment, as set forth in the Series K Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise).
During the three and nine months ended June 30, 2023, no Series K Warrants or Placement Agent 2 Warrants were exercised. As of June 30, 2023, up to 161,719 and 16,172 shares may be acquired upon the exercise of the Series K Warrants and Placement Agent Warrants, respectively.
Common Stock
On February 17, 2021, the Closing Date of the 2021 Financing, the Company issued 215,625 shares of Common Stock.
Equity Value of Warrants
The Company accounted for the Series K Warrants and the Placement Agent 2 Warrants relating to the aforementioned February 2021 Registered Direct Offering in accordance with ASC 815-40, Derivatives and Hedging. Because the Series K Warrants and the Placement Agent 2 Warrants are indexed to the Company’s stock, they are classified within stockholders’ deficit in the accompanying consolidated financial statements.
11. 2022 CONVERTIBLE NOTE OFFERING, SECOND NOTES OFFERING, AND THIRD NOTES OFFERING
On July 7, 2022, the Company announced that it had entered into a Securities Purchase Agreement (the “2022 SPA”) with certain institutional and accredited individual investors (collectively, the “2022 Investors”) providing for the issuance and sale by the Company to the 2022 Investors of (i) Senior Secured Convertible Promissory Notes (each a “2022 Note” and collectively, the “2022 Notes”) in the aggregate principal amount of $4.23 million, which includes an aggregate $0.705 million original issue discount in respect of the 2022 Notes; (ii) warrants (the “2022 Warrants”), to purchase an aggregate of 425,555 shares (the “2022 Warrant Shares”) of Common Stock; and (iii) 63,834 shares of Common Stock (the “2022 Inducement Shares”) equal to 15% of the principal amount of the 2022 Notes divided by the closing price of the Common Stock immediately prior to the Closing Date (as defined below). The 2022 Notes, 2022 Warrants and 2022 Inducement Shares were issued as part of a convertible note offering authorized by the Company’s board of directors (the “2022 Convertible Note Offering”). The aggregate gross proceeds for the sale of the 2022 Notes, 2022 Warrants and 2022 Inducement Shares was approximately $3.5 million, before deducting debt issuance costs of $775,000 consisting of fair value of the placement agent’s warrants of approximately $220,000 and other estimated fees and offering expenses payable by the Company of approximately $555,000. The closing of the sales of these securities under the 2022 SPA occurred on July 6, 2022 (the “2022 Closing Date”).
On January 18, 2023, the Company entered into Amendment No. 1 to the 2022 SPA (the “Amendment” and, together with the 2022 SPA, the “Amended 2022 SPA”), with certain Investors in connection with the Second Closing of the 2022 Convertible Note Offering for the issuance and sale by the Company to such Investors of an aggregate of (i) Unsecured Convertible Promissory Notes (each a “Second Note” and collectively, the “Second Notes”) in the aggregate principal amount of $636,000, which includes an aggregate $106,000 original issue discount in respect of the Second Notes; (ii) warrants (the “Second Warrants”) to purchase an aggregate of 127,968 shares (the “Second Warrant Shares”) of Common Stock; and (iii) 9,598 shares of Common Stock (the “Second Inducement Shares”). The aggregate gross proceeds for the sale of the Second Notes, Second Warrants and Second Inducement Shares was approximately $530,000, before deducting the placement agent’s fees and other estimated fees and offering expenses payable by the Company of approximately $15,000. The second closing of the sales of these securities under the Amended 2022 SPA occurred on January 18, 2023 (the “Second Closing Date”).
On May 15, 2023, the Company entered into Amendment No. 2 to the 2022 SPA related to the 2022 Convertible Note Offering (the “Second Amendment” and, together with the Amendment and the 2022 SPA, the “Second Amended 2022 SPA”), with an Investor in connection with the third closing of the 2022 Convertible Note Offering for the issuance and sale by the Company to an Investor of an aggregate of (i) Unsecured Convertible Promissory Notes (each a “Third Note” and collectively, the “Third Notes”) in the aggregate principal amount of $702,720, which includes an aggregate $214,720 original issue discount in respect of the Third Notes; (ii) warrants (the “Third Warrants”) to purchase an aggregate of 141,396 shares (the “Third Warrant Shares”) of Common Stock; and (iii) 10,608 shares of Common Stock (the “Third Inducement Shares”). The aggregate gross proceeds for the sale of the Third Notes, Third Warrants and Third Inducement Shares was approximately $488,000, before deducting any estimated fees and offering expenses payable by the Company. The Company did not engage a placement agent in connection with the issuance of the Third Notes, Third Warrants, and Third Inducement Shares. The third closing of the sales of these securities under the Amended SPA occurred on May 15, 2023 (the “Third Closing Date”).The 2022 Notes, the Second Notes and the Third Notes bear interest on the unpaid principal balance at a rate equal to ten percent (10%) (computed on the basis of the actual number of days elapsed in a 360-day year) per annum accruing from the Closing Date until the 2022 Notes, Second Notes and Third Notes become due and payable at maturity or upon their conversion, acceleration or by prepayment, and may become due and payable upon the occurrence of an event of default under the 2022 Notes, Second Notes and Third Notes. Any amount of principal or interest on the 2022 Notes, the Second Notes and Third Notes which is not paid when due shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum amount allowed by law from the due date thereof until payment in full.
The 2022 Notes, the Second Notes and the Third Notes are convertible into shares of Common Stock at the option of each holder of the 2022 Notes, the Second Notes, and the Third Notes from the date of issuance at $9.14 (the “Conversion Price”) through the later of (i) January 6, 2024 (the “Maturity Date”) or (ii) the date of payment of the Default Amount (as defined in the 2022 Notes); provided, however, certain 2022 Notes, Second Notes and Third Notes include a provision preventing such conversion if, as a result, the holder, together with its affiliates and any other persons whose beneficial ownership of Common Stock would be aggregated with the holder’s, would be deemed to beneficially own more than 4.99% or 9.99% of the Common Stock (as applicable, the “Ownership Limitation”) immediately after giving effect to the Conversion; and provided further, the holder, upon notice to us, may increase or decrease the Ownership Limitation; (i) the Ownership Limitation may only be increased to a maximum of 9.99% of the Common Stock; and (ii) any increase in the Ownership Limitation will not become effective until the 61st day after delivery of such waiver notice. The Conversion Price is subject to adjustment as set forth in the 2022 Notes, Second Notes, and Third Notes.
The 2022 Notes, Second Notes and Third Notes contain customary events of default, which include, among other things, (i) the Company’s failure to pay when due any principal or interest payment under the 2022 Notes, Second Notes, and Third Notes; (ii) our insolvency; (iii) delisting of the Company’s Common Stock; (iv) the Company’s breach of any material covenant or other material term or condition under the 2022 Notes, Second Notes and/or Third Notes; and (v) the Company’s breach of any representations or warranties under the 2022 Notes, Second Notes and Third Notes which cannot be cured within five (5) days. Further, events of default under the 2022 Notes, Second Notes and Third Notes also include (i) the unavailability of Rule 144 on or after January 6, 2023; (ii) our failure to deliver the shares of Common Stock to the 2022 Notes, Second Notes, and/or Third Notes holder upon exercise by such holder of its conversion rights under the 2022 Notes, Second Notes, and/or Third Notes; (iii) our loss of the “bid” price for its Common Stock and/or a market and such loss is not cured during the specified cure periods; and (iv) our failure to complete an uplisting of our Common Stock to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American by August 31, 2023 (as amended) (an “Uplist Transaction”).
The 2022 Warrants, Second Warrants and Third Warrants (i) have an exercise price of $9.94 per share; (ii) have a term of exercise equal to 5 years after their issuance date; (iii) became exercisable immediately after their issuance; and (iv) have a provision preventing the exercisability of such 2022 Warrants, the Second Warrants and the Third Warrants if, as a result of the exercise of the 2022 Warrants, Second Warrants, and/or Third Warrants , the holder, together with its affiliates and any other persons whose beneficial ownership of our Common Stock would be aggregated with the holder’s, would be deemed to beneficially own more than the Ownership Limitation. The holder, upon notice to us, may increase or decrease the Ownership Limitation; provided that (i) the Ownership Limitation may only be increased to a maximum of 9.99% of our Common Stock; and (ii) any increase in the Ownership Limitation will not become effective until the 61st day after delivery of such waiver notice. The number of shares of Common Stock into which each of the 2022 Warrants, Second Warrants, and Third Warrants is exercisable and the exercise price therefor are subject to adjustment as set forth in the 2022 Warrants, Second Warrants, and Third Warrants, including standard antidilution provisions, and adjustments for stock subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise). In the event of a Fundamental Transaction (as defined in the 2022 Warrants, Second Warrants, and Third Warrants) holders of the 2022 Warrants, Second Warrants, and Third Warrants would be entitled to receive alternate consideration in connection with such Fundamental Transaction, but only to the extent that holders of our Common Stock were entitled to receive the same. Moreover, as long as the 2022 Notes, Second Notes, and Third Notes, and 2022 Warrants, Second Warrants, and Third Warrants remaining outstanding, upon the issuance of any security in connection with any potential future financing activity on terms more favorable than the existing terms, the Company has an obligation to notify the holders of the 2022 Notes, Second Notes, and Third Notes, and the 2022 Warrants, Second Warrants, and Third Warrants of such more favorable terms, and to use best efforts to effect such terms in the 2022 Notes, Second Notes, and Third Notes, and the 2022 Warrants, Second Warrants, and Third Warrants. Finally, because of the Company’s net loss position, the shares underlying the 2022 Notes, Second Notes, and Third Notes on an as converted basis are excluded from the calculation of basic and fully diluted earnings per share. Similarly, because of the Company’s net loss position, there was no impact on the calculation of basic and fully diluted earnings per share related to the classification of the 2022 Warrants, Second Warrants, and Third Warrants as participating securities.
The Company retained a placement agent in connection with the private placement of $2.4 million of the 2022 Notes to the institutional investors. The Company paid the 2022 Placement Agent 10% of the gross proceeds received from certain institutional investors, or $240,000 and we also reimbursed the 2022 Placement Agent approximately $58,000 for non-accountable banking fees, legal fees and other expenses. In addition, we issued 2022 Placement Agent Warrants to purchase an aggregate of 31,510 shares of Common Stock. An additional $1.1 million was raised in connection with the placement of the private placement notes, which included certain accredited investors some of which were Board members and executive officers of the Company. Board member, Laurence Hicks, and executive officers, Terrence W. Norchi and Michael S. Abrams, invested in the 2022 Notes. The investment made in the 2022 Notes made by the Board member and executive officers totaled $80,000.
The Company’s agreement with the 2022 Placement Agent was still effective at the time of the private placement of $0.5 million of the Second Notes to certain institutional investors. Per the terms of a termination agreement dated February 21, 2023 by and between the Company and the 2022 Placement Agent (the “Placement Agent Termination Agreement”), the Company owes the 2022 Placement Agent 10% of the gross proceeds received from certain institutional investors, or $50,000, and, such amount was deferred until the Company completes an additional financing with gross proceeds of at least $1 million. In addition, per the Placement Agent Termination Agreement, we agreed to issue 2022 Placement Agent Warrants to purchase an aggregate of 6,565 shares of Common Stock.
In addition, as a part of the 2022 Convertible Note Offering, certain holders of the Company’s 10% Series 2 Convertible Notes agreed to exchange their Series 2 Notes for promissory notes of the Company on substantially similar terms to those of the 2022 Notes (the “Exchanged Notes”). The Exchanged Notes are convertible into 76,563 shares of Common Stock at a conversion price of $9.14. The holders of the Exchanged Notes did not receive warrants or inducement shares. In connection with the issuance of the Exchanged Notes, the holders of the Series 2 Notes that participated in the exchange, entered into a subordination agreement on July 6, 2022 (the “Closing Date”) to subordinate their rights in respect of the Exchanged Notes to the rights of the Investors in respect of the 2022 Notes. As of July 7, 2022, approximately $600,000 of the Series 2 Notes and accrued interest of approximately $100,000 were included in the exchange.
Further, in connection with the 2022 Convertible Note Offering, we initially were required to complete an Uplist Transaction by February 15, 2023 under the terms of the 2022 Notes. If we are unable to complete or secure an extension to the Uplist Transaction deadline, then the 2022 Notes, Second Notes, and Third Notes will become immediately due and payable and we will be obligated to pay to each holder of the 2022 Notes, Second Notes, and Third Notes an amount equal to 125%, multiplied by the sum of the outstanding principal amount of the 2022 Notes, Second Notes, and Third Notes plus any accrued and unpaid interest on the unpaid principal amount of the 2022 Notes, Second Notes, and Third Notes to the date of payment, plus any default interest and any other amounts owed to the holder, payable in cash or shares of Common Stock. The Company has secured waivers from all required holders of the 2022 Notes, Second Notes, and Third Notes to extend the deadline to complete an uplist from (i) February 15, 2023 to March 15, 2023, (ii) March 15, 2023 to April 15, 2023, (iii) April 15, 2023 to May 15, 2023, (iv) May 15, 2023 to June 15, 2023, (v) June 15, 2023 to July 1, 2023, (vi) July 1, 2023 to July 31, 2023 and (vii) July 31, 2023 to August 31, 2023. No consideration was paid by the Company in connection with any of the Uplist Transaction deadline extensions.
On March 10, 2023, the Company entered into an amendment (“Amendment No. 2 to the First Notes”) with the required holders of the Company’s outstanding 2022 Notes issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On March 10, 2023, the Company also entered into an amendment (“Amendment No. 2 to the Second Notes” and, together with Amendment No. 2 to the First Notes, “Amendment No. 2 to the 2022 Notes”) with each of the required holders of Company’s outstanding Second Notes issued in connection with a private placement financing the Company completed on January 18, 2023.
Under Amendment No. 2 to the 2022 Notes, the following amendments to the 2022 Notes, and Second Notes will be effective at the moment in time immediately preceding the consummation of the offering in connection with the uplist of the Common Stock to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (the “Uplist Transaction”). If a holder of the 2022 Notes and/or the Second Notes elects to participate in the Uplist Transaction (each, a “Participating Holder”) for an amount equal to no less than 50% of the Participating Holder’s original investment amount in the 2022 Convertible Note Offering, such holder will be entitled to repayment of the principal amount of their 2022 Notes and/or Second Notes upon closing of the Uplist Transaction. In addition, the Company will issue to each Participating Holder a new convertible promissory note equal to the product of 2.4 and the sum of any prepayment premiums and total interest payable on such Participating Holder’s 2022 Notes and/or Second Notes (the “2023 Notes”). The 2023 Notes will have a maturity date of July 6, 2024 and will be on substantially the same terms as the Second Notes. For non-Participating Holders (each, a “Non-Participating Holder”), the maturity date of the 2022 Notes and/or Second Notes held by such Non-Participating Holder will be extended to July 6, 2024. Further, each Non-Participating Holder will waive their right to demand repayment of any portion of the outstanding balance of such holder’s 2022 Notes and Second Notes upon an Uplist Transaction. Notwithstanding the foregoing, if the registration statement filed in connection with the Uplist Transaction is not declared effective by 11:59 P.M. (EST) on June 15, 2023 (the “Amendment No. 2 Termination Date”), Amendment No. 2 to the 2022 Notes will automatically terminate and shall be of no further force or effect without any further action by the Company or the Requisite Holders, provided, that the Amendment No. 2 Termination Date may be extended by the written approval of the Company and required holders of the 2022 Notes, Second Notes and Third Notes which purchased at least 50% plus $1.00 of the 2022 Notes, Second Notes, and Third Notes based on the initial principal amounts thereunder (the “Requisite Holders”). Amendment No. 2 to the 2022 Notes was superseded by Amendment No. 8 to the 2022 Notes, Amendment No. 8 to the Second Notes and Amendment No. 3 to the Third Notes, and therefore, it is of no further force or effect.
During the three months ended June 30, 2023, the Company recorded interest expense on the 2022 Notes, the Second Notes, and the Third Notes of approximately $784,000 consisting of accrued interest of approximately $150,000 and accretion of original issue debt discount and issuance costs of approximately $634,000. During the nine months ended June 30, 2023, the Company recorded interest expense on the 2022 Notes, the Second Notes, and the Third Notes of approximately $1,893,000 consisting of accrued interest of approximately $413,000 and accretion of original issue debt discount and issuance costs of approximately $1,480,000.
Allocation of Proceeds
The Company accounted for the 2022 Notes, Second Notes, and Third Notes, and the 2022 Warrants, the Second Warrants, and the Third Warrants, and the 2022 Inducement Shares, Second Inducement Shares and the Third Inducement Shares in accordance with ASC 470-20-25-2 “Debt” which states that the allocation of the proceeds from the financing shall be based on the relative fair values of the securities issued at the time of the issuance. The 2022 Inducement Shares, the Second Inducement Shares, and the Third Inducement Shares and the 2022 Warrants, the Second Warrants, and the Third Warrants which are indexed to the Company’s stock, are classified within stockholders’ deficit in the accompanying consolidated financial statements. The allocated value of the 2022 Inducement Shares and the 2022 Warrants are $314,523 and $1,470,133, respectively. The allocated value of the Second Inducement Shares and the Second Warrants are $25,840 and $256,439, respectively. The allocated value of the Third Inducement Shares and the Third Warrants are $18,394 and $164,136, respectively. The allocated value of the 2022 Notes of $1,740,344 are allocated as short-term liabilities in the accompanying consolidated financial statements. The allocated value of the Second Notes of $247,721 are allocated as short-term liabilities in the accompanying consolidated financial statements. The allocated value of the Third Notes of $305,470 is allocated as short-term liabilities in the accompanying consolidated financial statements The fair value of the 2022 Placement Agent Warrants and the Second Placement Agent Warrants of $219,894 and $28,093, respectively, are being accounted for as debt issuance costs and are classified within stockholders’ deficit in the accompanying consolidated financial statements. As of June 30, 2023 and September 30, 2022, the net carrying amount of the 2022 Notes was $2,945,448 and $1,662,492, respectively, with unamortized debt discount and issuance costs of $1,284,552 and $2,567,508, respectively. Effective September 30, 2022, the Company reclassified the carrying amount of the Exchanged Notes of $699,781 (see Note 12) that were previously included in 2022 Notes payable to Unsecured convertible notes. After the reclassification, the Unsecured convertible notes included both the Second Notes and the Exchanged Notes. As of June 30, 2023, the net carrying amount of the Second Notes was $345,845 with unamortized debt discount and issuance costs of $290,155, all of which is included in Unsecured convertible notes. In addition, as of June 30, 2023, the net carrying amount of the Third Notes was $355,992 with unamortized debt discount and issuance costs of $346,728, all of which is included in Unsecured convertible notes.
The 2022 Warrants and the 2022 Placement Agent Warrants were valued as of July 6, 2022using the Black Scholes Model with the following assumptions:
2022 Warrants | 2022 Placement Agent Warrants | |||||||
Closing price per share of Common Stock | $ | 9.98 | $ | 9.98 | ||||
Exercise price per share | $ | 9.94 | $ | 10.06 | ||||
Expected volatility | 88.44 | % | 88.44 | % | ||||
Risk-free interest rate | 2.96 | % | 2.96 | % | ||||
Dividend yield | — | — | ||||||
Remaining expected term of underlying securities (years) | 5.0 | 5.0 |
The Second Warrants and the Second Placement Agent Warrants were valued as of January 18, 2023using the Black Scholes Model with the following assumptions:
Second Warrants | Second Placement Agent Warrants | |||||||
Closing price per share of Common Stock | $ | 5.76 | $ | 5.76 | ||||
Exercise price per share | $ | 9.94 | $ | 10.06 | ||||
Expected volatility | 111.31 | % | 111.31 | % | ||||
Risk-free interest rate | 3.43 | % | 3.43 | % | ||||
Dividend yield | — | — | ||||||
Remaining expected term of underlying securities (years) | 5.0 | 5.0 |
The Third Warrants were valued as of May 15, 2023using the Black Scholes Model with the following assumptions:
Third Warrants | ||||
Closing price per share of Common Stock | $ | 2.77 | ||
Exercise price per share | $ | 9.94 | ||
Expected volatility | 114.33 | % | ||
Risk-free interest rate | 3.46 | % | ||
Dividend yield | — | |||
Remaining expected term of underlying securities (years) | 5.0 |
12. SERIESCONVERTIBLE NOTES
On June 4, 2020 and November 6, 2020, the Company issued unsecured 10% Series 1 Convertible Notes (“Series 1 Notes”) and Series 2 Convertible Notes (“Series 2 Notes”, and collectively with the Series 1 Notes, the “Series Convertible Notes”) in the aggregate principal amount of $550,000 and $1,050,000, respectively. The maturity dates of the Series 1 Notes and Series 2 Notes are June 30, 2023 and November 30, 2023, respectively. On July 12, 2023, the Company secured countersigned notices of conversion from all remaining holders of the Series 1 Convertible Notes and provided instructions to its transfer agent to issue a total of 59,912 shares of Common Stock in full satisfaction of all previously outstanding Series 1 Convertible Notes. The Series Convertible Notes provide, among other things, for (i) a term of approximately three years; (ii) the Company’s ability to prepay the Series Convertible Notes, in whole or in part, at any time; (iii) the automatic conversion of the Series Convertible Notes upon a Change of Control (all capitalized terms not otherwise defined to have the meaning ascribed to such terms of the Series Convertible Notes) into shares of the Company’s Common Stock, at a per share price of $54.00 and $50.00 (the “Conversion Price”) for the Series 1 Notes and Series 2 Notes, respectively; (iv) the ability of the holders of the Series Convertible Notes (each a “Holder”, and together, the “Holders”) to convert the principal of the Series Convertible Notes, along with accrued interest, in whole or in part, into shares of Common Stock at the respective Conversion Price; (v) the Company’s ability to convert all Note Obligations outstanding upon a Qualified Equity Financing into shares of Common Stock at the respective Conversion Price; (vi) the Company’s ability to convert the principal of the Series Convertible Notes, along with accrued interest, in whole or in part, into shares of Common Stock at the respective Conversion Price in the event the volume weighted average price (“VWAP”) of the Common Stock equals or exceeds $64.00 per share for at least fifteen consecutive Trading Days; (vii) the Company’s ability to convert all outstanding Note Obligations into shares of Common Stock at the respective Conversion Price (an “In Kind Note Repayment”) in lieu of repaying the Note Obligations outstanding on the Maturity Date, provided, however, that in the case of an In-Kind Note Repayment, the outstanding Note Obligations will be calculated by increasing by thirty-five percent the aggregate sum of the unpaid Principal Amount held by each Holder and the accrued interest at a rate of ten percent per annum, subject to, with respect to any portion of the Principal Amount that is converted or prepaid before the twelve month anniversary of the Issuance Date, a minimum interest payment equal to ten percent of the amount that is converted or prepaid. As consideration for agreeing to subordinate to the 2022 Notes, the premium applicable in connection with an In-Kind Note Repayment at maturity was increased from thirty-five percent to sixty percent. As consideration for agreeing to provide for an In-Kind Note Repayment upon the earlier of i) maturity or ii) the completion of an Uplist Transaction, the premium applicable in connection with an In-Kind Note Repayment at either maturity or simultaneous with an Uplist Transaction was further increased from sixty percent to three hundred and fifty percent.
As described in Note 11 above, as a part of the 2022 Convertible Note Offering, certain holders of the Series 2 Notes agreed to exchange their Series 2 Notes with an aggregate principal amount of $600,000 and accrued interest of approximately $100,000 for promissory notes of the Company on substantially similar terms to those of the 2022 Notes (the “Exchanged Notes”). As of July 6, 2022, $699,781 of principal and accrued interest of the Series 2 notes was exchanged for the Exchanged Notes.
On March 10, 2023, the Company entered into an amendment (the “Series 2 Note Amendment” and, together with the Series 1 Amendment, the “Series Note Amendments”) with each of the holders of the Company’s outstanding Series 2 Convertible Notes (as amended, the “Series 2 Notes” and, together with the Series 1 Notes, the “Series Convertible Notes”). Pursuant to the Series Note Amendments, the Company can elect to convert the principal and accrued interest under the Series Convertible Notes (the “Series Note Obligations”) at or after the effective time of the Uplisting Transaction, or the maturity date. In the event the Company exercises such option, the Series Note Obligations will be deemed to equal the product of 4.5 (which was previously 1.6 prior to the Series Note Amendments) and the outstanding Series Note Obligations. Notwithstanding the foregoing, if the registration statement filed in connection with the Uplist Transaction is not declared effective by 11:59 P.M. (EST) on or before the Uplisting Transaction deadline under the 2022 Notes and Second Notes, which was originally February 15, 2023, or such later extended date as provided for therein (the “Series Note Amendments Termination Date”), the Series Note Amendments will automatically terminate without any further action by the Company or the holders of the Series Convertible Notes. The Series Note Amendments Termination Date will be automatically extended upon any extension of the Uplisting Transaction deadline under the 2022 Notes, Second Notes, and Third Notes. As previously discussed herein, the deadline to complete the Uplist Transaction was extended on multiple previous occasions. As of July 31, 2023 the Uplist Transaction deadline under the 2022 Notes, Second Notes, and Third Notes is August 31, 2023. No consideration was paid by the Company in connection with any of the extensions of the Uplisting Transaction deadline under the 2022 Notes, Second Notes, and/or Third Notes.
During the three months ended June 30, 2023 and 2022, the Company recorded interest expense on the Series Convertible Notes of approximately $25,000 and $40,000, respectively. During the nine months ended June 30, 2023 and 2022, the Company recorded interest expense on the Series Convertible Notes of approximately $75,000 and $120,000, respectively.
13. RISKS AND UNCERTAINTIES – COVID-19 AND GEOPOLITICAL CONFLICTS
The Company sources its materials and services for its products and product candidates from facilities in areas impacted or which may be impacted by the outbreak of the COVID-19 or geopolitical conflicts. The Company’s ability to obtain future inventory may be impacted, therefore potentially affecting the Company’s future revenue stream. In addition, the Company has historically and principally funded its operations through debt borrowings, the issuance of convertible debt, and the issuance of units consisting of Common Stock and warrants which may also be impacted by economic conditions beyond the Company’s control as well as uncertainties resulting from geopolitical conflicts, including the recent war in Ukraine. The extent to which the COVID-19 and recent events in Ukraine will impact the global economy and the Company is uncertain and cannot be reasonably measured.
14. SHAREHOLDER ADVANCES AND PREFUNDINGS RELATED TO THE ANTICIPATED BRIDGE FINANCING
Through May 12,December 31, 2023, the Company raised $538,000$950,000 in the form of shareholder advances from twothree different investors to support operations in advance of the Company’s a prospective Uplisting Transaction. On May 15, 2023, $488,000 of these shareholder advances, which were contributeduplisting transaction. If the uplisting transactions are not consummated by a single investor, were convertedMarch 31, 2024, as amended, the Company will be obligated to an Unsecured convertible note (the “Third Note”) in connection with the Third Closingrepay $500,000 of the 2022 Convertible Note Offering (see Notes 11 and 15). The remaining $50,000 that was raised by the Company in the form of shareholder advances was repaid per the agreed terms on July 7, 2023 for $60,000.within three business days thereafter.
9. SUBSEQUENT EVENTS
On May 18, 2023February 1, 2024, the Prior Advancing Purchasers amended the terms of the Prior Advances to include the following terms: (i) if the Closing, as defined, does not occur on or before March 31, 2024, the Prior Advancing Purchasers shall have the option, in lieu of being repaid, to purchase (A) pre-funded warrants to purchase up to an aggregate of 484,966 shares of the Company’s common stock and May(B) common warrants to purchase up to an aggregate of 484,966 shares of Common Stock and (ii) if the Common Stock has not been approved by Nasdaq for listing on Nasdaq Capital Market by March 31, 2023,2024, the Company raised $340,000shall issue to the Prior Advancing Purchasers (A) additional prefunded warrants to purchase up to an aggregate of 121,241 shares of Common Stock and $350,015 from a shareholder and a third-party investor, respectively,(B) additional common warrants to support operationspurchase up to an aggregate of 121,241 shares of Common Stock.
Also on February 1, 2024, two additional parties advanced the Company an aggregate of $250,000, which are also being treated as advances in advance of the Company’s anticipated closing of the Bridge Offering (as defined below, see Note 15). On July 7, 2023, the amount prefunded by the current shareholder was included in the first closing of the Bridge Offering. The amount prefunded by the third party investor is expected to be included in a subsequent closing of the Bridge Offering.
15.SUBSEQUENT EVENTS
On July 1, 2023, the “Company” entered into an amendment (“Amendment No. 7prospective uplisting transaction subject to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, and June 15, 2023, issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On July 1, 2023, the Company also entered into an amendment (“Amendment No. 7 to the Second Notes”) with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, and June 15, 2023, issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”). On July 1, 2023, the Company also entered into an amendment (“Amendment No. 2 to the Third Notes and, together with Amendment No. 7 to the First Notes and Amendment No. 7 to the Second Notes, the “Amendments to the 2022 Notes”) with the holders of the Company’s outstanding Third Notes, as amended on June 15, 2023, issued in connection with a private placement financing the Company completed on May 15, 2023 (the “Third Closing”).
Under the Amendments to the 2022 Notes, the 2022 Notes, Second Notes, and Third Notes were amended to extend the date of the completion of an uplist to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (such transaction, an “Uplist Transaction”) from July 31, 2023 to August 31, 2023.
As a result of the entry into the Amendments to the 2022 Notes, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to extend the date of completion of an Uplist Transaction from July 31, 2023 to August 31, 2023. Also, as a result of the entry into the Amendments to the 2022 Notes, and pursuant to the terms of the Company’s outstanding Series 1 Unsecured Convertible Promissory Notes and Series 2 Unsecured Convertible Promissory Notes, each as amended on March 10, 2023, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 to the Series 2 Unsecured Convertible Promissory Notes was automatically amended to extend from July 31, 2023 to August 31, 2023. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 7, 2023.
On July 7, 2023, the Company announced that it had entered into a Securities Purchase Agreement (the “2023 SPA”) with certain institutional and accredited individual investors (collectively, the “Investors”) providing for the issuance and sale by the Company to the Investors of an aggregate of (i) 1,749,245 shares (the “Shares”) of common stock, par value $0.001, of the Company (the “Common Stock”) at a purchase price of $0.275 per share; (ii) 4,996,199 warrants (the “Pre-Funded Warrants”) at a purchase price of $0.274 per Pre-Funded Warrant, to purchase an aggregate of 4,996,199 shares of Common Stock (the “Pre-Funded Warrant Shares”); and (iii) 13,490,888 warrants (the “Common Warrants”) to purchase an aggregate 13,490,888 shares of Common Stock (the “Common Stock Warrants Shares”). The Shares, Pre-Funded Warrants, and Common Warrants were issued as part of a private placement offering authorized by the Company’s board of directors (the “Bridge Offering”). The Company engaged an investment bank in connection with Bridge Offering. Per the terms of that agreement, the Company is obligated to pay the placement agent a fee of 8% of gross proceeds received and issue placement agent warrants to purchase that number of securities equal to 5% of the aggregate number of securities sold in the offering.
Pursuant to the lock-up agreement provided for by the SPA, the Investors agreed that they would either (A) purchase securities, for cash, in an offering conducted in conjunction with an uplist of the Common Stock to any of, and in compliance with the rules of, the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (the “Uplist Transaction”) with an aggregate purchase price equal to at least 4.3 multiplied by the aggregate purchase price paid by the Investor for the Shares, Pre-Funded Warrants and Common Warrants under the SPA or (B) be subject to a lock-up provision not to sell or otherwise transfer any of the Shares, Pre-Funded Warrant Shares or Common Warrant Shares acquired by them in the Bridge Offering until the one-year anniversary of the Closing Date. The aggregate gross proceeds for the sale of the Shares, Pre-Funded Warrants, and Common Warrants will be approximately $1.85 million, before deducting the placement agent’s fees and other estimated fees and offering expenses payable by the Company. The closing of the sales of these securities under the SPA occurred on July 7, 2023 (the “Closing Date”).
The 2023 SPA also provides additional provisions including: i) certain adjustments that would require the Company to issue additional securities to the Investors if the effective offering price to the public of Common Stock in connection with the next underwritten public offering is less than $4.00 per share; ii) a requirement to register the Shares, Pre-Funded Warrant Shares, and Common Stock Warrant Shares on a subsequent registration statement or statements; and, iii) certain restrictions on the Company’s ability to conduct subsequent sales of its equity securities and certain business activities. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 13, 2023.advance terms.
On July 7, 2023, the Company entered into an amendment (“Amendment No. 8 to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, and July 1, 2023, issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On July 1, 2023, the Company also entered into an amendment (“Amendment No. 8 to the Second Notes” with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, and July 1, 2023, issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”). On July 1, 2023, the Company also entered into an amendment (“Amendment No. 3 to the Third Notes”, and, together with Amendment No. 8 to the First Notes and Amendment No. 8 to the Second Notes, the “Amendments to the 2022 Notes”) with the holders of the Company’s outstanding Third Notes, as amended on June 15, 2023, and as subsequently amended on July 1, 2023, issued in connection with a private placement financing the Company completed on May 15, 2023 (the “Third Closing”).
Under the Amendments to the 2022 Notes, the following amendments to the 2022 Notes, Second Notes, and Third Notes will be simultaneously effective upon the closing of an offering conducted in conjunction with an uplist of the Common Stock to any of, and in compliance with the rules of, the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (the “Uplist Transaction”). The Specified Percentage (as defined below) of the then outstanding principal amount of the 2022 Notes, Second Notes, and Third Notes shall automatically convert (the “Automatic Conversion”) into shares of Common Stock, with the conversion price for purposes of such Automatic Conversion being equal to the lower of (i) the per unit price at which any units (each unit being comprised of one share or share equivalent and accompanying warrants, if any) are sold in the Uplist Transaction or (ii) the price at which warrants issued in the Uplist Transaction are exercisable (but in no event increased above the conversion price in effect immediately prior to the pricing of the Uplist Transaction).
In addition, if the Holder (as defined below) (i) participates in the Uplist Transaction and in the Bridge Offering for a combined (taking into account the Holder’s aggregate investment in the Uplist Transaction and the Bridge Offering) amount equal to no less than fifty percent (50%) of the Holder’s original purchase price under the 2022 Notes, Second Notes, and Third Notes, and (ii) the Holder’s amount of participation in the Uplist Transaction is at least 4.3 times the Holder’s amount of participation in the Bridge Offering, then the Holder shall receive a pre-funded warrant (the “Participating Pre-Funded Warrant”) to purchase a number of shares of Common Stock equal to the Specified Number (as defined below) times the dollar amount under the 2022 Notes that was converted in the Automatic Conversion. The Participating Pre-Funded Warrant (i) shall have an exercise price of $0.001 per share, (ii) may be exercised on a cashless basis, (iii) shall be exercisable by the Holder at any time commencing on the 90th day after issuance, (iv) may be redeemed by the Company for cash at a redemption price of $0.82 per share underlying the Participating Pre-Funded Warrant with any such redemption made pro rata to all holders of the Participating Pre-Funded Warrants, (v) and shall contain a customary beneficial ownership limitation provision. Additionally, the holder of the Participating Pre-Funded Warrants will agree that, until January 6, 2024, it shall not offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise dispose of, the Participating Pre-Funded Warrant.
“Specified Percentage” means the greater of: (i) the percentage specified by the Company by notice to the 2022 Note holders (the “Holders”, and each a “Holder”) at least five business days prior to the closing of the Uplist Transaction, which percentage shall be the percentage necessary to ensure the applicable Nasdaq requirements regarding the Uplist Transaction are satisfied, and (ii) the percentage specified by the Holder by notice to the Company at least three business days prior to the closing of the Uplist Transaction (which percentage may be different for each 2022 Note, Second Note, and/or Third Note as determined by each Holder thereof); provided, that in no event shall the Specified Percentage for the 2022 Notes, Second Notes, and/or Third Notes (A) exceed twenty five percent (25%) unless otherwise agreed in writing by the Holder, or (B) exceed fifty percent (50%) unless otherwise agreed in writing by the Company.
“Specified Number” means, if the Specified Percentage is 50%, 2.4, which number shall be increased by 1.6% for each percentage point decrease in the Specified Percentage, such increase being compounded iteratively for each percentage point decrease in the Specified Percentage, with the result rounded to two decimal places. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 13, 2023.
Additionally, on July 7, 2023, the Company entered into an amendment (the “Omnibus Amendment to Notes and Warrants”) with the Holders of the 2022 Notes, Second Notes, and Third Notes amending the 2022 Notes, Second Notes, and Third Notes and related warrants issued at each of the First Closing, Second Closing, and Third Closing (the “First Warrants”, “Second Warrants” and “Third Warrants”, respectively, and collectively, the “2022 Warrants”). Under the Omnibus Amendment to Notes and Warrants, the 2022 Notes, Second Notes, Third Notes, and related warrants were amended (i) to modify the Most Favored Nation provisions therein to exclude the Bridge Offering, and (ii) to prohibit the Company from engaging in any capital raising transactions, subject to certain exceptions, until the earlier of (A) July 7, 2027, and (B) the first date on which all Holders hold less than 20% of the original amount of the Participating Pre-Funded Warrants received by each Holder, respectively, in connection with the Automatic Conversion. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 13, 2023.
On July 7, 2023 the Company paid $60,000 to a shareholder that had previously advanced the Company $50,000 to support operations. The payment satisfied all remaining obligations in connection with the $538,000 of shareholder advances received by the Company through May 12, 2023. The additional $488,000 was issued as a Third Note (see Note 11).
On July 11, 2023, the Company entered into a finance agreement with First Insurance Funding in order to fund a portion of its insurance policies. The amount financed is approximately $310,000 and incurs interest at a rate of 7.49%. Per the terms of its agreement with First Insurance Funding, the Company is required to make monthly payments of approximately $32,000 through April 2024.
On July 12, 2023, the Company secured countersigned notices of conversion from all remaining holders of the Series 1 Convertible Notes, and provided instructions to its transfer agent to issue a total of 59,912 shares of Common Stock in full satisfaction of all previously outstanding Series 1 Convertible Notes. Pursuant to the Series 1 Convertible Notes, the Company can elect to convert the principal and accrued interest under the Series Convertible Notes obligation (the “Series Note Obligations”) upon the earlier of the effective time of the Uplisting Transaction, or the maturity date. In the case of an In-Kind Note Repayment, the outstanding Note Obligations will be calculated by increasing by thirty-five percent the aggregate sum of the unpaid Principal Amount held by each Holder and the accrued interest at a rate of ten percent per annum, subject to, with respect to any portion of the Principal Amount that is converted or prepaid before the twelve month anniversary of the Issuance Date, a minimum interest payment equal to ten percent of the amount that is converted or prepaid. As consideration for agreeing to subordinate to the 2022 Notes, the premium applicable in connection with an In-Kind Note Repayment at maturity was increased from thirty-five percent to sixty percent. In the event the Company exercises such option, the Series Note Obligations will be deemed to equal the product of 4.5 (which was previously 1.6 prior to the Series Note Amendments) and the outstanding Series Note Obligations.
On July 18, 2023, the Board of the Directors of the Company executed a unanimous written consent that, among other things, approved, subject to the approval of a majority of the stockholders of the Company, the following: 1) amend the Amended and Restated Articles of Incorporation (the “Articles”) to a) increase the number of authorized shares of common stock, par value $0.001 (the “Common Stock”) from 12 million to 350 million, b) create 5,000,000 shares of “blank check” preferred stock, and c) approve a reverse split at a ratio of between 1.5-for-1 and 20-for-1 without any proportionate decrease in the number of authorized shares; 2) amend the Bylaws of the Company to a) allow action by written consent of stockholders representing more than 50% of the total number of shares of Common Stock currently issued and outstanding, and b) establish that holders of thirty-three and one-third (33.3333%) of the total number of shares of Common Stock currently issued and outstanding shall constitute a quorum at any meeting of stockholders for the transaction of business, except as otherwise provided by the NRS or by the Articles; and, 3) approve the 2023 Omnibus Equity Incentive Plan with an initial reservation of 455,169 shares, options or other such grants. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 24, 2023.
On July 31, 2023, Arch Therapeutics, Inc. (the “Company”) entered into an amendment (“Amendment No. 9 to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023 and July 7, 2023 issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On July 31, 2023, the Company also entered into an amendment (“Amendment No. 9 to the Second Notes”) with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, and July 7, 2023 issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”). On July 31, 2023, the Company also entered into an amendment (“Amendment No. 4 to the Third Notes and, together with Amendment No. 9 to the First Notes and Amendment No. 9 to the Second Notes, the “Amendments to the 2022 Notes”) with the holders of the Company’s outstanding Third Notes, as amended on June 15, 2023, and as subsequently amended on July 1, 2023 and July 7, 2023 issued in connection with a private placement financing the Company completed on May 15, 2023 (the “Third Closing”).
Under the Amendments to the 2022 Notes, the 2022 Notes, Second Notes, and Third Notes were amended to extend the date of the completion of an uplist to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (such transaction, an “Uplist Transaction”) from July 31, 2023 to August 31, 2023.
As a result of the entry into the Amendments to the 2022 Notes, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to extend the date of completion of an Uplist Transaction from July 31, 2023 to August 31, 2023. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on August 4, 2023.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Quarterly Report on Form 10-Q (this "Quarterly Report"“Quarterly Report”, or this "Report"“Report”) to "Arch“Arch Biosurgery, Inc."” “Company”, “we”, “us”, “our”, “Arch” or similar references mean Arch Therapeutics, Inc. and its condensed consolidated subsidiary, Arch Biosurgery, Inc. References to the "SEC" refer to the U.S. Securities and Exchange Commission.
Forward Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated condensed financial statements and the related notes included elsewhere in this Report. Our consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” included Part I, Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2022 (the "Annual Report”), as well as in Item II, Part 1A of this Report. Readers are cautioned not to place undue reliance on these forward-looking statements.
AC5, AC5-G, AC5-V, AC5-P, Crystal Clear Surgery, NanoDrape and NanoBioBarrier and associated logos are trademarks and/or registered trademarks of Arch Therapeutics, Inc. and its subsidiary. For purposes herein, references to regulatory approval and marketing authorization may be used interchangeably.
Corporate Overview
Arch Therapeutics, Inc., (together with its subsidiary, the “Company” or “Arch”) is a biotechnology company developing and marketing a products based on our innovative AC5® self-assembling technology platform. Arch arose from the June 26, 2013 merger (the “Merger”) of three entities previously known as Arch Biosurgery, Inc., Almah, Inc., and Arch Acquisition Corporation, respectively.
Almah, Inc., was incorporated under the laws of the State of Nevada on September 16, 2009 underand, as part of the Merger transaction, changed its name “Almah, Inc.”. Effective June 26, 2013, the Company completed a merger (the “Merger”) with Arch Biosurgery, Inc. (formerly known asto Arch Therapeutics, Inc.), a Massachusetts corporation (“ABS”), and abandoned both its prior business plan and operations in order to adopt those of ABS.
Arch Acquisition Corporation, (“or Merger Sub,”), the Company’s was a wholly owned subsidiary of Almah, Inc., formed for the purpose of the Merger transaction, pursuant to which Merger Sub merged with and into ABS, and ABS therebythereafter became the wholly owned subsidiary of the Company. As a result of the acquisition of ABS, the Company abandonedThe ticker symbol under which its prior business plan andCommon Stock trades changed its operationsfrom “AACH” to the business of a biotechnology company. Our“ARTH”, accordingly.
The Company’s principal offices are located in Framingham, Massachusetts.
ABS was incorporated underThe Company has recently devoted a substantial part of its operational effort to the laws of the Commonwealth of Massachusetts on March 6, 2006, as Clear Nano Solutions, Inc. On April 7, 2008, ABS changed its name from Clear Nano Solutions, Inc. to Arch Therapeutics, Inc. Effective upon the closing of the Merger, ABS changed its name from Arch Therapeutics, Inc. to Arch Biosurgery, Inc.
In the first quarter of 2021, the Company commencedmarket adoption and commercial sales of our first product, AC5® Advanced Wound System, and has devoted substantially all of our operational effort to the research, development and regulatory programs necessary to turn our core technology into commercial products.its first product. To date, the Company has principally raised capital through debt borrowings, the issuance of convertible debt, and the issuance of units consisting of the Company's common stock, $0.001 par value per share (“Common Stock”), and warrants to purchase Common Stock (“warrants”).
The Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercialization of its potential products. However, there can be no assurance that the Company will be successful in securing additional resources when needed, on terms acceptable to the Company, if at all. Therefore, there exists substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments related to the recoverability of assets that might be necessary despite this uncertainty.
Business Overview
We are a biotechnology company marketing and developing a number of products based on our innovative AC5® self-assembling technology platform. We believe these products can be important advances in the field of stasis and barrier applications, which includes stopping bleeding (“hemostasis”), controlling leaking (“sealant”), and managing wounds created during surgery, trauma or interventional care, or from disease.disease; stopping bleeding (hemostasis); and controlling leaking (sealant). We have only recently commenced commercial sales of our first product, AC5® Advanced Wound System, and have devoted substantially alla substantial part of our operational effort to the research, developmentmarket adoption and regulatory programs necessary to turncommercial sales of AC5 Advanced Wound System, our core technology into commercial products.first product. Our goal is to make care faster and safer for patients withby providing products for use on external wounds, which we refer to as Dermal Sciences applications, and products for use inside the body, which we refer to as BioSurgery applications.
Core Technology
Our flagship products and product candidates are derived from our AC5®AC5 self-assembling peptide (“SAP”SAP”) technology platform and are sometimes referred to as AC5 or the “AC5 Devices.” These include AC5®AC5 Advanced Wound System and AC5®AC5 Topical Hemostat, which have received marketing authorization as medical devices in the United States (US) and Europe,the European Union (EU), respectively, and which are intended for skin applications, such as the management of complicated chronic wounds and acute surgical wounds. Marketing for AC5 Topical Hemostat in the EU has not initiated. Other products are in development for use in minimally invasive or open surgical procedures, and include, for example, AC5-G™ for gastrointestinal endoscopic procedures, and AC5-V®AC5-V and AC5®AC5 Surgical Hemostat for hemostasis inside the body, all of which are currently investigational devices limited by law to investigational use.
Products based on the AC5 platform contain a biocompatible peptide that is synthesized from proteogenic, naturally occurring L-amino acids. Unlike products that contain traditional peptide sequences, when applied to a wound, AC5-based products intercalate into the interstices of the connective tissue and self-assemble into a protective physical-mechanical nanoscale structure that can provide a barrier to leaking substances, such as blood, while also acting as a biodegradable scaffold that enables healing. Self-assembly is a central component of the mechanism of action of our technology. Individual AC5 peptide units readily build themselves, or self-assemble, into an ordered network of nanofibrils when in aqueous solution by the following process:
● | Peptide strands line up with neighboring peptide strands, interacting via hydrogen bonds (non-covalent bonds) to form a ribbon-like structure called a beta sheet. |
● | This process continues such that hundreds of strands organize with charged and polar side chains oriented on one face and non-polar side chains oriented on the opposite face of the beta sheets. |
● | Interactions of the resulting structure with water molecules and ions results in formation nanofibrils, which extend in length and can join together to form larger nanofibers. |
● | This network of AC5 peptide nanofibers forms the semi-solid physical-mechanical barrier that interacts with the extracellular matrix, is responsible for sealant, hemostatic |
Based on the intended application, we believe that the underlying AC5 SAP technology can impart important features and benefits to our products that may include, for instance, stopping bleeding (hemostasis), mitigating contamination, modulating inflammation, donating moisture, and enabling an appropriate wound microenvironment conducive to healing. Furthermore, we believe that AC5®AC5 SAP technology permits cell and tissue growth and is self-healing, in that it can dynamically self-repair around migrating cells. For instance, AC5®AC5 Advanced Wound System, which is indicated for the management of partial and full-thickness wounds, such as pressure sores, leg ulcers, diabetic ulcers, and surgical wounds, is shipped and stored at room temperature, is applied directly as a liquid, can conform to irregular wound geometry, self-assembles into a wound care matrix that can provide clinicians with multi-modal support, and does not possess sticky or glue-like handling characteristics. We believe these properties enhance its utility in several settings and contribute to its user-friendly profile.
We believe that our technology lends itself to a range of potential applications in which there is a woundfor wounds inside or on the body, and inincluding those for which there is need for a hemostatic agent or sealant.sealant is needed. For instance, the results of certain preclinical and clinical investigations that either we have conducted, or others have conducted on our behalf, have shown quick and effective hemostasis with the use of AC5 SAP technology, and that time to hemostasis (THH) is comparable among test subjects regardless of whether such test subject had or had not been treated with therapeutic doses of anticoagulant or antiplatelet medications, commonly called “blood thinners.” Furthermore, the transparency and physical properties of certain AC5 Devices may enable a surgeon to operate through it in order to maintain a clearer field of vision and prophylactically stop or lessen bleeding as surgery starts, a concept that we call Crystal Clear Surgery™. An example of a product that contains related features and benefits is AC5 Topical Hemostat, which is indicated for use as a dressing and to control mild to moderate bleeding, each during the management of injured skin and the micro-environment of an acute surgical wound. AC5 Topical Hemostat has not yet been marketed in Europe but has received marketing authorization.
Sales and marketing efforts for our AC5 Advanced Wound System, which has received 510(k) marketing clearance from the FDA, address the demand for improved solutions to treat challenging chronic and acute surgical wounds, with a particular early focus on diabetic foot ulcers, venous leg ulcers and pressure ulcers. Chronic wounds are typically defined as wounds that have not healed after four weeks of standard care. Approximately 4 million to 6.5 million new onset chronic wounds are estimated to occur in the US annually, including approximately 700,000 to 2 million diabetic foot ulcers, 2.5 million pressure ulcers, and 1.2 million venous leg ulcers. If untreated, improperly treated or unresponsive to treatment, these wounds can ultimately lead to amputation. The 5-year mortality rate among patients with chronic wounds, especially after an amputation, is significant.
Published data on AC5 Advanced Wound System shows encouraging outcomes, including limb salvage (avoided limb loss), among patients with multiple co-morbidities and challenging chronic wounds that failed to heal despite treatment with either traditional or other advanced wound care modalities over prolonged periods of time.
Operations
We have recently started to commercialization AC5 Advanced Wound System. We rely on both an internal commercial team and independent sales distributors to drive awareness and adoption of AC5 Advanced Wound System in several targeted channels with a particular focus on physician offices and government channels, such as Veterans Health Administration (VA) hospitals and military treatment facilities. We anticipate that material growth in the physician office setting will require product reimbursement. To that end, we applied to the Centers for Medicare and Medicaid Services (CMS) for a dedicated Healthcare Common Procedure Coding System (HCPCS) Level II reimbursement code specific to AC5 Advanced Wound System to better enable providers to bill third party payors for AC5 that is used in doctors’ offices. The unique HCPCS code, A2020, was granted and made effective on April 1, 2023.
In support of the government market, we partnered with Lovell Government Services (LGS), a service-disabled veteran-owned small business, to be our government channel distributor. As a direct result of our relationship with LGS, AC5 Advanced Wound System has been added to the four major government contracting vehicles: Federal Supply Schedule (FSS), General Services Administration (GSA) schedule, Defense Logistics Agency’s Medical Electronic Catalog Program (ECAT), and Distribution and Pricing Agreement (DAPA). This listing enables purchase by federal government agencies, including the Department of Veterans Affairs (VA), Indian Health Services (IHS), and Department of Defense (DOD) Medical Treatment Facilities, and allows doctors in government channels to order AC5 Advanced Wound System.
We will continue to seek partnerships with reputable, value-added independent sales distributors on a case-by-case basis to expand the overall reach and footprint of its total sales organization. Presently, our commercialization efforts and resources remain dedicated to the US market for advanced wound care.
Much of our operational efforts to date, which we often perform in collaboration with partners, have included selecting compositions and formulations for our initial products; conducting preclinical studies, including safety and other tests; conducting a human trial for safety and performance of AC5; developing and conducting a human safety study to assess for irritation and sensitization potential; securing marketing authorization for our first product in the United States and in Europe; supporting surgeons performing clinical case studies; obtaining post-marketing clinical data; developing, optimizing, and validating manufacturing methods and formulations, which are particularly important components of self-assembling peptide development; developing methods for manufacturing scale-up, reproducibility, and validation; engaging with regulatory authorities to seek early regulatory guidance as well as marketing authorization for our products; sourcing and evaluating commercial partnering opportunities in the United States and abroad; and developing and protecting the intellectual property rights underlying our technology platform.
Our long-term business plan includes the following goals:
● | growing revenues and building upon recent commercial momentum by driving product awareness, continued adoption and favorable payment policies for AC5 Advanced Wound System with the now-effective CMS Level II HCPCS code dedicated to the AC5; |
● | conducting biocompatibility, pre-clinical, and clinical studies on our products and product candidates; |
● | obtaining additional marketing authorization for products in the United States, Europe, and other jurisdictions as we may determine; |
● | continuing to develop third party relationships to manufacture, distribute, market and otherwise commercialize our products; |
● | continuing to develop |
● | expanding and maintaining protection of our intellectual property portfolio; and |
● | developing additional product candidates in Dermal Sciences, BioSurgery, and other areas. |
In furtherance ofTo support our long-term business goals, we expect to continue to focus on the following activities during the next twelve months:
● |
|
● |
|
● |
|
● | assess our technology platform in order to identify and select product candidates for potential advancement into development; |
● | seek |
● | continue to expand and enhance our financial and operational reporting and controls; |
● | pursue commercial partnerships; and |
● | expand and enhance our intellectual property portfolio by filing new patent applications, obtaining allowances on currently filed patent applications, and/or adding to our trade secrets in self-assembly, manufacturing, analytical methods and formulation, |
In addition to capital required for operating expenses, depending upon input from regulatory authorities, authorized representatives, patent and trademark offices, or other agencies in the US, EU or elsewhere, as well as for potential additional regulatory filings and approvals during the approximately next two years, additional capital will be required.
We have no commitments for any future capital. WeAs indicated above, we will require significant additional financing to fund our planned operations, including further research and development relating to AC5®,AC5, seeking regulatory approval of that or any other product we may choose to develop, commercializing any product for which we are able to obtain regulatory approval or certification, seeking to license or acquire new assets or business, and maintaining our intellectual property rights, pursuing new technologies and for financing the investor relations and incremental administrative costs associated with being a public corporation. We do not presently have, nor do we expect in the near future to have, sufficient revenue to fund our business from operations, and we will need to obtain substantially all of our necessary funding from external sources for the foreseeable future. We may not be able to obtain additional financing on commercially reasonable or acceptable terms when needed, or at all. If we cannot raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail, and our stockholders could lose all of their investment.
Since inception, we have funded our operations primarily through debt borrowings, the issuance of convertible debt and the issuance of units consisting of Common Stock and warrants, and we may continue to seek to do so in the future. If we obtain additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. The terms of securities we may issue in future capital-raising transactions may be more favorable for our new investors. Further, newly issued securities may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have additional dilutive effects. If we obtain additional financing by incurring debt, we may become subject to significant limitations and restrictions on our operations pursuant to the terms of any loan or credit agreement governing the debt. Further, obtaining any loan, assuming a loan on acceptable terms would be available when needed, would increase our liabilities and future cash commitments. We may also seek funding from additional collaboration or licensing arrangements in the future, which may require that we relinquish potentially valuable rights to our product candidates or proprietary technologies or grant licenses on terms that are not favorable to us. Moreover, regardless of the manner in which we seek to raise capital, we may incur substantial costs in those pursuits, including investment-banking fees, legal fees, accounting fees, printing and distribution expenses and other related costs..
The estimated capital requirements potentially could increase significantly if a number of risks relating to conducting these activities were to occur, including without limitation those set forth under the heading “RISK FACTORS” in our Annual Report. We anticipate that our operating and other expenses will continue to increase as we continue to implement our business plan and pursue and achieve these goals. We could spendAfter giving effect to the funds received in past equity and debt financings and assuming our financial resources much faster thanuse of that funding at the rate we expect, in which case we would need to raise additional capitalpresently believe that, as of February 14, 2024, our current funds may not be sufficient to operatecash on hand will meet our business foranticipated cash requirements into the entire durationsecond quarter of that period.fiscal 2024.
Manufacturing
We work with contract manufacturing and related organizations, including those operating under cGMP, as is required by applicable regulatory agencies for production of product that can be used for preclinical and human testing as well as for commercial use. We also have engaged and continue to engage other third parties in the United States and abroad to advise on and perform certain manufacturing and related activities, typically with assistance from our team. These third parties include academic institutions, consultants, advisors, scientists, and/or other collaborators. The activities include development of our primary product candidates, as well as generation of appropriate analytical methods, scale-up, and other procedures for use by manufacturers and/or other members of our supply chain to produce or process our products at current and/or larger scale quantities for preclinicalresearch, development, and clinical testing and ultimately, as required marketing authorizations are obtained, commercialization.
Our products are regulated as medical devices, and as such, many of our activities have focused on optimizing traditional parameters to target specifications, biocompatibility, physical appearance, stability, and handling characteristics, among other metrics, to achieve the desired product. We and our partners intend to continue to monitor manufacturing processes and formulation methods closely, as success or failure in establishing and maintaining appropriate specifications may directly impact our ability to conduct additional preclinical and clinical trials and/or deliver commercial product.
Merger with ABSWe believe that the manufacturing methods used for a product, including the type and Related Activitiessource of ingredients and the burden of waste byproduct elimination, are important determinants of its opportunity for profitability. Industry participants are keenly aware of the downsides of products that rely on expensive biotechnology techniques and facilities for manufacture, onerous and expensive programs to eliminate complex materials, or ingredients that are sourced from the complicated process of human or other animal plasma separation, since those products typically are expensive, burdensome to produce, and at greater risk for failing regulatory oversight.
On June 26, 2013,The manufacturing methods that we use to produce our current products rely on detailed, complex and difficult to manage synthetic organic chemistry processes. Although use of those methods requires that we engage manufacturers that possess the Company completedexpertise, skill and know-how involved with those methods, the Merger with ABS, pursuantrequired equipment to which ABS became a wholly owned subsidiaryuse those methods is widely available. Our current products are synthesized from naturally occurring ingredients amino acids that, while not sourced from humans or other animals, do exist in their natural state in humans. That type of ingredient may be more likely to be categorized as “generally recognized as safe”, or “GRAS”, by the Company. In contemplation of the Merger, effective May 24, 2013, the Company increased its authorized Common Stock, from 375,000 shares to 1,500,000 shares and effected a forward stock split, by way of a stock dividend, of its issued and outstanding shares of Common Stock at a ratio of 11 shares to each 1 issued and outstanding share. Also, in contemplation of the Merger, effective June 5, 2013, the Company changed its name from Almah, Inc. to Arch Therapeutics, Inc. and changed the ticker symbol under which its Common Stock trades on the OTC Bulletin Board from “AACH” to “ARTH”.FDA.
Recent Developments
On January 13, 2023, the Company filed a Certificate of Change to the Company’s Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada (the “Certificate of Change”), which effected, at 5:00 p.m. Eastern Time on January 17, 2023, a one-for-two-hundred (1:200) reverse stock split (the “Reverse Stock Split”) of both the Company’s issued and outstanding shares of Common Stock, and authorized shares of Common Stock.
As a result of the Reverse Stock Split, every two hundred (200) shares of Common Stock issued and outstanding was combined into one (1) share of Common Stock, with a proportionate 1:200 reduction in the Company’s authorized Common Stock. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the Reverse Stock Split would have resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of Common Stock resulting from the Reverse Stock Split were rounded up to the nearest whole post-Reverse Stock Split share and no stockholders received cash in lieu of fractional shares.
The Reverse Stock Split did not change the par value of the Common Stock. All outstanding securities entitling their holders to purchase shares of Common Stock or acquire shares of Common Stock, including stock options, restricted stock units, and warrants, were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities.
On January 13, 2023, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Nevada to increase the number of authorized shares of Common stock from 4,000,000 shares to 12,000,000 shares. The increase in the number of authorized shares was approved by the Company’s stockholders on September 29, 2022.
As previously disclosed in footnote 11 in this Form 10-Q, the Company entered into a Securities Purchase Agreement, dated July 6, 2022 (the “2022 SPA”), with certain institutional and accredited individual investors (collectively, the “Investors”) for the issuance and sale by the Company to the Investors of convertible promissory notes (the “2022 Notes”), warrants (the “2022 Warrants”) to purchase shares of common stock, par value $0.001 per share (the “Common Stock”), and shares of Common Stock (the “2022 Inducement Shares”, and together with the 2022 Notes, and 2022 Warrants, the “2022 Convertible Note Offering”). The First Closing of the 2022 Convertible Note Offering occurred on July 6, 2022.
On January 18, 2023, the Company entered into Amendment No. 1 to the 2022 SPA (the “Amendment” and, together with the SPA, the “Amended 2022 SPA”), with certain Investors in connection with the second closing of the 2022 Convertible Note Offering for the issuance and sale by the Company to such Investors of an aggregate of (i) Unsecured Convertible Promissory Notes (each a “Second Note” and collectively, the “Second Notes”) in the aggregate principal amount of $636,000, which includes an aggregate $106,000 original issue discount in respect of the Second Notes; (ii) warrants (the “Second Warrants”) to purchase an aggregate of 127,968 shares (the “Second Warrant Shares”) of Common Stock; and (iii) 9,598 shares of Common Stock (the “Second Inducement Shares”). The aggregate gross proceeds for the sale of the Second Notes, Second Warrants and Second Inducement Shares was approximately $530,000, before deducting any placement agent’s fees and other estimated fees and offering expenses payable by the Company. The second closing of the sales of these securities under the Amended 2022 SPA occurred on January 18, 2023 (the “Second Closing Date”).
On February 14, 2023,5, 2024, the Company entered into an amendment to its outstanding 2022 Notes issued on July 6, 2022 with the holders of such notes. Also on February 14, 2023, the Company enteredamendments into an amendment to its outstanding Second Notes issued on January 18, 2023 with the holders of such notes. These actions amended the 2022 Notes and Second Notes to extend the Uplist Transaction deadline related to the Company’s efforts to uplist to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American from February 15, 2023 to March 15, 2023.
As a result of the amendment to the 2022 Notes and Second Notes, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to extend the date of completion of an Uplist Transaction from February 15, 2023 to March 15, 2023.
On March 10, 2023, the Company entered into exchange agreements (the “Exchange Agreements”) with each holder (the “Warrantholders”) of the Company’s outstanding Series G Warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at an exercise price of $140.00 per share and the Company’s outstanding Series H Warrants to purchase shares of Common Stock at an exercise price of $80.00 per share. Pursuant to the Exchange Agreements, the Warrantholders exchanged 34,013 Series G Warrants for 3,402 shares of Common Stock and 43,077 Series H Warrants for 8,617 shares of Common Stock.
On March 10, 2023, the Company entered into an amendment (“Amendment No. 2 to the First Notes”) with the Requisite Holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On March 10, 2023, the Company also entered into an amendment (“Amendment No. 2 to the Second Notes” and, together with Amendment No. 2 to the First Notes, “Amendment No. 2 to the 2022 Notes”) with the Requisite Holders of Company’s Second Notes, as amended on February 14, 2023, issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing” and, together with the First Closing, the “2022 Convertible Note Offering”).
On March 15, 2023, the Company entered into amendments to the 2022 Notes (“Amendment No. 3 to the First Notes”) and Second Notes (“Amendment No. 3 to the Second Notes” and collectively, “Amendment No. 3 to the 2022 Notes” and, together with Amendment No. 2 to the 2022 Notes, the “Amendments to the 2022 Notes”) with the Requisite Holders of the 2022 Notes and Second Notes. Under Amendment No. 3 to the 2022 Notes, the 2022 Notes and Second Notes were amended to extend the Amendment No. 2 Termination Date from March 15, 2023 to April 15, 2023, which had the effect of extending to Uplist Transaction deadline from March 15, 2023 to April 15, 2023. In connection with Amendment No. 3 to the 2022 Notes, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 of the Series 2 Unsecured Convertible Promissory Notes was automatically extended from March 15, 2023 to April 15, 2023.
As a result of the entry into the Amendments to the 2022 Notes and Second Notes, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to (i) extend the Amendment No. 2 Termination Date from March 15, 2023 to April 15, 2023; (ii) modify the terms of the Uplist Transaction repayment provision; and (iii) provide for the issuance of the 2023 Notes, subject to completion of the Uplist Transaction. Also, on March 15, 2023, in connection with Amendment No. 3 to the 2022 Notes and Second Notes, and pursuant to the terms of the Company’s outstanding Series Notes, the Series Notes were automatically amended to extend the date of completion of an Uplist Transaction from March 15, 2023 to April 15, 2023. In connection with Amendment No. 3 to the 2022 Notes and Second Notes, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 of the Series 2 Unsecured Convertible Promissory Notes was automatically extended from March 15, 2023 to April 15, 2023.
On April 15, 2023, the Company entered into an amendment (“Amendment No. 4 to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, March 10, 2023 and March 15, 2023, issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On April 15, 2023, the Company also entered into an amendment (“Amendment No. 4 to the Second Notes” and, together with Amendment No. 4 to the First Notes, “Amendment No. 4 to the 2022 Notes”) with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, March 10, 2023 and March 15, 2023 issued in connection with a private placement financingThird Notes. Under the Company completed on January 18, 2023 (the “Second Closing”).
Under Amendment No. 4 toamendments, the 2022 Notes, the 2022 Notes and Second Notesnotes were amended to extend the date of the completion of an uplist to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (such transaction, an “Uplist Transaction”) from April 15, 2023 to May 15, 2023.
As a result of the entry into Amendment No. 4 to the 2022 Notes,as defined, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to extend the respective maturity date of completioneach of an Uplist Transactionnotes, from April 15, 2023January 6, 2024, to May 15, 2023. Also, on April 15, 2023, in connection with Amendment No. 4 to the 2022 Notes, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 of the Series 2 Unsecured Convertible Promissory Notes was automatically extended from April 15, 2023 to May 15, 2023.
On April 15, 2023, the Company entered into an amendment (“Amendment No. 1 to the A&R Registration Rights Agreement”) to that certain Amended and Restated Registration Rights Agreement, dated as of January 18, 2023, by and among the Company and certain institutional and accredited individual investors (as amended, the “A&R Registration Rights Agreement”). Under Amendment No. 1 to the A&R Registration Rights Agreement, the A&R Registration Rights Agreement was amended to extend the filing deadline by which the Company is obligated to file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, registering certain securities issued in the Second Closing, from April 18, 2023 to June 17, 2023.
On May 15, 2023, the Company entered into Amendment No. 2 to the 2022 SPA related to the 2022 Convertible Note Offering (the “Amendment” and, together with the 2022 SPA, the “Amended 2022 SPA”), with certain Investors in connection with the third closing of the 2022 Convertible Note Offering for the issuance and sale by the Company to an Investor of an aggregate of (i) Unsecured Convertible Promissory Notes (each a “Third Note” and collectively, the “Third Notes”) in the aggregate principal amount of $702,720, which includes an aggregate $214,720 original issue discount in respect of the Third Notes; (ii) warrants (the “Third Warrants”) to purchase an aggregate of 141,396 shares (the “Third Warrant Shares”) of Common Stock; and (iii) 10,608 shares of Common Stock (the “Third Inducement Shares”). The aggregate gross proceeds for the sale of the Third Notes, Third Warrants and Third Inducement Shares was approximately $488,000, before deducting the placement agent’s fees and other estimated fees and offering expenses payable by the Company. The third closing of the sales of these securities under the Amended SPA occurred on May 15, 2023 (the “Third Closing Date”).
On May 15, 2023, the Company entered into an amendment (“Amendment No. 5 to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, March 10, 2023, March 15, 2023 and April 15, 2023, issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”) to extend the date of the completion of the Uplist Transaction from May 15, 2023 to June 15, 2023. In connection with Amendment No. 5 to the 2022 Notes, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 of the Series 2 Unsecured Convertible Promissory Notes was automatically extended from May 15, 2023 to June 15, 2023.
On May 15, 2023, the Company also entered into an amendment (“Amendment No. 5 to the Second Notes” and, together with Amendment No. 5 to the First Notes, “Amendment No. 5 to the 2022 Notes”) with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, March 10, 2023, March 15, 2023 and April 15, 2023 issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”) to extend the date of the completion of the Uplist Transaction from May 15, 2023 to June 15, 2023.
As a result of the entry into Amendment No. 5 to the 2022 Notes, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to extend the date of completion of an Uplist Transaction from May 15, 2023 to June 15, 2023. Also, on May 15, 2023, in connection with Amendment No. 5 to the 2022 Notes, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 of the Series 2 Unsecured Convertible Promissory Notes was automatically extended from May 15, 2023 to June 15, 2023.
Through May 12, 2023, the Company raised $538,000 in the form of shareholder advances from two different investors to support operations in advance of the Company’s prospective Uplisting Transaction. On May 15, 2023, $488,000 of these shareholder advances, which was contributed by a single investor, were issued an Unsecured convertible note (the “Third Note”) in connection with the Third Closing of the 2022 Convertible Note Offering (see Notes 11 and 15). The remaining $50,000 that was raised by the Company in the form of shareholder advances was repaid per the agreed terms on July 7, 2023 for $60,000.
On May 18, 2023 and May 31, 2023, the Company raised $340,000 and $350,015 from a shareholder and a third-party investor, respectively, to support operations in advance of the Company’s anticipated closing of the Bridge Offering (as defined below, see Note 15). On July 7, 2023, the amount prefunded by the current shareholder was included in the first closing of a common stock, pre-funded warrant and common warrants Bridge Offering. The amount prefunded by the third party investor is expected to be included in a subsequent closing of the Bridge Offering.
On June 15, 2023, the Company entered into an amendment (“Amendment No. 6 to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, March 10, 2023, March 15, 2023, April 15, 2023 and May 15, 2023, issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”) to extend the date of the completion of the Uplist Transaction from June15, 2023 to July 1, 2023. In connection with Amendment No. 6 to the 2022 Notes, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 of the Series 2 Unsecured Convertible Promissory Notes was automatically extended from June 15, 2023 to July 1, 2023.
On June 15, 2023, the Company also entered into an amendment (“Amendment No. 6 to the Second Notes” and, together with Amendment No. 6 to the First Notes, “Amendment No. 6 to the 2022 Notes”) with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, March 10, 2023, March 15, 2023, April 15, 2023 and May 15, 2023 issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”) to extend the date of the completion of the Uplist Transaction from June 15, 2023 to July 1, 2023.2024.
As a result of the entry into Amendment No. 6 to the 2022 Notes, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to extend the date of completion of an Uplist Transaction from June 15, 2023 to July 1, 2023. Also, on June 16, 2023, in connection with Amendment No. 6 to the 2022 Notes, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 of the Series 2 Unsecured Convertible Promissory Notes was automatically extended from June 15, 2023 to July 1, 2023.On May 18 2023, the Company received an additional advance from a third party, who also participated in the other shareholder advances described herein, of $350,000, which is expected to be rolled into an anticipated near-term capital raise not related to the prior 2022 Convertible Note Offering. In addition, on May 31, 2023, the Company received an additional advance from a third party, of $350,015, which is also expected to be rolled into an anticipated near-term capital raise not related to the prior 2022 Convertible Note Offering.
On July 1, 2023, the “Company” entered into an amendment (“Amendment No. 7 to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, and June 15, 2023, issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On July 1, 2023, the Company also entered into an amendment (“Amendment No. 7 to the Second Notes”) with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, and June 15, 2023, issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”). On July 1, 2023, the Company also entered into an amendment (“Amendment No. 2 to the Third Notes and, together with Amendment No. 7 to the First Notes and Amendment No. 7 to the Second Notes, the “Amendments to the 2022 Notes”) with the holders of the Company’s outstanding Third Notes, as amended on June 15, 2023, issued in connection with a private placement financing the Company completed on May 15, 2023 (the “Third Closing”).
Under the Amendments to the 2022 Notes, the 2022 Notes, Second Notes, and Third Notes were amended to extend the date of the completion of an uplist to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (such transaction, an “Uplist Transaction”) from July 31, 2023 to August 31, 2023.
As a result of the entry into the Amendments to the 2022 Notes, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to extend the date of completion of an Uplist Transaction from July 31, 2023 to August 31, 2023. Also, as a result of the entry into the Amendments to the 2022 Notes, and pursuant to the terms of the Company’s outstanding Series 1 Unsecured Convertible Promissory Notes and Series 2 Unsecured Convertible Promissory Notes, each as amended on March 10, 2023, the Series Note Amendments Termination Date set forth under Amendment No. 1 to the Series 1 Unsecured Convertible Promissory Notes and Amendment No. 1 to the Series 2 Unsecured Convertible Promissory Notes was automatically amended to extend from July 31, 2023 to August 31, 2023. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 7, 2023.
On July 7, 2023, the Company announced that it had entered into a Securities Purchase Agreement (the “2023 SPA”) with certain institutional and accredited individual investors (collectively, the “Investors”) providing for the issuance and sale by the Company to the Investors of an aggregate of (i) 1,749,245 shares (the “Shares”) of common stock, par value $0.001, of the Company (the “Common Stock”) at a purchase price of $0.275 per share; (ii) 4,996,199 warrants (the “Pre-Funded Warrants”) at a purchase price of $0.274 per Pre-Funded Warrant, to purchase an aggregate of 4,996,199 shares of Common Stock (the “Pre-Funded Warrant Shares”); and (iii) 13,490,888 warrants (the “Common Warrants”) to purchase an aggregate 13,490,888 shares of Common Stock (the “Common Stock Warrants Shares”). The Shares, Pre-Funded Warrants, and Common Warrants were issued as part of a private placement offering authorized by the Company’s board of directors (the “Bridge Offering”).
Pursuant to the lock-up agreement provided for by the SPA, the Investors agreed that they would either (A) purchase securities, for cash, in an offering conducted in conjunction with an uplist of the Common Stock to any of, and in compliance with the rules of, the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (the “Uplist Transaction”) with an aggregate purchase price equal to at least 4.3 multiplied by the aggregate purchase price paid by the Investor for the Shares, Pre-Funded Warrants and Common Warrants under the SPA or (B) be subject to a lock-up provision not to sell or otherwise transfer any of the Shares, Pre-Funded Warrant Shares or Common Warrant Shares acquired by them in the Bridge Offering until the one-year anniversary of the Closing Date. The aggregate gross proceeds for the sale of the Shares, Pre-Funded Warrants, and Common Warrants will be approximately $1.85 million, before deducting the placement agent’s fees and other estimated fees and offering expenses payable by the Company. The closing of the sales of these securities under the SPA occurred on July 7, 2023 (the “Closing Date”).
The 2023 SPA also provides additional provisions including: i) certain adjustments that would require the Company to issue additional securities to the Investors if the effective offering price to the public of Common Stock in connection with the next underwritten public offering is less than $4.00 per share; ii) a requirement to register the Shares, Pre-Funded Warrant Shares, and Common Stock Warrant Shares on a subsequent registration statement or statements; and, iii) certain restrictions on the Company’s ability to conduct subsequent sales of its equity securities and certain business activities. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 13, 2023.
On July 7, 2023, the Company entered into an amendment (“Amendment No. 8 to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, and July 1, 2023, issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On July 1, 2023, the Company also entered into an amendment (“Amendment No. 8 to the Second Notes” with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, and July 1, 2023, issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”). On July 1, 2023, the Company also entered into an amendment (“Amendment No. 3 to the Third Notes”, and, together with Amendment No. 8 to the First Notes and Amendment No. 8 to the Second Notes, the “Amendments to the 2022 Notes”) with the holders of the Company’s outstanding Third Notes, as amended on June 15, 2023, and as subsequently amended on July 1, 2023, issued in connection with a private placement financing the Company completed on May 15, 2023 (the “Third Closing”).
Under the Amendments to the 2022 Notes, the following amendments to the 2022 Notes, Second Notes, and Third Notes will be simultaneously effective upon the closing of an offering conducted in conjunction with an uplist of the Common Stock to any of, and in compliance with the rules of, the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (the “Uplist Transaction”). The Specified Percentage (as defined below) of the then outstanding principal amount of the 2022 Notes, Second Notes, and Third Notes shall automatically convert (the “Automatic Conversion”) into shares of Common Stock, with the conversion price for purposes of such Automatic Conversion being equal to the lower of (i) the per unit price at which any units (each unit being comprised of one share or share equivalent and accompanying warrants, if any) are sold in the Uplist Transaction or (ii) the price at which warrants issued in the Uplist Transaction are exercisable (but in no event increased above the conversion price in effect immediately prior to the pricing of the Uplist Transaction).
In addition, if the Holder (as defined below) (i) participates in the Uplist Transaction and in the Bridge Offering for a combined (taking into account the Holder’s aggregate investment in the Uplist Transaction and the Bridge Offering) amount equal to no less than fifty percent (50%) of the Holder’s original purchase price under the 2022 Notes, Second Notes, and Third Notes, and (ii) the Holder’s amount of participation in the Uplist Transaction is at least 4.3 times the Holder’s amount of participation in the Bridge Offering, then the Holder shall receive a pre-funded warrant (the “Participating Pre-Funded Warrant”) to purchase a number of shares of Common Stock equal to the Specified Number (as defined below) times the dollar amount under the 2022 Notes that was converted in the Automatic Conversion. The Participating Pre-Funded Warrant (i) shall have an exercise price of $0.001 per share, (ii) may be exercised on a cashless basis, (iii) shall be exercisable by the Holder at any time commencing on the 90th day after issuance, (iv) may be redeemed by the Company for cash at a redemption price of $0.82 per share underlying the Participating Pre-Funded Warrant with any such redemption made pro rata to all holders of the Participating Pre-Funded Warrants, (v) and shall contain a customary beneficial ownership limitation provision. Additionally, the holder of the Participating Pre-Funded Warrants will agree that, until January 6, 2024, it shall not offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise dispose of, the Participating Pre-Funded Warrant.
“Specified Percentage” means the greater of: (i) the percentage specified by the Company by notice to the 2022 Note holders (the “Holders”, and each a “Holder”) at least five business days prior to the closing of the Uplist Transaction, which percentage shall be the percentage necessary to ensure the applicable Nasdaq requirements regarding the Uplist Transaction are satisfied, and (ii) the percentage specified by the Holder by notice to the Company at least three business days prior to the closing of the Uplist Transaction (which percentage may be different for each 2022 Note, Second Note, and/or Third Note as determined by each Holder thereof); provided, that in no event shall the Specified Percentage for the 2022 Notes, Second Notes, and/or Third Notes (A) exceed twenty five percent (25%) unless otherwise agreed in writing by the Holder, or (B) exceed fifty percent (50%) unless otherwise agreed in writing by the Company.
“Specified Number” means, if the Specified Percentage is 50%, 2.4, which number shall be increased by 1.6% for each percentage point decrease in the Specified Percentage, such increase being compounded iteratively for each percentage point decrease in the Specified Percentage, with the result rounded to two decimal places. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 13, 2023.
Additionally, on July 7, 2023, the Company entered into an amendment (the “Omnibus Amendment to Notes and Warrants”) with the Holders of the 2022 Notes, Second Notes, and Third Notes amending the 2022 Notes, Second Notes, and Third Notes and related warrants issued at each of the First Closing, Second Closing, and Third Closing (the “First Warrants”, “Second Warrants” and “Third Warrants”, respectively, and collectively, the “2022 Warrants”). Under the Omnibus Amendment to Notes and Warrants, the 2022 Notes, Second Notes, Third Notes, and related warrants were amended (i) to modify the Most Favored Nation provisions therein to exclude the Bridge Offering, and (ii) to prohibit the Company from engaging in any capital raising transactions, subject to certain exceptions, until the earlier of (A) July 7, 2027, and (B) the first date on which all Holders hold less than 20% of the original amount of the Participating Pre-Funded Warrants received by each Holder, respectively, in connection with the Automatic Conversion. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 13, 2023.
On July 7, 2023 the Company paid $60,000 to a shareholder that had previously advanced the Company $50,000 to support operations. The payment satisfied all remaining obligations in connection with the $538,000 of shareholder advances received by the Company through May 12, 2023. The additional $488,000 was issued as a Third Note (see Note 11).
On July 11, 2023, the Company entered into a finance agreement with First Insurance Funding in order to fund a portion of its insurance policies. The amount financed is approximately $310,000 and incurs interest at a rate of 7.49%. Per the terms of its agreement with First Insurance Funding, the Company is required to make monthly payments of approximately $32,000 through April 2024.
On July 12, 2023, the Company secured countersigned notices of conversion from all remaining holders of the Series 1 Convertible Notes, and provided instructions to its transfer agent to issue a total of 59,912 shares of Common Stock in full satisfaction of all previously outstanding Series 1 Convertible Notes. Pursuant to the Series 1 Convertible Notes, the Company can elect to convert the principal and accrued interest under the Series Convertible Notes obligation (the “Series Note Obligations”) upon the earlier of the effective time of the Uplisting Transaction, or the maturity date. In the case of an In-Kind Note Repayment, the outstanding Note Obligations will be calculated by increasing by thirty-five percent the aggregate sum of the unpaid Principal Amount held by each Holder and the accrued interest at a rate of ten percent per annum, subject to, with respect to any portion of the Principal Amount that is converted or prepaid before the twelve month anniversary of the Issuance Date, a minimum interest payment equal to ten percent of the amount that is converted or prepaid. As consideration for agreeing to subordinate to the 2022 Notes, the premium applicable in connection with an In-Kind Note Repayment at maturity was increased from thirty-five percent to sixty percent. On March 10, 2023, the Company entered into Amendment 2 of the Series 1 Convertible notes and pursuant this amendment, the Company can elect to convert the principal and accrued interest under the Series Convertible Notes (the “Series Note Obligations”) upon the earlier of the effective time of the Uplisting Transaction, or the maturity date. In the event the Company exercises such option, the Series Note Obligations will be deemed to equal the product of 4.5 (which was previously 1.6 prior to the Series Note Amendments) and the outstanding Series Note Obligations.
On July 18, 2023, the Board of the Directors of the Company executed a unanimous written consent that, among other things, approved, subject to the approval of a majority of the stockholders of the Company, the following: 1) amend the Amended and Restated Articles of Incorporation (the “Articles”) to a) increase the number of authorized shares of common stock, par value $0.001 (the “Common Stock”) from 12 million to 350 million, b) create 5,000,000 shares of “blank check” preferred stock, and c) approve a reverse split at a ratio of between 1.5-for-1 and 20-for-1 without any proportionate decrease in the number of authorized shares; 2) amend the Bylaws of the Company to a) allow action by written consent of stockholders representing more than 50% of the total number of shares of Common Stock currently issued and outstanding, and b) establish that holders of thirty-three and one-third (33.3333%) of the total number of shares of Common Stock currently issued and outstanding shall constitute a quorum at any meeting of stockholders for the transaction of business, except as otherwise provided by the NRS or by the Articles; and, 3) approve the 2023 Omnibus Equity Incentive Plan with an initial reservation of 455,169 shares, options or other such grants. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on July 24, 2023.
On July 31, 2023, Arch Therapeutics, Inc. (the “Company”) entered into an amendment (“Amendment No. 9 to the First Notes”) with the holders of the Company’s outstanding 2022 Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023 and July 7, 2023 issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On July 31, 2023, the Company also entered into an amendment (“Amendment No. 9 to the Second Notes”) with the holders of the Company’s outstanding Second Notes, as amended on February 14, 2023, and as subsequently amended on March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, and July 7, 2023 issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”). On July 31, 2023, the Company also entered into an amendment (“Amendment No. 4 to the Third Notes and, together with Amendment No. 9 to the First Notes and Amendment No. 9 to the Second Notes, the “Amendments to the 2022 Notes”) with the holders of the Company’s outstanding Third Notes, as amended on June 15, 2023, and as subsequently amended on July 1, 2023 and July 7, 2023 issued in connection with a private placement financing the Company completed on May 15, 2023 (the “Third Closing”).
Under the Amendments to the 2022 Notes, the 2022 Notes, Second Notes, and Third Notes were amended to extend the date of the completion of an uplist to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (such transaction, an “Uplist Transaction”) from July 31, 2023 to August 31, 2023.
As a result of the entry into the Amendments to the 2022 Notes, and pursuant to the terms of the Company’s outstanding Exchanged Notes, the Exchanged Notes were automatically amended to extend the date of completion of an Uplist Transaction from July 31, 2023 to August 31, 2023. Additional information related to such matters can be found in the Form 8-K filed by the Company with Securities and Exchange Commission on August 4, 2023.
Results of Operations
The following discussion of our results of operations should be read together with the unaudited interim condensed consolidated financial statements included in this Report. The period-to-period comparisons of our interim results of operations that follow are not necessarily indicative of future results.
Three Months Ended June 30,December 31, 2023 Compared to Three Months Ended June 30,December 31, 2022
June 30, | June 30, | Increase | ||||||||||
2023 | 2022 | (Decrease) | ||||||||||
($) | ($) | ($) | ||||||||||
Revenue | 13,293 | 6,261 | 7,032 | |||||||||
Operating Expense: | ||||||||||||
Cost of revenues | 18,529 | 17,140 | 1,389 | |||||||||
Selling, general and administrative | 870,053 | 836,215 | 33,838 | |||||||||
Research and development | 139,048 | 159,846 | (20,798 | ) | ||||||||
Loss from Operations | (1,014,337 | ) | (1,006,940 | ) | (7,397 | ) | ||||||
Other Expense | (808,770 | ) | (39,890 | ) | 768,880 | |||||||
Net loss | (1,823,107 | ) | (1,046,830 | ) | 776,277 |
December 31, | December 31, | Increase (Decrease) | ||||||||||
2023 | 2022 | $ | ||||||||||
Revenue | $ | 45,867 | $ | 6,261 | 39,606 | |||||||
Operating expenses: | - | |||||||||||
Cost of revenues | 23,606 | 17,635 | 5,971 | |||||||||
Selling, general and administrative | 1,311,350 | 1,102,916 | 208,434 | |||||||||
Research and development | 205,580 | 161,453 | 44,127 | |||||||||
Loss from operations | (1,494,669 | ) | (1,275,743 | ) | 218,926 | |||||||
Other expense | (1,186,983 | ) | (524,313 | ) | 662,670 | |||||||
Net loss | $ | (2,681,652 | ) | $ | (1,800,056 | ) | 881,596 |
Revenue
Revenue for the three months ended June 30,December 31, 2023 was $13,293,$45,867, an increase of $7,032$39,606 compared to revenue of $6,261 for the three months ended June 30,December 31, 2022. Revenue for the three months ended June 30, 2023 andDecember 31, 2022 was the result of transactions into VA Hospitals through our distribution partner, Lovell Government Services (“LGS”). Revenue for the three months ended December 31, 2023 was the result of transactions into VA Hospitals through LGS, and transactions leveraging the dedicated HCPCS code (A2020) that went effective April 1, 2023 through a growing number of providers and offices working with the Company to submit reimbursement claims with numerous payors.
Cost of Revenues
Cost of revenue during the three months ended June 30,December 31, 2023 was $18,529,$23,606, an increase of $1,389$5,971 compared to cost of revenue of $17,140$17,635 for the three months ended June 30,December 31, 2022. Cost of revenue includes product costs, third party warehousing, overhead allocation, royalty and shipping costs.
Selling, General and Administrative Expense
Selling, general and administrative expense during the three months ended June 30,December 31, 2023 was $870,053,$1,311,350, an increase of $33,838$208,434 compared to $836,215$1,102,916 for the three months ended June 30,December 31, 2022. The increase in selling, general and administrative expense for the three months ended June 30,December 31, 2023 is primarily attributable to an increase in payroll benefit costs.professional service costs, most notably legal costs related to financing activities.
Research and Development Expense
Research and development expense during the three months ended June 30,December 31, 2023 was $139,048 a decrease$205,580 an increase of $20,798$44,127 compared to $159,846$161,453 for the three months ended June 30,December 31, 2022. The decreaseincrease in research and development expense is primarily attributable to a decrease in compensation costs attributed to a reduction in headcount.
Other Expense
Other expense during the three months ended June 30,December 31, 2023 was $808,770,$1,186,983, an increase of $768,880$662,670 compared to other expense of $39,890$524,313 for the three months ended June 30,December 31, 2022. The increase in other expense is primarily attributed to an increase in interest expense related to the 2022 Notes, Second Notesamortization of debt discount and Third Notes.
Nine Months Ended June 30, 2023 Compared to Nine Months Ended June 30, 2022
June 30, | June 30, | Increase | ||||||||||
2023 | 2022 | (Decrease) | ||||||||||
($) | ($) | ($) | ||||||||||
Revenue | 36,207 | 14,086 | 22,121 | |||||||||
Operating Expense: | ||||||||||||
Cost of revenues | 54,882 | 51,363 | 3,519 | |||||||||
Selling, general and administrative | 3,225,753 | 3,308,227 | (82,474 | ) | ||||||||
Research and development | 471,135 | 922,120 | (450,985 | ) | ||||||||
Loss from Operations | (3,715,563 | ) | (4,267,624 | ) | (552,061 | ) | ||||||
Other (Expense) Income | (810,077 | ) | 880,329 | 1,690,406 | ||||||||
Net loss | (4,525,640 | ) | (3,387,295 | ) | (1,138,345 | ) |
Revenue
Revenuedebt issuance costs for the nine months ended June 30, 2023 was $36,207, an increase of $22,121 compared to revenue of $14,086 for the nine months ended June 30, 2022. Revenue for the nine months ended June 30, 2023 and 2022 was primarily the result of transactions into VA Hospitals through our distribution partner, LGS.
Cost of Revenue
Cost of revenue during the nine months ended June 30, 2023 was $54,882 an increase of $3,519 compared to cost of revenue of $51,363 for the nine months ended June 30, 2022. Cost of revenue includes product costs, third party warehousing, overhead allocation, royalty and shipping costs.
Selling, General and Administrative Expense
Selling, general and administrative expense during the nine months ended June 30, 2023 was $3,225,753, a decrease of $82,474 compared to $3,308,227 for the nine months ended June 30, 2022. The decrease in selling, general and administrative expense for the nine months ended June 30, 2023 is primarily attributable to a decrease in compensation costs attributed to a reduction in headcount partially offset by an increase in legal and consulting costs.
Research and Development Expense
Research and development expense during the nine months ended June 30, 2023 was $471,135 a decrease of $450,985 compared to $922,120 for the nine months ended June 30, 2022. The decrease in research and development expense is primarily attributable to a decrease in compensation costs attributed to a reduction in headcount.
Other (Expense) Income
Other expense during the nine months ended June 30, 2023 was $810,077 an increase of $1,690,406 compared to other income of $880,329 for the nine months ended June 30, 2022. The increase in other (expense) income is primarily attributed to an increase in interest expense related to the 2022 Notes, Second Notes and Third Notes offset by a gain for the extinguishment of the Series G warrants and Series H warrants derivative liabilities during the nine months ended June 30, 2023 and the impact of the expiration of the Series F warrants during the nine months ended June 30, 2022.as well as increase in related interest expense.
Liquidity and Capital Resources
In the first calendar quarter of 2021, the Company commenced commercial sales of our first product, AC5® Advanced Wound System. We devote a significant amount of our efforts on fundraising as well as planning and conducting product research and development and activities in connection with obtaining regulatory marketing authorization. We have principally raised capital through the issuance of convertible debt and units consisting of Common Stock and warrants to fund our operations.
Working Capital
At June 30,December 31, 2023, we had total current assets of $1,560,018$1,814,498 (including cash of $86,542)$205,850) and working capital deficit of $8,019,256.$9,582,965. Our working capital as of June 30,December 31, 2023 and September 30, 20222023 are summarized as follows:
June 30, | September 30, | |||||||
2023 | 2022 | |||||||
Total Current Assets | $ | 1,560,018 | $ | 2,598,195 | ||||
Total Current Liabilities | 9,579,274 | 3,320,494 | ||||||
Working Capital deficit | $ | (8,019,256 | ) | $ | (722,299 | ) |
December 31, | September 30, | |||||||
2023 | 2023 | |||||||
Total Current Assets | $ | 1,814,498 | $ | 1,950,090 | ||||
Total Current Liabilities | 11,397,463 | 9,465,921 | ||||||
Working Capital Deficit | $ | (9,582,965 | ) | $ | (7,515,831 | ) |
Total current assets as of June 30,December 31, 2023 were $1,560,018,$1,814,498, a decrease of $1,038,177$135,892 compared to $2,598,195$1,950,090 as of September 30, 2022.2023. The decrease in current assets is primarily attributable to a decrease in cash and prepaid expenses. Our total current assets as of June 30,December 31, 2023 and September 30, 20222023 were comprised primarily of cash, inventory and prepaid expenses and other current assets.
Total current liabilities as of June 30,December 31, 2023 were $9,579,274,$11,397,463, an increase of $6,258,780$1,931,542 compared to $3,320,494$9,465,921 as of September 30, 2022.2023. The increase is primarily due to an increase in shareholder advances and accounts payable, the current portionand amortization of the Series 2 Convertible Notes,debt discount and debt issuance costs for the current portion of the 2022 Notes, current portion of the Unsecured convertible notes, which includes both the Second Notes, the Third Notes and the Exchanged Notes, Shareholder and Third Party advances related to bridge financing and the accrued interest associated with these notes partially offset by a decrease to the amount owed in connection with the financing of certain insurance premiums and the decrease in the fair value of the derivative liability resulting from the exchange of the Series G warrants into common stock.
Cash Flow for the NineThree Months Ended June 30,December 31, 2023 Compared to the NineThree Months Ended June 30,December 31, 2022
June 30, | June 30, | |||||||
2023 | 2022 | |||||||
Cash Used in Operating Activities | $ | (2,147,480 | ) | $ | (2,786,642 | ) | ||
Cash Provided by Financing Activities | 1,487,082 | 575,000 | ||||||
Net decrease in Cash | $ | (660,398 | ) | $ | (2,211,642 | ) |
December 31, | December 31, | |||||||
2023 | 2022 | |||||||
Cash Used in Operating Activities | $ | (862,605 | ) | $ | (650,065 | ) | ||
Cash Provided by (Used in) Financing Activities | 845,735 | (86,257 | ) | |||||
Net decrease in Cash | $ | (16,870 | ) | $ | (736,322 | ) |
Cash Used in Operating Activities
Cash used in operating activities decreasedincreased by $639,162$212,540 to $2,147,480$862,605 during the ninethree months ended June 30,December 31, 2023, compared to $2,786,642$650,065 during the ninethree months ended June 30,December 31, 2022. The decreaseincrease in cash used in operating activities is primarily attributable to the Company managing expenses and an increase in accounts payablespending for selling, general and accrued interest.administrative expense during the period.
Cash Used in Financing Activities
Cash provided by financing activities increased by $912,082$931,992 to $1,487,082$845,735 during the ninethree months ended June 30,December 31, 2023, compared to $575,000$86,254 cash provided byused in financing activities during the ninethree months ended June 30,December 31, 2022. For the ninethree months ended June 30,December 31, 2023, the cash provided by financing activities was attributable to the Second Closing of the 2022 Convertible Note Offering, the Third Closing of the 2022 Convertible Note OfferingShareholder and shareholderthird-party advances related to bridge financing, which was partially offset by payments made in connection with the financing of certain insurance premiums. For the ninethree months ended June 30,December 31, 2022, the cash provided byused in financing activities resulted from net proceedsoffset by payments made in connection with the financing of $575,000 raised from the advances from investors.certain insurance premiums
Cash Requirements
We anticipate that our operating expenses, interest expense and other expenses will increase significantly as we continue to implement our business plan and pursue our operational goals. Depending upon additional input from EU and US regulatory authorities, however, we do not expect to generate sufficient revenues from operations before we will need to raise additional capital. Further, our estimates regarding our use of cash could change if we encounter unanticipated difficulties or other issues arise, including without limitation those set forth under the heading “RISK FACTORS” described in our Annual Report, in which case our current funds may not be sufficient to operate our business for the period we expect.
In the first quarter of 2021, the Company commenced commercial sales of our first product, AC5® Advanced Wound System. That revenue will not be sufficient to fund our business operations and we will need to obtain additional funding from external sources for the foreseeable future. We do not have any commitments for future capital. Significant additional financing will be required to fund our planned operations in the near term and in future periods, including research and development activities relating to our potential new product candidates, seeking regulatory approval of any other product candidates we may choose to develop, commercializing any product candidates for which we are able to obtain regulatory approval or certification, seeking to license or acquire new assets or businesses, and maintaining our intellectual property rights and pursuing rights to new technologies. We may not be able to obtain additional financing on commercially reasonable or acceptable terms when needed, or at all. We are bound by certain contractual terms and obligations that may limit or otherwise impact our ability to raise additional funding in the near-term including, but not limited to, provisions in the 2022 SPA (see Note 12)8) and 2023 SPA (see Notes 2 and 15)12) restricting our ability to effect or enter into an agreement to effect any issuance by the Company or any of its subsidiaries of Common Stock or securities convertible, exercisable or exchangeable for Common Stock (or a combination of units thereof) involving a Variable Rate Transaction. These restrictions and provisions could make it more challenging for us to raise capital through the incurrence of debt or through equity issuances. If we cannot raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail, and our stockholders could lose all of their investments.
As previously noted, since inception we have funded our operations primarily through equity and debt financings and we expect to continue to seek to do so in the future. If we obtain additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Additionally, the terms of securities we may issue in future capital-raising transactions may be more favorable for our new investors, and in particular may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have additional dilutive effects. If we obtain additional financing by incurring debt, we may become subject to significant limitations and restrictions on our operations pursuant to the terms of any loan or credit agreement governing the debt. Further, obtaining any loan, assuming a loan would be available when needed on acceptable terms, would increase our liabilities and future cash commitments. We may also seek funding from collaboration or licensing arrangements in the future, which may require that we relinquish potentially valuable rights to our product candidates or proprietary technologies or grant licenses on terms that are not favorable to us. Moreover, regardless of the manner in which we seek to raise capital, we may incur substantial costs in those pursuits, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other related costs.
Going Concern
We have commenced commercial sales of our first product, AC5® Advanced Wound System. From inception, we have had recurring losses from operations. The continuation of our business as a going concern is dependent upon raising additional capital and eventually attaining and maintaining profitable operations. As of June 30,December 31, 2023, there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements included in this Annual Report do not include any adjustments that might be necessary should operations discontinue.
Critical Accounting Policies and Significant Judgments and Estimates
Pursuant to certain disclosure guidance issued by the SEC, the SEC defines “critical accounting policies” as those that require the application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies that we anticipate will require the application of our most difficult, subjective or complex judgments are as follows:
InventoriesUse of Estimates
Inventories are statedManagement is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the lowerdates of cost or net realizable value. The costthe financial statements and the reported amounts of inventories comprises expenditures incurredrevenue and expense during the reporting periods. Significant estimates include the assumptions used in acquiring the inventories,accrual for potential liabilities, the cost of conversion and other costs incurred in bringing them to their existing location and condition. The cost of raw materials, work-in-progress and finished goods and other products are determined on a First in First out (FiFo) basis. When determining net realizable value appropriate consideration is given to obsolescence, excessive levels, deterioration,of inventory, the valuation of debt and other factors in evaluating net realizable value.equity instruments, the fair value of derivative liabilities, valuation of equity instruments issued for services, and deferred tax valuation allowances. Actual results could differ from those estimates.
Complex Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates its financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company values its derivatives using the Black-Scholes option-pricing model or other acceptable valuation models, including Monte-Carlo simulations. Derivative instruments are valued at inception, upon events such as an exercise of the underlying financial instrument, and at subsequent reporting periods. The classification of derivative instruments, including whether such instruments should be recorded as liabilities, is re-assessed at the end of each reporting period.
The Company reviews the terms of debt instruments, equity instruments, and other financing arrangements to determine whether there are embedded derivative features, including embedded conversion options that are required to be bifurcated and accountedAccounting for separately as a derivative financial instrument. Additionally, in connection with the issuance of financing instruments, the Company may issue freestanding options and warrants, including options or warrants to non-employees in exchange for consulting or other services performed.Stock-Based Compensation
The Company accounts for its common stock warrantsstock-based compensation in accordance with Accounting Standards Codificationthe guidance of FASB ASC Topic 718, Compensation-Stock Compensation (“ASC”) 815, Derivatives and Hedging (“ASC 815”718”). Based upon, which requires all share-based payments be recognized in the provisions ofcondensed consolidated financial statements based on their fair values. In accordance with ASC 815, the Company accounts for common stock warrants as liabilities if the warrant requires net cash settlement or gives the holder the option of net cash settlement, or it fails the equity classification criteria. The Company accounts for common stock warrants as equity if the contract requires physical settlement or net physical settlement or if718, the Company has elected to use the option of physical settlement or net physical settlement andBlack-Scholes Option Pricing Model (the “Black-Scholes Model”) to determine the warrants meet the requirements to be classified as equity. Common stock warrants classified as liabilities are initially recorded at fair value on the grant date and remeasured at fair value each balance sheet date with the offset adjustments recorded in change in fair value of warrant liability withinoptions granted and recognizes the consolidated statementscompensation cost of operations. Common stock warrants classified as equity are initially measured at fair valueshare-based awards on a straight-line basis over the grant date and are not subsequently remeasured.vesting period of the award.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the Principal Executive Officer and Principal Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations (“COSO”). We believe, that asAs of September 30, 2022, there existed a material weakness inDecember 31, 2023, our internal control over financial reporting. The deficiencies in the design of internal control over financial reporting related to a lack of sufficient resources with an understanding of the technical guidance under generally accepted accounting principles related to accounting for complex financial instruments within the 2022 NotesPrincipal Executive Officer and certain accounting practices relating to the recording of the insurance premium advanced by a third party. Accordingly, the Audit Committee in consultation with management has determined that these matters may be best addressed by: (i) reviewing accounting literature and other technical materials to ensure that the appropriate personnel have a full awareness and understanding of the applicable accounting pronouncements and how they are to be implemented; (ii) additional education on new and existing accounting pronouncements and their application and (iii) requiring senior accounting staff and outside consultants with technical accounting experience to review complex transactions to evaluate and approve the accounting treatment of such transactions. Accordingly, the Board has recommended to management and management has agreed that the Company’s accounting staff, including its ChiefPrincipal Financial Officer undertake additional training on an accelerated basisconcluded that our disclosure controls and that such training, in view of the complexity of certain generally accepted accounting principles and other matters be ongoing and engage third party specialists on an as-needed basis to help supplement the Company’s internal resources. During the quarter ended June 30, 2023 the Company formally engaged an outside consultant with technical accounting expertise to review complex transactions and to evaluate the accounting treatment of such transactions.procedures were effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
Other than the formal engagement with an outside consultant with technical accounting expertise entered into during the quarter ended June 30, 2023, thereThere were no changes in our internal controls over financial reporting that occurred during the quarter ended June 30,December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. From time to time, we make changes to our internal control over financial reporting that are intended to enhance its effectiveness, and which do not have a material effect on our overall internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we may become a party to legal proceedings involving various matters. We are unaware of any such legal proceedings presently pending to which we or our subsidiary is a party or of which any of our property is the subject that management deems to be, individually or in the aggregate, material to our financial condition or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” of our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report may not be the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.
There were no material changes to the risk factors previously disclosed in our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Not applicable
Item 6. Exhibits
Incorporated by Reference | Incorporated by Reference | |||||||||||||
Exhibit | Exhibit Title | Filed Herewith | Form | Exhibit No. | File No. | Filing Date | Exhibit Title | Filed Herewith | Form | Exhibit No. | File No. | Filing Date | ||
3.1 | X | |||||||||||||
4.1 | Form of Pre-Funded Warrant | X | ||||||||||||
4.2 | Form of Common Warrant | X | ||||||||||||
10.1 | 8-K | 10.1 | 000-54986 | 4/20/23 | S-1/A | 4.7 | 333-268008 | 11/09/23 | ||||||
10.2 | 8-K | 10.2 | 000-54986 | 4/20/23 | S-1/A | 4.8 | 333-268008 | 11/09/23 | ||||||
10.3 | Form of Amendment No. 1 to the A&R Registration Rights Agreement. | 8-K | 10.3 | 000-54986 | 4/20/23 | S-1/A | 4.9 | 333-268008 | 11/09/23 | |||||
10.4 | 10-Q | 10.1 | 000-54986 | 5/22/23 | S-1/A | 4.10 | 333-268008 | 11/09/23 | ||||||
10.5 | 10-Q | 10.2 | 000-54986 | 5/22/23 | S-1/A | 4.11 | 333-268008 | 11/09/23 | ||||||
10.6 | 10-Q | 10.3 | 000-54986 | 5/22/23 | S-1/A | 4.12 | 333-268008 | 11/09/23 | ||||||
10.7 | 10-Q | 10.4 | 000-54986 | 5/22/23 | S-1/A | 4.13 | 333-268008 | 11/09/23 | ||||||
10.8 | 10-Q | 10.5 | 000-54986 | 5/22/23 | Form of Amendment No. 11 to First Notes, dated September 30, 2023 | 8-K | 10.1 | 000-54986 | 10/04/23 | |||||
10.9 | 10-Q | 10.6 | 000-54986 | 5/22/23 | S-1/A | 10.37.12 | 333-268008 | 11/09/23 | ||||||
10.10 | 8-K | 10.1 | 000-54986 | 6/22/23 | Form of Amendment No. 11 to Second Notes, dated September 30, 2023 | 8-K | 10.2 | 000-54986 | 10/04/23 | |||||
10.11 | 8-K | 10.2 | 000-54986 | 6/22/23 | S-1/A | 10.41.12 | 333-268008 | 11/09/23 | ||||||
10.12 | 8-K | 10.3 | 000-54986 | 6/22/23 | Form of Amendment No. 6 to Third Notes, dated September 30, 2023 | 8-K | 10.3 | 000-54986 | 10/04/23 | |||||
10.13 | 8-K | 10.1 | 000-54986 | 7/7/23 | S-1/A | 10.47.7 | 333-268008 | 11/09/23 | ||||||
10.14 | 8-K | 10.2 | 000-54986 | 7/7/23 | Form of Amendment No. 2 to Second A&R Registration Rights Agreement | S-1/A | 10.49.2 | 333-268008 | 11/09/23 | |||||
10.15 | 8-K | 10.3 | 000-54986 | 7/7/23 | S-1/A | 10.52.2 | 333-268008 | 11/09/23 | ||||||
10.16 | 8-K | 10.1 | 000-54986 | 7/24/23 | S-1/A | 10.53.1 | 333-268008 | 11/09/23 | ||||||
10.17 | X | S-1/A | 10.53.2 | 333-268008 | 11/09/2023 | |||||||||
10.18 | X | S-1/A | 10.54 | 333-268008 | 11/09/2023 | |||||||||
10.19 | X | S-1/A | 10.55 | 333-268008 | 11/09/2023 | |||||||||
10.20 | X | S-1/A | 10.56 | 333-268008 | 11/09/2023 | |||||||||
10.21 | Form of Amendment No. 9 to the First Notes | 8-K | 10.1 | 000-54986 | 8/4/23 | S-1/A | 10.57 | 333-268008 | 11/09/23 | |||||
10.22 | Form of Amendment No. 9 to the Second Notes | 8-K | 10.2 | 000-54986 | 8/4/23 | Form of Amendment No. 13 to the First Notes, dated November 21, 2023 | 8-K | 10.1 | 000-54986 | 11/22/23 | ||||
10.23 | Form of Amendment No. 4 to the Third Notes | 8-K | 10.3 | 000-54986 | 8/4/23 | Form of Amendment No. 13 to the Second Notes, dated November 21, 2023 | 8-K | 10.2 | 000-54986 | 11/22/23 | ||||
10.24 | Form of Securities Purchase Agreement dated July 7, 2023, by and among the Company and the signatories thereto* | X | Form of Amendment No. 8 to the Third Notes, dated November 21, 2023 | 8-K | 10.3 | 000-54986 | 11/22/2023 | |||||||
10.25 | Form of Registration Rights Agreement dated July 7, 2023, by and among the Company and the signatories thereto | X | Form of Amendment No. 3 to Second A&R Registration Rights Agreement | 8-K | 10.4 | 000-54986 | 11/22/2023 | |||||||
10.26 | Form of Amendment No. 3 to the Bridge Registration Rights Agreement | 8-K | 10.5 | 000-54986 | 11/22/2023 | |||||||||
10.27 | Form of Amendment No. 14 to the First Notes, dated January 5, 2024 | 8-K | 10.1 | 000-54986 | 01/11/2024 | |||||||||
10.28 | Form of Amendment No. 14 to the Second Notes, dated January 5, 2024 | 8-K | 10.2 | 000-54986 | 01/11/2024 | |||||||||
10.29 | Form of Amendment No. 9 to the Third Notes, dated January 5, 2024 | 8-K | 10.3 | 000-54986 | 01/11/2024 | |||||||||
31.1 | X | X | ||||||||||||
31.2 | X | X | ||||||||||||
32.1 | X | X | ||||||||||||
101.INS | Inline XBRL Instance Document | Inline XBRL Instance Document | ||||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | Inline XBRL Taxonomy Extension Schema Document | ||||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||
104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
* Pursuant to Item 601(b)(10) of Regulation S-K, certain identified information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed. Further, the schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
ARCH THERAPEUTICS, INC. | ||
Date: | By: | /s/ TERRENCE W. NORCHI, MD |
Terrence W. Norchi, MD | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: | By: | /s/ MICHAEL S. ABRAMS |
Michael S. Abrams | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |