The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 5, 2023

PRELIMINARY PROSPECTUS

ARCH THERAPEUTICS, INC.

6,750,000 Units (consisting of 6,750,000 Shares of Common Stock and Investor Warrants to Purchase up to 6,750,000 Shares of Common Stock)

Up to 6,750,000 Pre-Funded Units (consisting of Pre-Funded Warrants to Purchase up to 6,750,000 Shares of Common Stock and Investor Warrants to Purchase up to 6,750,000 Shares of Common Stock)

Up to 6,750,000 Shares of Common Stock Underlying the Pre-Funded Warrants and

Up to 6,750,000 Shares of Common Stock Underlying the Investor Warrants

We are offering units (“Units”), on a firm commitment basis, each Unit consisting of one share of our common stock, par value $0.001 per share (“Common Stock”), and one warrant to purchase one share of our Common Stock (the “Investor Warrants”). The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The shares of Common Stock can be purchased in this offering only with the accompanying Investor Warrants as part of a Unit (other than pursuant to the underwriters’ option to purchase additional shares of Common Stock and/or Investor Warrants). The shares of Common Stock and Investor Warrants comprising the Units are immediately separable and will be issued separately in this offering. Each Investor Warrant offered hereby is exercisable on the date of issuance at an exercise price per share of Common Stock equal to 100% of the public offering price of the Units in this offering, and will expire five years from the date of issuance. Pursuant to this prospectus, we are also offering the shares of Common Stock issuable upon exercise of the Investor Warrants.

We are also offering to each purchaser whose purchases of Units in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding Common Stock immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, pre-funded units (“Pre-Funded Units”) (each Pre-Funded Unit consisting of one pre-funded warrant (“Pre-Funded Warrant”) to purchase one share of Common Stock and one Investor Warrant to purchase one share of Common Stock) in lieu of Units that would otherwise result in the purchaser’s beneficial ownership exceeding 4.99% of our outstanding Common Stock (or at the election of the purchaser, 9.99%). Each Pre-Funded Warrant contained in a Pre-Funded Unit will be exercisable into one share of Common Stock, exercisable until all of the Pre-Funded Warrants are exercised in full. The purchase price of each Pre-Funded Unit will equal the price per Unit being sold to the public in this offering minus $0.001, and the exercise price of each Pre-Funded Warrant included in the Pre-Funded Unit will be $0.001 per share of Common Stock. This offering also relates to the shares of Common Stock issuable upon exercise of any Pre-Funded Warrants contained in the Pre-Funded Units sold in this offering. Each Investor Warrant contained in a Pre-Funded Unit has an exercise price equal to 100% of the public offering price of a Unit in this offering. The Investor Warrants contained in the Pre-Funded Units will be exercisable immediately and will expire five years from the date of issuance. Pursuant to this prospectus, we are also offering the shares of Common Stock issuable upon exercise of the Pre-Funded Warrants and Investor Warrants contained in the Pre-Funded Units.

Our Common Stock is currently quoted on the QB tier of the OTC Marketplace (“OTCQB”) under the symbol “ARTH”. The last reported sale price of our Common Stock on October 4, 2023, was $1.20 per share. The public offering price per Unit and Pre-Funded Unit, and the exercise price of the Investor Warrants, as applicable, will be determined between us and the underwriters based on market conditions at the time of pricing, and may be at a discount to the then current market price. Therefore, the recent market price used throughout this preliminary prospectus may not be indicative of the final offering price. Currently, there is a very limited market for our Common Stock and no established public trading market for the Investor Warrants being offered in this offering. We do not intend to apply for listing of the Pre-Funded Warrants on any securities exchange or other nationally recognized trading system. There is no established public trading market for the Pre-Funded Warrants, and we do not expect a market to develop. We have applied to list our Common Stock and Investor Warrants on The Nasdaq Capital Market (the “Nasdaq Capital Market”) under the symbols “ARTH” and “ARTHW,” respectively. There is no assurance that our listing application will be approved by the Nasdaq Capital Market or The Nasdaq Global Market, NYSE or NYSE American (each of the NYSE American, The Nasdaq Global Market and NYSE, an “Alternate Exchange”), or, if successful, that an active trading market for our Common Stock and Investor Warrants will develop or be sustained. If we are unable to list our Common Stock on the Nasdaq Capital Market or an Alternate Exchange, we will not consummate this offering.

For each Pre-Funded Unit we sell, the number of Units we are offering will be decreased on a one-for-one basis. The Units and the Pre-Funded Units will not be issued or certificated. The shares of Common Stock or Pre-Funded Warrants, as the case may be, and the Investor Warrants can only be purchased together in this offering but the securities contained in the Units or Pre-Funded Units will be issued separately.

The final public offering price per Unit and Pre-Funded Unit, and the exercise price of the Investor Warrants, as applicable, will be determined through negotiation between the underwriters and us at the time of pricing, considering our historical performance and capital structure, prevailing market conditions, and overall assessment of our business, and may be at a discount to the current market price. The price at which our Common Stock was quoted on the OTCQB may not be indicative of the actual public offering price for the Units or of the price at which our Common Stock may trade on the Nasdaq Capital Market or an Alternate Exchange in the future.

In connection with this offering, we intend to effect a reverse stock split of our Common Stock at a ratio of between 1.5-for-1 and 20-for-1, with the exact ratio to be determined by our Board of Directors prior to effecting the reverse stock split. The information in this prospectus has not been adjusted to reflect the anticipated reverse stock split.

We are a “smaller reporting company” as defined under the federal securities laws and, as such, are eligible for reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary - Implications of Being a Smaller Reporting Company”.

Investing in our securities involves a high degree of risk. Before making any investment in our securities, you should read and carefully consider the risks described in this prospectus under the heading “Risk Factors” beginning on page 15 of this prospectus.

You should rely only on the information contained in this prospectus or any prospectus supplement or amendment thereto. We have not authorized anyone to provide you with different information.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We have granted the underwriters an option, exercisable within 45 days from the date of this prospectus, to purchase from us, up to an additional 1,012,500  shares of Common Stock at the public offering price and/or Investor Warrants to purchase up to 1,012,500  shares of Common Stock (equal to 15% of the shares of Common Stock (and Pre-Funded Warrants, if any) and Investor Warrants sold in this offering), in any combination, at a price per Investor Warrant equal to the public offering price, less, in each case, the underwriting discounts and commissions, to cover over-allotments, if any. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable will be $ , and the total proceeds to us, before expenses, will be $ .

The underwriters expect to deliver the securities to the purchasers on or about , 2023.

Sole Book-Running Manager

Dawson James Securities, Inc.

The date of this prospectus is , 2023

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

This prospectus relates to the primary offering and sale by Arch Therapeutics, Inc. of 6,750,000 Units, each consisting of one share of Common Stock and one Investor Warrant to purchase one share of Common Stock. This prospectus also registers up to 337,500 shares (or 388,125 shares if the underwriters exercise their over-allotment option in full) of Common Stock issuable upon exercise of the Underwriter Warrants.

We are also offering to each purchaser whose purchase of Units in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding Common Stock immediately following the consummation of this offering, if the purchaser so chooses, Pre-Funded Units (each Pre-Funded Unit consisting of one Pre-Funded Warrant to purchase one share of Common Stock and one Investor Warrant to purchase one share of Common Stock) in lieu of Units that would otherwise result in the purchaser’s beneficial ownership exceeding 4.99% of our outstanding Common Stock (or at the election of the purchaser, 9.99%).

We have not, and the underwriters have not, authorized anyone to provide you with information that is different from that contained in this prospectus. When you make a decision about whether to invest in our securities, you should not rely upon any information other than the information in this prospectus. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful.

For investors outside the United States: We have not, and the underwriters have not, taken any action that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities covered hereby and the distribution of this prospectus outside the United States.

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

We further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to this registration statement of which this prospectus forms a part, and you may obtain copies of those documents as described below under the heading “Where You Can Find More Information” beginning on page 109 of this prospectus.

As used in this prospectus, unless the context indicates or otherwise requires, the “Company”, “we”, “us”, “our” and “Arch” refer to Arch Therapeutics, Inc., a Nevada corporation, and its consolidated subsidiary, and the term “ABS” refers to Arch Biosurgery, Inc., a private Massachusetts corporation that, through a reverse merger acquisition completed on June 26, 2013, has become our wholly owned subsidiary.

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 subsidiary. All other trademarks, trade names and service marks included in this prospectus are the property of their respective owners.

This prospectus and the information incorporated by reference into this prospectus contain references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus and the information incorporated by reference into this prospectus, including logos, artwork, and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks, uncertainties and assumptions. In some cases, you can identify forward-looking statements by terminology such as “if,” “shall,” “may,” “might,” “will likely result,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “intend,” “goal,” “objective,” “predict,” “potential” or “continue,” or the negative of these terms or other comparable terminology. All statements made in this prospectus other than statements of historical fact are statements that could be deemed forward-looking statements, including without limitation statements about our business plan, our plan of operations and our need to obtain future financing. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” beginning on page 15 of this prospectus, and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation, risks related to:

New risks emerge in our rapidly-changing industry from time to time. As a result, it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business. If any such risks or uncertainties materialize or such assumptions prove incorrect, our results could differ materially from those expressed or implied by such forward-looking statements and assumptions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. These forward-looking statements speak only as of the date of this prospectus. Except as required by applicable law, we do not intend to update any of these forward-looking statements.

PROSPECTUS SUMMARY

This summary highlights selected information from this prospectus and does not contain all of the information that is important to you in making an investment decision. This summary is qualified in its entirety by the more detailed information included elsewhere in this prospectus. Before making your investment decision with respect to our securities, you should carefully read this entire prospectus, including the information under “Risk Factors,” beginning on page 15 of this prospectus, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” beginning on page 45, and the financial statements and the accompanying notes beginning on page F-1 of this prospectus.

Our Company

We are a biotechnology company marketing a number of products based on our innovative AC5® self-assembling technology platform. We believe these products are important advances in the field of stasis and barrier applications, which includes managing wounds created during surgery, trauma, interventional care or disease; stopping bleeding (hemostasis); and controlling leaking (sealant). We have recently devoted substantially all of our operational effort to the market adoption and commercial sales of AC5® Advanced Wound System, our first product. Our goal is to make care faster and safer for patients with 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.

Our flagship products and product candidates are derived from our AC5® self-assembling peptide (“SAP”) technology platform and are sometimes referred to as AC5 or the “AC5 Devices.” These include AC5 Advanced Wound System and AC5® Topical Hemostat, which have received marketing authorization as medical devices in the United States and Europe, respectively, and which are intended for skin applications, such as management of complicated chronic wounds or acute surgical wounds. Marketing for AC5 Topical Hemostat in Europe 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™ and 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 proprietary 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 tissue and self-assemble (i.e., self-build) 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:

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 SAP technology permits cell and tissue growth and is self-healing, in that it can dynamically self-repair around migrating cells. For instance, 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 for wounds inside or on the body, including those for which a hemostatic agent or 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 (“TTH”) 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 U.S. 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.

We currently maintain an internal commercial team focused on driving 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 Affairs (“VA”) hospitals and military treatment facilities (“MTFs”). We anticipate that material growth in the physician office setting will require product reimbursement. To that end, we submitted an application to the Centers for Medicare and Medicaid Services (“CMS”) in July 2022 for a unique product reimbursement code. Our application was subsequently approved with a go-live date of April 1, 2023. We have launched a temporary reimbursement support program in line with CMS guidance to support commercial use and adoption of AC5 Advanced Wound System both before and after the go-live date of our unique product code (A2020). In support of the VA and MTF market, we partnered with Lovell Government Services (“LGS”), a service-disabled veteran-owned small business, as its distributor in the government channel. As a direct result of its relationship with LGS, AC5 Advanced Wound System is listed on the four major government supply schedules (ECAT, DAPA, FSS and GSA) in order to allow doctors in any VA or MTF to order AC5 Advanced Wound System. We have also established and 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 U.S. 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:

In furtherance of our long-term business goals, we expect to continue to focus on the following activities during the next twelve months:

We believe that our current cash on hand as of September 15, 2023 is sufficient to meet our anticipated cash requirements into the first fiscal quarter of 2024, and we must obtain additional financing in order to continue to operate our business. Even if this offering is successful, depending upon additional input from EU and US regulatory authorities, however, we do not expect to generate sufficient revenues from operations before we 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 in this prospectus under the heading “Risk Factors” beginning on page 15, in which case our current funds may not be sufficient to operate our business for the period we expect.

Additionally, 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 Bridge SPA (as defined below) and securities purchase agreement dated July 6, 2022, as amended (the “2022 Notes SPA”), associated with the sale of the 2022 Notes (as defined below) (the “2022 Notes Financing”), in each case as described in greater detail in the risk factor entitled “The terms of the Bridge Offering and 2022 Notes Financing could impose additional challenges on our ability to raise funding in the future ” under the heading “Risk Factors” in this prospectus.

We have an aggregate of $6,268,501 in principal outstanding as of September 15, 2023 under the 2022 Notes and an aggregate of $587,959 in principal and accrued interest outstanding as of September 15, 2023 (calculated through maturity) under the Series 2 Notes (as defined below). The holders of the First Notes (as defined below) have been granted a security interest in substantially all of our assets pursuant to the terms of the security agreement dated July 6, 2022 (the “Security Agreement”), pursuant to which we provided a security interest in, and a lien on, substantially all of our assets as collateral for the repayment of the First Notes. If we fail to make payments on the First Notes when due or otherwise comply with the covenants contained in the First Notes, the First Note holders could declare us in default, in which event such holders would have the right to exercise their rights as a secured creditor with respect to our assets that secure the indebtedness, which would force us to suspend operations.

Proposed Listing on the Nasdaq Capital Market or an Alternate Exchange

Our Common Stock is presently quoted on the OTCQB under the trading symbol “ARTH.” In connection with this offering, we have applied to list our Common Stock and Investor Warrants on the Nasdaq Capital Market under the symbols “ARTH” and “ARTHW ,” respectively. Although we have applied to list the Investor Warrants, there is no established public trading market for the Investor Warrants and without an active trading market, the liquidity of the Investor Warrants will be limited. No assurance can be given that our listing application for our Common Stock and Investor Warrants will be approved by the Nasdaq Capital Market or an Alternate Exchange. If our listing application is approved, our Common Stock will cease to be traded on the OTCQB. This offering will occur only if the Nasdaq Capital Market or an Alternate Exchange approves the listing of our Common Stock by October 31, 2023. The Nasdaq Capital Market and Alternate Exchange listing requirements include, among other things, a stock price threshold. As a result, prior to effectiveness, we will need to take the necessary steps to meet Nasdaq Capital Market listing requirements or the listing requirements of an Alternate Exchange, including but not limited to a reverse split of our outstanding shares of Common Stock.

Implications of Being a Smaller Reporting Company

We are a “smaller reporting company,” meaning that the market value of our Common Stock held by non-affiliates is less than $700 million and our annual revenue is less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250 million as of the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Corporate Information

Arch Therapeutics, Inc. (together with its subsidiary, the “Company” or “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.

Arch Biosurgery, Inc. (“ABS”) is a biotechnology company that was incorporated under the laws of the Commonwealth of Massachusetts on March 6, 2006 as Clear Nano Solutions, Inc., changed its name from Clear Nano Solutions, Inc. to Arch Therapeutics, Inc. on April 7, 2008, and, as part of the Merger transaction, changed its name from Arch Therapeutics, Inc. to Arch Biosurgery.

Almah, Inc., was incorporated under the laws of the State of Nevada on September 16, 2009 and, as part of the Merger transaction, changed its name to Arch Therapeutics, Inc. and abandoned both its prior business plan and operations in order to adopt those of ABS.

Arch Acquisition Corporation, or Merger Sub, 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 thereafter became the wholly owned subsidiary of the Company.

Prior to the completion of the Merger, we were a “shell company” under applicable rules of the SEC, and had no or nominal assets or operations.

Our principal executive offices are located at 235 Walnut St., Suite 6, Framingham, Massachusetts 01702. The telephone number of our principal executive offices is (617) 431-2313. Our website address is http://www.archtherapeutics.com. We have not incorporated by reference into this prospectus the information on, or that can be accessed through, our website, and you should not consider it to be a part of this document. You should not rely on any information on that website in making your decision to purchase shares of our Common Stock.

Recent Developments

Charter Amendments

On July 18, 2023, the board of directors of the Company (the “Board”) adopted resolutions by unanimous written consent, pursuant to which the Board determined that it is advisable and in ‎the best interests of the Company to ‎amend the Certificate of Incorporation of the ‎Company (the “Amendment”) to (i) increase the total number of authorized shares of Common Stock from 12,000,000 to 350,000,000 (the “Authorized Share Increase”), (ii) authorize 5,000,000 shares of “blank check” preferred stock of the Company, thereby giving the Board the authority to designate from time to time one or more series of preferred stock (the “Blank Check Preferred”), and (iii) provide for a reverse stock split of the outstanding Common Stock, at a ratio within a range of 1.5-for-1 to 20-for-1, with the exact ratio to be determined by the Board subsequent to the applicable approval by the Company’s stockholders, within 1 year following the date of such approval, and without correspondingly decreasing the number of authorized shares of Common Stock (the “Reverse Split” and, together with the Authorized Share Increase and the Blank Check Preferred, the “Charter Amendments”). On August 22, 2023, stockholders representing a majority of the voting power of the then outstanding shares of voting stock of the Company (the “Majority Stockholders”) executed a written consent approving the Charter Amendments and the Company filed a preliminary Information Statement with the SEC with respect to the transactions contemplated hereby. The Company filed a definitive Information Statement with the SEC and mailed the definitive Information Statement to the Company’s stockholders notifying them of the action taken by written consent on September 1, 2023. Accordingly, the Company filed the Amendment with respect to the Authorized Share Increase and the Blank Check Preferred with the Secretary of State of Nevada on September 21, 2023. The Company intends to effect the Reverse Split prior to the pricing of this offering.

Bridge and Note Financings

Bridge Offering

Between July 7, 2023 and September 11, 2023, pursuant to a Securities Purchase Agreement dated July 7, 2023, as subsequently amended (the “Bridge SPA”), among the Company and certain institutional and accredited individual investors (collectively, the “Bridge Investors”) the Company issued and sold to the Bridge Investors an aggregate of (i) 3,344,321 shares (the “Bridge Shares”) of Common Stock; (ii) warrants (the “Bridge Pre-Funded Warrants”) to purchase an aggregate of 6,054,942 shares of Common Stock (the “Bridge Pre-Funded Warrant Shares”); and (iii) warrants (the “Common Warrants” and together with the Bridge Pre-Funded Warrants, the “Bridge Warrants”) to purchase an aggregate 18,798,526 shares of Common Stock (the “Common Warrant Shares” and together with the Bridge Pre-Funded Warrant Share, the “Bridge Warrant Shares”), at a purchase price of $0.275 per Bridge Share and accompanying Common Warrant to purchase two shares of Common Stock, and $0.274 per Bridge Pre-Funded Warrant to purchase one share of Common Stock and accompanying Common Warrant to purchase two shares of Common Stock. The Shares, Bridge 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 Bridge SPA, the Bridge 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”), which this offering is intended to be, with an aggregate purchase price equal to at least 4.3 multiplied by the aggregate purchase price paid by the Bridge Investor for the Bridge Shares and Bridge Warrants under the Bridge SPA or (B) be subject to a lock-up provision not to sell or otherwise transfer any of the Bridge Shares or Bridge Warrant Shares acquired by them in the Bridge Offering until the one-year anniversary of the Bridge Closing Date (as defined below). The aggregate gross proceeds for the sale of the Bridge Shares, Bridge Pre-Funded Warrants, and Common Warrants was approximately $2.6 million, before deducting the placement agent’s fees and other estimated fees and offering expenses payable by the Company. The first closing of the sales of these securities under the Bridge SPA occurred on July 7, 2023 (the “Bridge Closing Date”).

Under the Bridge SPA, the Company also agreed that upon the closing of the next underwritten public offering of Common Stock (a “Qualifying Offering”), if the effective offering price to the public per share of Common Stock (the “Qualifying Offering Price”) is lower than the $4.00 per share, then the Company shall issue additional Bridge Pre-Funded Warrants in an amount reflecting a reduction in the purchase price paid for the Bridge Shares and Bridge Pre-Funded Warrants that equals the proportion by which the Qualifying Offering Price is less than the $4.00.

The Company retained Dawson James Securities, Inc. (“DJ”) as placement agent in connection with the Bridge Offering. The Company paid DJ a cash fee equal to 8.0% of the aggregate gross proceeds of the Bridge Offering and reimbursement of expenses of $50,000. Additionally, on September 7, 2023 the Company issued to DJ, or its designees, warrants (the “Placement Agent Warrants”) to purchase an aggregate of 441,938 shares of Common Stock. The Placement Agent Warrants are exercisable at any time and from time to time, in whole or in part, during the five-year period commencing March 7, 2024, at a price per share equal to $0.275.

Bridge Pre-Funded Warrants

The Bridge Pre-Funded Warrants (i) have a nominal exercise price of $0.001 per share; (ii) are exercisable after the earlier of (A) the six-month anniversary after the date of issuance, (B) 120 days after the closing date of an Uplist Transaction, and (C) the date that a registration statement registering the Bridge Pre-Funded Warrant Shares is declared effective; (iii) are exercisable until all of the Bridge Pre-Funded Warrants are exercised in full; and (iv) have a provision preventing the exercisability of such Bridge Pre-Funded Warrants if, as a result of the exercise of the Bridge Pre-Funded Warrants, 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 either 4.99% or 9.99% of the Common Stock (the “Ownership Limitation”) immediately after giving effect to the exercise of the Bridge Pre-Funded Warrants.

Common Warrants

The Common Warrants (i) have an exercise price of $1.00 per share; (ii) have a term of exercise equal to 5 years after their issuance date; (iii) are exercisable after the earlier of (A) the six-month anniversary after the date of issuance and (B) the date that a registration statement registering the Common Warrant Shares is declared effective; (iv) have a provision permitting voluntary adjustments to the exercise price by the Company, subject to the prior written consent of the Common Warrant holder; (v) are automatically exchanged upon the closing of an Uplist Transaction for a new warrant that is identical to the warrants (other than any pre-funded warrants), if any, being issued to investors in such Uplist Transaction, with the number of shares underlying such new warrant being equal to the number of Common Warrant Shares then underlying the Common Warrant multiplied by three and (vi) have a provision preventing the exercisability of such Common Warrants if, as a result of the exercise of the Common Warrants, the holder, together with its affiliates and any other persons whose beneficial ownership of Company Common Stock would be aggregated with the holder’s, would be deemed to beneficially own more than the Ownership Limitation immediately after giving effect to the exercise of the Common Warrants. Accordingly, at the closing of this offering, the Common Warrants will be cancelled and exchanged for newly issued warrants identical to the Investor Warrants to purchase an aggregate of 56,395,578 shares of Common Stock at an exercise price per share equal to the exercise price per share of the Investor Warrants (the “Exchange Investor Warrants”).

Registration Rights Agreement

The Company also entered into a registration rights agreement with the Bridge Investors dated July 7, 2023, as subsequently amended (the “Registration Rights Agreement”), pursuant to which the Company is obligated, subject to certain conditions, to file with the Securities and Exchange Commission within the earlier of (i) 30 days following the closing date of the Uplist Transaction and (ii) October 31, 2023 one or more registration statements (any such registration statement, a “Resale Registration Statement”) to register the Shares, the Bridge Warrant Shares, the shares of Common Stock issuable upon exercise in full of the Exchange Investor Warrants (the “Exchange Investor Warrant Shares”) and the shares of Common Stock issuable upon exercise in full of the Participating Pre-Funded Warrant (as defined below) (the “Conversion Warrant Shares”) for resale under the Securities Act of 1933, as amended (the “Securities Act”). The Company’s failure to satisfy certain filing and effectiveness deadlines with respect to a Resale Registration Statement and certain other requirements set forth in the Registration Rights Agreement may subject the Company to payment of monetary penalties.

Note Modification Agreements

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 Senior Secured Convertible Promissory Notes, as separately amended on February 14, 2023, March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, July 31, 2023, August 30, 2023 and September 30, 2023 (as amended, the “First Notes”), issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On July 7, 2023, the Company also entered into an amendment (“Amendment No. 8 to the Second Notes”) with the holders of the Company’s outstanding Unsecured Convertible Promissory Notes, as separately amended on February 14, 2023, March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, July 31, 2023, August 30, 2023 and September 30, 2023 (as amended, the “Second Notes”), issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”). On July 7, 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 Unsecured Convertible Promissory Notes, as separately amended on June 15, 2023, July 1, 2023, July 31, 2023, August 30, 2023 and September 30, 2023 (as amended, the “Third Notes” and, together with the First Notes and Second Notes, the “2022 Notes”), 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 will be simultaneously effective upon the closing of the Uplist Transaction. The Specified Percentage (as defined below) of the then outstanding principal amount of the 2022 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 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 (such criteria in clauses (i) and (ii) above, the “Participation Criteria”), 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 90^th 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 as determined by each Holder thereof); provided, that in no event shall the Specified Percentage for the 2022 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.

Further, on September 30, 2023, the Company entered into an amendment (“Amendment No. 11 to the First Notes”) to the First Notes, an amendment (“Amendment No. 11 to the Second Notes”) to the Second Notes and an amendment (“Amendment No. 6 to the Third Notes” and, together with Amendment No. 11 to the First Notes and Amendment No. 11 to the Second Notes, the “September Amendments to the 2022 Notes”) to the Third Notes. The September Amendments to the 2022 Notes extend the deadline by which the Company must close the Uplist Transaction to October 31, 2023 and provide that upon the Automatic Conversion and to the extent that a Holder’s beneficial ownership would increase over the applicable Ownership Limitation, the Holder will receive pre-funded warrants (the “2022 Note Conversion Pre-Funded Warrants”) in lieu of shares of Common Stock otherwise issuable to the Holder in connection with the Automatic Conversion, which 2022 Note Conversion Pre-Funded Warrants shall have an exercise price of $0.001 per share, may be exercised on a cashless basis, shall be exercisable immediately upon issuance and shall contain a customary beneficial ownership limitation provision.

Accordingly, it is currently anticipated that the Specified Percentage will be 50%, and thus, at the closing of this offering: (i) an aggregate of 1,567,127 shares of Common Stock (assuming no issuance of 2022 Note Conversion Pre-Funded Warrants) will be issued upon the Automatic Conversion of an aggregate of $3,134,250 of principal amount under the 2022 Notes, representing 50% of the $6,268,501 in principal amount currently outstanding under the 2022 Notes, based on the assumed offering price of $2.00 per Unit in this offering; and (ii) assuming that all Holders fulfill the Participation Criteria, the Holders will be issued Participating Pre-Funded Warrants to purchase an aggregate of 7,522,203 shares of Common Stock, based on a Specified Number of 2.4 multiplied by the $3,134,250 of principal amount converted in the Automatic Conversion.

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, amending the 2022 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 and 2022 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.

2022 Notes

The 2022 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 issuance date until the 2022 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. The 2022 Notes mature January 6, 2024. Any amount of principal or interest on the 2022 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. As of September 15, 2023, the outstanding unpaid principal balance including all accrued interest under the 2022 Notes totaled $6,935,071.

The 2022 Notes are convertible into shares of Common Stock at the option of each Holder from the date of issuance at $9.14 (the “Conversion Price”), subject to adjustment, 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).

The 2022 Notes contain 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; and (ii) our failure to complete an Uplist Transaction by October 31, 2023.

The 2022 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 if, as a result of the exercise of the 2022 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. As long as the 2022 Notes and 2022 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, except for any offering conducted in connection with the Uplist Transaction which this offering is intended to be, the Company has an obligation to notify the holders of the 2022 Notes and 2022 Warrants of such more favorable terms, and to use best efforts to effect such terms in the 2022 Notes and 2022 Warrants.

As discussed above, it is currently anticipated that 50% of the of the $6,268,501 unpaid principal balance currently outstanding under the 2022 Notes will convert into 1,567,127 shares of Common Stock (assuming no issuance of 2022 Note Conversion Pre-Funded Warrants) in connection with the Automatic Conversion.

Under the Second Amended and Restated Registration Rights Agreement, dated as of May 15, 2023, as amended, the Company is required to file a registration statement registering the securities issued in the Second Closing and Third Closing, including the applicable 2022 Notes and 2022 Warrants, no later than 45 days following the closing of the Uplist Transaction.

Series 1 and 2 Convertible 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, as amended (“Series 2 Notes”, and collectively with the Series 1 Notes, the “Series Convertible Notes”). 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, which had an aggregate of $718,918 of principal and interest outstanding at the time of conversion.

As of September 15, 2023, there was $587,959 of principal and accrued interest (through maturity) outstanding under the Series 2 Notes. The Series 2 Notes have a “Conversion Price” of $50.00 and allow the Company to convert all obligations thereunder upon the Uplist Transaction, or the maturity date, using the Conversion Price and multiplying the obligations then outstanding by 4.5. Accordingly, it is currently anticipated that an aggregate of 52,917 shares of Common Stock will be issued at the closing of this offering upon the conversion of the remaining outstanding amount under the Series 2 Notes.

Bylaw Amendments

On July 18, 2023, the Board approved an amendment to the Amended and Restated Bylaws of the Company (the “Bylaw Amendment”), effective immediately. The Bylaw Amendment amended the Amended and Restated Bylaws (i) to allow stockholders of the Company to take action by written consent without a meeting with not less than the minimum number of votes that would be necessary to take such action if the matter was presented at a meeting of stockholders at which all shares entitled to vote thereon were present and voted, subject to certain limitations and (ii) to provide that in in the absence of a quorum, the chairman of a stockholder meeting can adjourn the meeting, respectively.

Equity Incentive Plan

Effective August 13, 2023, the Board adopted and approved the Amended and Restated 2023 Equity Incentive Plan (the “2023 Plan”) and reserved 455,169 shares of Common Stock for issuance thereunder to employees, officers, directors and consultants of the Company. The stockholders of the Company approved the plan on August 22, 2023. The Plan has a term of 6 years and is intended to replace the Company’s 2013 Stock Incentive Plan, which expired on June 18, 2023.

The general purpose of the 2023 Plan is to provide a means whereby eligible employees, officers, non-employee directors, consultants, advisors, and other individual service providers may develop a sense of proprietorship and personal involvement in the Company’s development and financial success, and to encourage them to devote their best efforts to the Company, thereby advancing the Company’s interests and the interests of stockholders of the Company. The 2023 Plan permits the Company to grant a variety of forms of awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, and dividend equivalent rights, to allow the Company to adapt its incentive compensation program to meet its needs.

In addition, the number of shares of Common Stock available for issuance under the 2023 Plan will automatically increase on October 1^st of each fiscal year of the Company commencing with October 1, 2023, and on each October 1 thereafter until the 6^th anniversary of the date of the 2023 Plan’s initial adoption by the Board, in an amount equal to five percent (5%) of the total number of shares of Common Stock outstanding on September 30^th of the preceding fiscal year. Furthermore, effective at the close of business on the date of the closing (the “Uplist Date”) of the public offering in connection with which the Common Stock becomes tradeable on a national exchange and on the first day of each fiscal quarter of the Company thereafter until the earlier of (i) the five-year anniversary of the Uplist Date and (ii) October 31, 2028, the number of shares of Common Stock available for issuance under the 2023 Plan shall automatically increase by an amount equal to fifteen percent (15%) of the incremental number of shares of Common Stock, if any, issued by the Company (x) with respect to the “Bridge Offering,” including without limitation “Pre-Funded Warrant Shares” and “Common Warrant Shares,” the “Uplist Transaction” and/or a “Qualifying Offering” (as such terms are defined in the 2023 Plan), (y) with respect to the Uplist Date, since the date on which the stockholders ratified the 2023 Plan, and (z) with respect to each fiscal quarter thereafter, during the previous fiscal quarter (excluding in each case shares of Common Stock issued pursuant to awards under the 2023 Plan); provided, however, that shares of Common Stock issued in connection with any such Qualifying Offering shall not be taken into account except to the extent, if any, that such shares are issued with respect to shares of Common Stock issued in connection with the Bridge Offering and/or the Uplist Transaction.

The Offering

Except as indicated otherwise, the discussion above assumes no sale of any Pre-Funded Units, no issuance of any 2022 Note Conversion Pre-Funded Warrants and no exercise of the underwriters’ option to purchase up to 1,012,500 additional shares of Common Stock and/or Investor Warrants to purchase up to 1,012,500 additional shares of Common Stock.

RISK FACTORS

Investment in our securities involves a high degree of risk. You should carefully consider the risks that are summarized below and discussed in greater detail in the following pages, together with the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before making an investment decision. If any of the following risks and uncertainties actually occur, our business, financial condition, and results of operations could be negatively impacted, and you could lose all or part of your investment.

Risk Factor Summary

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 subsidiary. For purposes herein, references to regulatory approval and marketing authorization may be used interchangeably.

Risks Related to our Business, Financial Position and Capital Requirements

There is substantial doubt about our ability to continue as a going concern. Even if this offering is successful, we will need additional funding to continue our operations and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts and could cause our business to fail.

We have only recently commenced commercial sales of our first product, AC5 Advanced Wound System, and we have incurred substantial net losses as a result. We believe that our current cash on hand as of September 15, 2023 is sufficient to meet our anticipated cash requirements into the first fiscal quarter of 2024, and we must obtain additional financing in order to continue to operate our business. Even if this offering is successful, we will need to secure additional resources to support our continued operations.

We have obtained additional cash from debt and equity financings during the last several fiscal quarters to continue operations and fund our planned future operations, which include research and development of our product candidates, steps related to seeking regulatory marketing authorization for our initial product candidates, and planning for their commercialization in the U.S. and Europe. Even with the additional funds received from these financings, there exists substantial doubt about our ability to continue as a going concern. In addition, our plans may change and/or we may use our capital resources more rapidly than we currently anticipate. We presently expect that our expenses will increase in connection with our ongoing activities to support our business operations, inclusive of regulatory submissions, marketing authorization, and commercialization of our product candidates and products, and, therefore, we will require additional funding.

We intend to obtain additional financing for our business through public or private securities offerings, the incurrence of additional indebtedness, or some combination of those sources. We may also seek funding through collaborative arrangements with strategic partners if we determine them to be necessary or appropriate, although these arrangements could require us to relinquish rights to our technology or product candidates and could result in our receipt of only a portion of any revenues associated with the partnered product. We cannot provide any assurance that additional financing from these sources will be available on favorable terms, if at all.

In addition, 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 Bridge SPA and 2022 Notes SPA, associated with the 2022 Notes Financing, in each case as described in greater detail in the risk factor entitled “The terms of the Bridge Offering and 2022 Notes Financing could impose additional challenges on our ability to raise funding in the future ” below.

These restrictions and provisions could make it more challenging for us to raise capital through the incurrence of additional debt or through future equity issuances. Further, if we do raise capital through the sale of equity, or securities convertible into equity, the ownership of our then existing stockholders would be diluted, which dilution could be significant depending on the price at which we may be able to sell our securities. Also, if we raise additional capital through the incurrence of indebtedness, we may become subject to covenants restricting our business activities, and the holders of debt instruments may have rights and privileges senior to those of our equity investors. Finally, servicing the interest and principal repayment obligations under any debt facilities that we may enter into in the future could divert funds that would otherwise be available to support research and development, clinical or commercialization activities.

If we are unable to obtain adequate financing on a timely basis or on acceptable terms in the future, we would likely be required to delay, reduce or eliminate one or more of our product development activities, which could cause our business to fail.

We have incurred significant losses since inception. We expect to continue to incur losses for the foreseeable future, and we may never increase revenue or achieve or maintain profitability.

As noted above under the risk factor entitled “There is substantial doubt about our ability to continue as a going concern,” we have only recently commenced commercial sales of our first product, AC5 Advanced Wound System, and we have incurred substantial net losses as a result. Consequently, we have incurred losses in each year since our inception and we expect that losses will continue to be incurred in the foreseeable future in the operation of our business. To date, we have financed our operations primarily through equity and debt investments by founders, other investors and third parties, and we expect to continue to rely on these sources of funding, to the extent available in the foreseeable future. Losses from operations have resulted principally from costs incurred in research and development programs and from general and administrative expenses, including significant costs associated with establishing and maintaining intellectual property rights, significant legal and accounting costs incurred in connection with both the closing of the Merger and complying with public company reporting and control obligations, and personnel expenses. In addition, we expect to continue to incur additional general and administrative expenses due to the costs associated with being a public company, including obligations to regulatory agencies, and increased investor relations and corporate communications expenses. We have devoted much of our operational effort to date to the research and development of our core technology, including selecting our initial product composition, conducting safety and other related tests, conducting a human trial for safety and performance, developing methods for manufacturing scale-up, reproducibility and validation, and developing and protecting the intellectual property rights underlying our technology platform. We have recently devoted substantially all of our operational effort to continue the ongoing commercialization and market adoption of AC5 Advanced Wound System, our first product.

We expect to continue to incur significant expenses and anticipate that those expenses and losses may increase in the foreseeable future as we:

To become and remain profitable, we must successfully market AC5 Advanced Wound System and succeed in developing and eventually commercializing other product candidates with significant market potential. This will require us to be successful in a number of challenging activities, including successfully completing preclinical testing and clinical trials of product candidates, obtaining regulatory marketing authorization for our product candidates and manufacturing, marketing and selling any products for which we have or may obtain marketing authorization. We are only in the preliminary stages of many of those activities. We may never succeed in those activities and may never generate sufficient operating revenues to achieve profitability. Even if we do generate operating revenues sufficient to achieve profitability, we may not be able to sustain or increase profitability. Our failure to generate sufficient operating revenues to become and remain profitable would impair our ability to raise capital, expand our business or continue our operations, all of which would depress the price of our Common Stock. A further decline or lack of increase in the price of our Common Stock could cause our stockholders to lose all or a part of their investment in the Company.

The terms of the Bridge Offering and 2022 Notes Financing could impose additional challenges on our ability to raise funding in the future.

The Bridge SPA contains certain restrictions on the Company’s ability to conduct subsequent sales of its equity securities and certain business activities. In particular, until July 7, 2024, the Company will be prohibited from effecting or entering into agreements to effect any issuance by the Company, or any of its subsidiaries, of Common Stock or Common Stock equivalents (or a combination of units thereof) involving a variable rate transaction.

The 2022 Notes SPA contains certain restrictions on our ability to conduct subsequent sales of our equity securities and certain business activities. In particular, until the 2022 Notes are paid in full and/or converted in full and the 2022 Warrants are exercised in full, we are prohibited from (i) changing the nature of business, (ii) selling, divesting, acquiring, or changing the structure of any material assets other than in the ordinary course of business; or (iii) negotiating or entering into certain variable rate debt transactions; in each instance without each applicable 2022 Note holder’s prior written consent, which shall not be unreasonably withheld. In addition, the 2022 Notes, as amended, 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.

Our obligations under the First Notes are secured by security interests in substantially all of our assets and our failure to comply with the terms and covenants of the First Notes could result in our loss of substantially all of our assets.

Our obligations under the First Notes and the related transaction documents are secured by a security interest in substantially all of our assets. As a result, if we default on our obligations under such First Notes, the First Note holders could foreclose on the security interests and liquidate some or all of our assets, which would harm our business, financial condition and results of operations and could require us to reduce or cease operations.

In connection with the First Closing, the First Note holders were granted a security interest in substantially all of our assets pursuant to the terms of the Security Agreement. If we fail to make payments on the First Notes when due or otherwise comply with the covenants contained in the First Notes, the First Note holders could declare us in default, in which event such holders would have the right to exercise their rights as a secured creditor with respect to our assets that secure the indebtedness, which would force us to suspend operations.

In addition, the 2022 Notes contain customary events of default, which include, among other things, (i) our failure to pay when due any principal or interest payment under the 2022 Notes; (ii) our insolvency; (iii) delisting of our Common Stock; (iv) our breach of any material covenant or other material term or condition under the 2022 Notes; and (v) our breach of any representations or warranties under the 2022 Notes which cannot be cured within five (5) days. Further, events of default under the 2022 Notes also include (i) the unavailability of Rule 144 at certain times; (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 Notes; (iii) our loss of the “bid” price for our Common Stock and/or a market and such loss is not cured during the specified cure periods; and (iv) our failure to complete an Uplist Transaction by October 31, 2023.

The 2022 Note holders have certain additional rights upon an event of default under such notes, which could harm our business, financial condition, and results of operations and could require us to reduce or cease our operations.

Under the 2022 Notes, the holders have certain rights upon an event of default. Such rights include that, upon an event of default, the 2022 Notes will become immediately due and payable and we will be obligated to pay to each such note holder an amount equal to the Default Premium multiplied by the sum of the outstanding principal amount of such notes plus any accrued and unpaid interest on the unpaid principal amount of such notes to the date of payment, plus any Default Interest and any other amounts owed to the holder under the SPA, or the Default Amount; provided that, upon any subsequent event of default not in connection with the first event of default, such holder shall be entitled to an additional 5% to the Default Premium for each subsequent event of default. At the election of each 2022 Note holder, the Default Amount may be paid in cash or shares of Common Stock equal to the Default Amount divided by the $9.14 (subject to adjustment as more specifically set forth in the 2022 Notes) at the time of payment.

In addition, the 2022 Notes are subject to prepayment penalties, subject to adjustment as a result of certain time-based prepayment premiums set forth in such notes; provided, that, the written consent of the lead investor is not required in connection with a prepayment made from the proceeds of an Uplist Transaction. The 2022 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 July 6, 2022 until such notes become due and payable on the Maturity Date or upon their conversion, acceleration or by prepayment. Any amount of principal or interest on the 2022 Notes which is not paid when due will bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum or (ii) the Default Interest.

We may not have sufficient funds to pay the Default Amount and, as described above, this could trigger rights under the security interest granted to the holders and result in the foreclosure of their security interests and liquidation of some or all of our assets. The exercise of any of these rights upon an event of default could substantially harm our financial condition, substantially dilute our other stockholders and force us to reduce or cease operations and cause our stockholders to lose all or a part of their investment in the Company.

General economic factors may adversely affect our financial performance.

General economic conditions may adversely affect our financial performance. In the United States, changes in interest rates, changes in fuel and other energy costs, weakness in the housing market, inflation or deflation or expectations of either inflation or deflation, higher levels of unemployment, decreases in discretionary consumer spending or consumer demand, unavailability or limitations of consumer credit, higher consumer debt levels or efforts by consumers to reduce debt levels, higher tax rates and other changes in tax laws, overall economic slowdown, changes in consumer desires affecting demand for the products we sell and other economic factors could adversely affect consumer demand for the products we sell, change the mix of products we sell to a mix with a lower average gross margin and result in slower inventory turnover. Higher interest rates, transportation costs, inflation, higher costs of labor, insurance and healthcare, foreign exchange rates fluctuations, higher tax rates and other changes in tax laws, changes in other laws and regulations and other economic factors in the United States or internationally can increase our cost of sales and operating, selling, general and administrative expenses, decrease sales, and otherwise adversely affect our operations and operating results. These factors affect not only our operations, but also the operations of suppliers from whom we purchase goods and services, a condition that can result in an increase in the cost to us of the goods we sell to customers.

The COVID-19 pandemic could continue to affect our suppliers and employees, and cause disruptions in current and future plans for operations and expansion.

The COVID-19 pandemic may continue to directly and indirectly adversely impact our business, financial condition and operating results. The extent to which this will continue will depend on numerous evolving factors that are highly uncertain, rapidly changing and cannot be predicted with precision or certainty at this time.

Our business may continue to be disrupted due to the costs incurred as a result of additional necessary actions and preparedness plans to help ensure the health and safety of our employees and continued operations, including enhanced cleaning processes, protocols designed to implement appropriate social distancing practices, and/or adoption of additional wage and benefit programs to assist employees. We also cannot predict the effect of the COVID-19 pandemic on our supply chain’s reliability and costs.

In addition, our business and operations, and the operations of our suppliers, may continue to be adversely affected by the COVID-19 pandemic. The pandemic, including the related response, could cause disruptions due to potential suspension or slowdown of activities at our third-party suppliers, manufacturing delays, or increased prices implemented by our suppliers. The COVID-19 pandemic has disrupted nearly every aspect of the global supply chain, including the manufacturing or delivery of some of the key supplies used in our tests. We currently utilize third parties to, among other things, manufacture raw materials. If any third party involved in the production of our products, product candidates, or raw materials is adversely impacted by restrictions resulting from the coronavirus outbreak, our supply chain may be disrupted, limiting our ability to manufacture products for research and development operations, clinical trials and, in the case of AC5 Advanced Wound System) and AC5 Topical Hemostat, commercialization.

Finally, while we believe that we currently have sufficient supply of our products to continue commercialization efforts, our products and product candidates or the materials contained therein (such as the Active Pharmaceutical Ingredients (“APIs”) for our AC5 product line) are manufactured from facilities in areas impacted by the coronavirus, which could result in shortages due to ongoing efforts to address the outbreak. If any of the foregoing were to occur, it could materially adversely affect our future revenues, financial condition, profitability, and cash flows.

Unfavorable global political or economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The global credit and financial markets have experienced severe volatility and disruptions in the past several years. A severe or prolonged economic downturn, such as the global financial crisis, could result in a variety of risks to our business, including our ability to raise additional capital when needed on acceptable terms, if at all. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services.

Geopolitical conflicts could potentially affect our sales and disrupt our operations and could have a material adverse impact on the Company.

Geopolitical conflicts, including the recent war in Ukraine, could adversely impact our operations or those of our customers. The extent to which these events impact our operations and those of our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence. If the uncertainty surrounding geopolitical conflicts and in the global marketplace continues, or if we, or any of our customers encounter any disruptions to our or their respective operations or facilities, then we or they may be prevented or delayed from effectively operating our or their business, respectively, and the marketing and sale of our products and our financial results could be adversely affected.

Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from North American and European leaders. These events are currently escalating and creating increasingly volatile global economic conditions. Related sanctions, export controls or other actions have been or may in the future be initiated by nations including the United States, the European Union or Russia (e.g., potential cyberattacks, disruption of energy flows, etc.), which could adversely affect our business and/or our supply chain and other third parties with whom we conduct business. Furthermore, the current military conflict between Russia and Ukraine could disrupt or otherwise adversely impact our operations and those of third parties upon which we rely. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Our operating history may hinder our ability to successfully meet our objectives.

We are transitioning from being strictly a development stage company subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets to a combination commercial stage and development stage company. Our operations to date have been primarily limited to organizing and staffing, developing and securing our technology and undertaking funding preclinical studies of our lead product candidates, and funding one clinical trial. We have not demonstrated our ability to successfully complete large-scale, pivotal clinical trials, reliably obtain regulatory marketing authorizations, manufacture a commercial scale product or arrange for a third-party to do so on our behalf, and we have only recently begun to generate revenue from commercial sales of our first product, AC5 Advanced Wound System, and there can be no assurance that we will be successful in generating increased revenue.

Because of our limited operating history, we have limited insight into trends that may emerge and affect our business, and errors may be made in developing an approach to address those trends and the other challenges faced by development stage companies. Failure to adequately respond to such trends and challenges could cause our business, results of operations and financial condition to suffer or fail. Further, our limited operating history may make it difficult for our stockholders to make any predictions about our likelihood of future success or viability.

If we are not able to attract and retain qualified management and scientific personnel, we may fail to develop our technologies and product candidates.

Our future success depends to a significant degree on the skills, experience and efforts of the principal members of our scientific and management personnel. These members include Terrence Norchi, MD, our President and Chief Executive Officer. The loss of Dr. Norchi or any of our other key personnel could harm our business and might significantly delay or prevent the achievement of research, development or business objectives. Further, our operation as a public company will require that we attract additional personnel to support the establishment of appropriate financial reporting and internal controls systems. Competition for personnel is intense. We may not be able to attract, retain and/or successfully integrate qualified scientific, financial and other management personnel, which could materially harm our business.

If we fail to properly manage any growth we may experience, our business could be adversely affected.

We anticipate increasing the scale of our operations as we seek to develop our product candidates, including hiring and training additional personnel and establishing appropriate systems for a company with larger operations. The management of any growth we may experience will depend, among other things, upon our ability to develop and improve our operational, financial and management controls, reporting systems and procedures. If we are unable to manage any growth effectively, our operations and financial condition could be adversely affected.

We have identified material weaknesses in our internal control over financial reporting. These material weaknesses could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner. If we fail to enhance appropriate internal controls in the future, we may not be able to report our financial results accurately, which may adversely affect our stock price and our business

Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles generally accepted in the United States of America (“GAAP”). As a public company, we are required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. Our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting requires the commitment of significant financial and managerial resources. Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management identified material weaknesses in our internal control over financial reporting relating to a lack of sufficient resources with an understanding of the technical guidance under GAAP related to accounting for complex financial instruments within the 2022 Notes and certain accounting practices relating to the recording of the insurance premium advanced by a third party. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of September 30, 2022.

We are working to remediate the material weaknesses as efficiently and effectively as possible. 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 Chief Financial Officer, undertake additional training on an accelerated basis 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.

If we are unable to enhance effective internal controls, we may not have adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations as a publicly traded company or comply with the requirements of the SEC or the Sarbanes-Oxley Act of 2002. This could result in a restatement of our financial statements, the imposition of sanctions, including the inability of registered broker dealers to make a market in our stock, or investigation by regulatory authorities, all of which is exacerbated by the recent determination of a material weakness related to our internal controls over financial reporting as disclosed herein. Any such action or other negative results caused by our inability to meet our reporting requirements or comply with legal and regulatory requirements or by disclosure of an accounting, reporting or control issue could adversely affect the trading price of our stock and our business.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

We maintain sensitive data pertaining to our Company on our computer networks, including information about our research and development activities, our intellectual property and other proprietary business information. Our internal computer systems and those of third parties with which we contract may be vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures, despite the implementation of security measures. System failures, accidents or security breaches could cause interruptions to our operations, including material disruption of our research and development activities, result in significant data losses or theft of our intellectual property or proprietary business information, and could require substantial expenditures to remedy. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications or inappropriate disclosure of confidential or proprietary information, we could incur liability and our research and development programs could be delayed, any of which would harm our business and operations.

Legal, political and economic uncertainty surrounding the exit of the United Kingdom from the European Union is a source of instability and uncertainty.

Legal, political and economic uncertainty surrounding the exit of the United Kingdom from the European Union (“Brexit”) is a source of instability and uncertainty.

The uncertainty concerning the U.K’s legal, political and economic relationship with the E.U. after the transition period may be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).

These developments, or the perception that any of them could occur, have had, and may continue to have, a significant adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and limit the ability of key market participants to operate in certain financial markets. In particular, it could also lead to a period of considerable uncertainty in relation to the U.K. financial and banking markets, as well as on the regulatory process in Europe. Asset valuations, currency exchange rates and credit ratings may also be subject to increased market volatility.

If the U.K. and the E.U. are unable to negotiate acceptable trading and customs terms or if other E.U. Member States pursue withdrawal, barrier-free access between the U.K. and other E.U. Member States or among the European Economic Area (“E.E.A.”) overall could be diminished or eliminated. The long-term effects of Brexit will depend on any agreements (or lack thereof) between the U.K. and the E.U. and, in particular, any arrangements for the U.K. to retain access to E.U. markets after the transition period. Such a withdrawal from the E.U. is unprecedented, and it is unclear how the U.K. access to the European single market for goods, capital, services and labor within the E.U., or single market, and the wider commercial, legal and regulatory environment, will impact our U.K. operations.

We may also face new regulatory costs and challenges that could have an adverse effect on our operations and development programs. For example, the U.K. could lose the benefits of global trade agreements negotiated by the E.U. on behalf of its members, which may result in increased trade barriers that could make our doing business in the E.U. and the E.E.A. more difficult. There may continue to be economic uncertainty surrounding the consequences of Brexit, which could adversely affect our financial condition, results of operations, cash flows and market price of our Common Stock.

Risks Related to the Development and Commercialization of our Product Candidates

The commercial success of AC5 Advanced Wound System will depend upon the degree of its market acceptance by patients, physicians, healthcare payors and others in the medical community. If AC5 Advanced Wound System does not achieve an adequate level of market acceptance, we may not generate sufficient revenues to achieve or maintain profitability.

AC5 Advanced Wound System is a novel use in the clinical fields in which it is marketed and may not gain or maintain market acceptance by patients, physicians, healthcare payors or others in the medical community. Additionally, we believe that we will need to educate physicians and other healthcare providers about AC5 Advanced Wound System in order to for these providers to administer AC5 Advanced Wound System. If we are unsuccessful in educating these practitioners about AC5 Advanced Wound System, we do not expect to achieve an appropriate level of market acceptance for AC5 Advanced Wound System. We could incur substantial and unanticipated additional expense in an effort to increase market acceptance, which would increase the cost of commercializing AC5 Advanced Wound System and could limit its commercial success and result in lower-than-expected revenues. We believe the degree of market acceptance of AC5 Advanced Wound System will depend on a number of factors, including:

If market acceptance of AC5 Advanced Wound System is adversely affected by any of these or other factors, then sales of AC5 Advanced Wound System may be reduced and our business will be materially harmed.

We are seeking reimbursement arrangements with privately managed care organizations and government payors and additional third-party payors. If we are unable to obtain adequate reimbursement from third-party payors, or acceptable prices, for AC5 Advanced Wound System, our revenues and prospects for profitability will suffer.

Our future revenues and ability to become profitable will depend heavily upon the availability of adequate reimbursement for the use of AC5 Advanced Wound System from government-funded and private third-party payors. Reimbursement by a third-party payor depends on a number of factors, including the third-party payor’s determination that use of a product is:

Obtaining reimbursement approval for AC5 Advanced Wound System from each government-funded and private third-party payor is a time-consuming and costly process, which in some cases requires us to provide to the payor supporting scientific, clinical and cost-effectiveness data for AC5 Advanced Wound System’s use. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement.

Even when a third-party payor determines that a product is generally eligible for reimbursement, third-party payors may impose coverage limitations that preclude payment for some product uses that are approved by the FDA or similar authorities or impose patient co-insurance or co-pay amounts that may result in lower market acceptance and which would lower our revenues. Some payors establish prior authorization programs and procedures requiring physicians to document several different parameters, which may impede patient access to therapy. Moreover, eligibility for coverage does not necessarily mean that AC5 Advanced Wound System will be reimbursed in all cases or at a rate that allows us to sell AC5 Advanced Wound System at an acceptable price adequate to make a profit or even cover our costs. If we are not able to obtain coverage and adequate reimbursement promptly from third-party payors for AC5 Advanced Wound System, our ability to generate revenues and become profitable will be compromised.

The scope of coverage and payment policies varies among private third-party payors, including indemnity insurers, employer group health insurance programs and managed care plans. These third-party payors may base their coverage and reimbursement on the coverage and reimbursement rate paid by carriers for Medicare beneficiaries, which are traditionally at a substantially discounted rate. Furthermore, many such payors are investigating or implementing methods for reducing healthcare costs, such as the establishment of capitated or prospective payment systems. Cost containment pressures have led to an increased emphasis on the use of cost-effective products by healthcare providers. If third-party payors do not provide adequate coverage or reimbursement for AC5 Advanced Wound System, it could have a negative effect on our revenues, results of operations and liquidity.

Applications for regulatory marketing authorization for commercialization of our additional product candidates or elements of our supply chain may not be accepted, or if accepted, may be voluntarily withdrawn or eventually rejected, and the future success of our business is significantly dependent on the success of our being able to obtain regulatory marketing authorization for our development stage candidates.

For example, on July 17, 2017, we filed a 510(k) notification with the FDA for AC5 Topical Gel. As previously announced on December 18, 2017, we voluntarily withdrew the submission after receiving a communication from the FDA near the end of the agency’s 90-day review period for a final decision on 510(k) notifications. The communication contained questions for which a comprehensive response could not be provided in the limited review time remaining on the submission. Given that it was not possible to respond in the time available, the Company made the decision to withdraw the 510(k) notification but noted at the time that it remained committed to continued collaboration with the FDA to appropriately address the outstanding questions and planned to submit a new 510(k) notification as soon as possible following further discussion with the agency. On March 12, 2018, we announced that we were utilizing the FDA’s pre-submission process to submit a proposed development strategy to the FDA to address the agency’s comments on our 510(k) notification. As indicated in that March 12, 2018, announcement, we determined that providing additional data to the FDA would be the most expeditious path forward for addressing the FDA’s comments, subject to any further comments that we may receive from the FDA.

On May 8, 2018, we announced that the Company would initiate the previously disclosed study designed to address FDA comments on Arch’s previous 510(k) notification for our AC5 Topical Gel. The agency provided feedback via the pre-submission process and indicated that the proposed study design was acceptable to support our future marketing application. On June 15, 2018, we further announced that we completed enrollment for our human skin sensitization study and that applications of our AC5 Topical Gel were underway for all subjects.

On October 1, 2018, we announced that the Company submitted a 510(k) notification to the FDA for our AC5 Topical Gel (AC5) and received acknowledgment from the FDA that the submission has been received. On December 17, 2018, we announced that the 510(k) premarket notification for AC5 Topical Gel has been reviewed and cleared by the FDA.

Our business plan is dependent on the success of our development stage product candidates.

Our business is currently focused almost entirely on the development and commercialization of our initial product candidates and products (“AC5 Devices”). Our reliance on AC5 Devices means that, if we are not able to obtain both regulatory marketing authorization and market acceptance of those product candidates, our chances for success will be significantly reduced. We are also less likely to withstand competitive pressures if any of our competitors develop and obtain regulatory marketing authorization for similar products or for products that may be more attractive to the market. Our current dependence on AC5 Devices increases the risk that our business will fail if our development efforts for those products experience delays or other obstacles or are otherwise not successful.

The Chemistry, Manufacturing and Control (“CMC”) process for our commercial product and product candidates may be challenging.

Because of the complexity of our lead product candidates, the CMC process, including but not limited to product scale-up activities and cGMP manufacturing for human use, may be difficult to complete successfully within the parameters required by the FDA or its foreign counterparts. Peptide formulation optimization is particularly challenging, and any delays could negatively impact our ability to conduct clinical trials and our subsequent commercialization timeline. Furthermore, we have, and the third parties with whom we may establish relationships may also have, limited experience with attempting to commercialize a self-assembling peptide as a medical device, which increases the risks associated with completing the CMC process successfully, on time, or within the projected budget. Failure to complete the CMC process successfully would impact our ability to complete product development activities, such as conducting clinical trials and submitting applications for regulatory approval, which could affect the long-term viability of our business.

Our AC5 Devices are inherently risky because they are based on novel technologies.

We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of AC5 Devices creates significant challenges with respect to product development and optimization, engineering, manufacturing, scale-up, quality systems, pre-clinical in vitro and in vivo testing, government regulation and approval, third-party reimbursement and market acceptance. Our failure to overcome any one of those challenges could harm our operations, commercialization efforts, ability to complete additional clinical trials, and overall chances for success.

Any changes in our supply chain, including to the third-party contract manufacturers, service providers, or other vendors, or in the processes that they employ could adversely affect us.

We are dependent on third parties in our supply chain, including manufacturers, service providers, and other vendors, and the processes that they employ to make major and minor components of our products, and this dependence exposes us to risks associated with regulatory requirements, delivery schedules, manufacturing capability, quality control, quality assurance and costs. We make periodic changes within our supply chain, for example, as our business needs evolve; and/or if a third party does not perform as agreed or desired; and/or if we decide to add an additional manufacturer, service provider, or vendor where we were previously single sourced; and/or if processes are altered to meet evolving scale requirements. For instance, the Company harmonized its U.S. and European product supply chains by adding a supplier and additional manufacturing processes to the list of approved suppliers and processes for the production of AC5 Advanced Wound System that is commercially available in the United States. The Company filed documentation with the FDA related to these supply chain changes and announced on March 23, 2020, that the FDA provided the required clearance to market with the supply chain and manufacturing process changes. We cannot yet provide assurance that the changes or resulting product will prove acceptable to us.

The manufacturing, production, and sterilization methods that we intend to be utilized are detailed and complex and are a difficult process to manage.

We intend to utilize third-party manufacturers to manufacture and sterilize our products. We believe that our proposed manufacturing methods make our choice of manufacturer and sterilizer critical, as they must possess sufficient expertise in synthetic organic chemistry and device manufacturing. If such manufacturers are unable to properly manufacture to product specifications or sterilize our products adequately, that could severely limit our ability to market our products.

Compliance with governmental regulations regarding the treatment of animals used in research could increase our operating costs, which would adversely affect the commercialization of our technology.

The Animal Welfare Act (“AWA”) is the federal law that covers the treatment of certain animals used in research. Currently, the AWA imposes a wide variety of specific regulations that govern the humane handling, care, treatment and transportation of certain animals by producers and users of research animals, most notably relating to personnel, facilities, sanitation, cage size, and feeding, watering and shipping conditions. Third parties with whom we contract are subject to registration, inspections and reporting requirements under the AWA. Furthermore, some states have their own regulations, including general anti-cruelty legislation, which establish certain standards in handling animals. Comparable rules, regulations, and/or obligations exist in many foreign jurisdictions. If our contractors or we fail to comply with regulations concerning the treatment of animals used in research, we may be subject to fines and penalties and adverse publicity, and our operations could be adversely affected.

If the FDA or similar foreign agencies or intermediaries impose requirements more onerous than we anticipate, our business could be adversely affected.

The FDA and other regulatory authorities or related bodies separately determine the classification of our products and product candidates. The development plan for our lead product candidates is based on our anticipation of pursuing the medical device regulatory pathway, and in February 2015 we received confirmation from The British Standards Institution (“BSI”), a European notified body (which is a private commercial entity designated by the national government of a European Union (“EU”) member state as being competent to make independent judgments about whether a medical device complies with applicable regulatory requirements), confirmed that AC5 Topical Hemostat fulfills the definition of a medical device within the EU, and it was classified as such in consideration of the CE mark, receipt of which was announced by the Company on April 13, 2020. The FDA also determined AC5 Topical Gel, which was later renamed AC5 Advanced Wound System, to be a medical device. If the FDA or similar foreign agencies or intermediaries deem our products to be a member of a category other than a medical device, such as a drug or biologic, or impose additional requirements on our pre-clinical and clinical development than we presently anticipate, financing needs would increase, the timeline for product approval would lengthen, the program complexity and resource requirements world increase, and the probability of successfully commercializing a product would decrease. Any or all of those circumstances would materially adversely affect our business.

We are subject to extensive and dynamic medical device regulations outside of the United States, which may impede or hinder the approval, or sale of our products and, in some cases, may ultimately result in an inability to obtain approval of certain products or may result in the recall or seizure of products that were previously approved.

In the European Union, we are required to comply with applicable medical device directives, including the Medical Devices Directive, and obtain CE mark in order to market medical device products. The CE mark is applied following approval from an independent notified body or declaration of conformity. As is the case in the United States, the process of obtaining marketing approval or clearance from comparable agencies in foreign countries for new products, or with respect to enhancements or modifications to existing products, could:

In addition, exported devices are subject to the regulatory requirements of each country to which the device is exported. Most foreign countries possess medical devices regulations and require that they be applied to medical devices before they can be commercialized.

There can be no assurance that we will receive the required approvals for our products on a timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive post-market study requirements.

Our global regulatory environment is becoming increasingly stringent and unpredictable, which could increase the time, cost and complexity of obtaining marketing authorization for our products, as well as the clinical and regulatory costs of supporting those approvals. Several countries that did not have regulatory requirements for medical devices have established such requirements in recent years and other countries have expanded existing regulations. Certain regulators are exhibiting less flexibility by requiring, for example, the collection of local preclinical and/or clinical data prior to approval. While harmonization of global regulations has been pursued, requirements continue to differ significantly among countries. We expect the global regulatory environment to continue to evolve, which could impact our ability to obtain future approvals for our products and increase the cost and time to obtain such approvals. By way of example, the European Union regulatory bodies recently implemented a new Medical Device Regulation (“MDR”). The MDR changes several aspects of the existing regulatory framework, such as clinical data requirements, and introduces new ones, such as Unique Device Identification (“UDI”). We, and the Notified Bodies who will oversee compliance to the new MDR, face uncertainties in the upcoming years as the MDR is rolled out and enforced, creating risks in several areas, including the CE mark process, data transparency and application review timetables.

If we are not able to secure and maintain relationships with third parties that are capable of conducting clinical trials on our product candidates and support our regulatory submissions, our product development efforts, and subsequent marketing authorization could be adversely impacted.

Our management has limited experience in conducting preclinical development activities and clinical trials. As a result, we have relied and will need to continue to rely on third-party research institutions, organizations and clinical investigators to conduct our preclinical and clinical trials and support our regulatory submissions. If we are unable to reach agreement with qualified research institutions, organizations and clinical investigators on acceptable terms, or if any resulting agreement is terminated prior to the completion of our clinical trials, then our product development efforts could be materially delayed or otherwise harmed. Further, our reliance on third parties to conduct our clinical trials and support our regulatory submissions will provide us with less control over the timing and cost of those trials, the ability to recruit suitable subjects to participate in the trials, and the timing, cost, and probability of success for the regulatory submissions. Moreover, the FDA and other regulatory authorities require that we comply with standards, commonly referred to as good clinical practices (“GCP”), for conducting, recording and reporting the results of our preclinical development activities and our clinical trials, to assure that data and reported results are credible and accurate and that the rights, safety and confidentiality of trial participants are protected. Additionally, both we and any third-party contractor performing preclinical and clinical studies are subject to regulations governing the treatment of human and animal subjects in performing those studies. Our reliance on third parties that we do not control does not relieve us of those responsibilities and requirements. If those third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our preclinical development activities or clinical trials in accordance with regulatory requirements or stated protocols, we may not be able to obtain, or may be delayed in obtaining, marketing authorization for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. Any of those circumstances would materially harm our business and prospects.

Any clinical trials that are planned or are conducted on our flagship product and additional product candidates may not start or may fail.

Clinical trials are lengthy, complex and extremely expensive processes with uncertain expenditures and results and frequent failures. While we have completed our first clinical trial in Western Europe, clinical trials that are planned or which have or shall commence for any of our product candidates could be delayed or fail for a number of reasons, including if:

Any delay or failure of one or more of our clinical trials may occur at any stage of testing. Any such delay could cause our development costs to materially increase, and any such failure could significantly impair our business plans, which would materially harm our financial condition and operations.

We cannot market and sell any additional product candidate in the U.S. or in any other country or region if we fail to obtain the necessary marketing authorization, clearances or certifications from applicable government agencies.

We cannot sell our additional product candidates in any country until regulatory agencies grant marketing approval, clearance or other required certification(s). The process of obtaining such approval is lengthy, expensive and uncertain. If we are able to obtain such approvals for our lead product candidate or additional product candidates we may pursue, which we may never be able to do, it would likely be a process that takes many years to achieve.

To obtain marketing approvals in the U.S. for our product candidates, we believe that we must, among other requirements, complete carefully controlled and well-designed clinical trials sufficient to demonstrate to the FDA that the product candidate is safe and effective for each indication for which we seek approval. As described above, many factors could cause those trials to be delayed or to fail.

We believe that the pathway to marketing approval in the U.S. for our lead product candidate for internal use will likely be classified as a Class III medical device and require the process of FDA Premarket Approval (“PMA”). This approval pathway can be lengthy and expensive and is estimated to take from one to three years or longer from the time the PMA application is submitted to the FDA until approval is obtained, if approval can be obtained at all.

Similarly, to obtain approval to market our product candidates outside of the U.S., we will need to submit clinical data concerning our product candidates to and receive marketing approval or other required certifications from governmental or other agencies in those countries, which in certain countries includes approval of the price we intend to charge for a product. For instance, in order to obtain the certification needed to market our lead product candidate in the EU, we believe that we will need to obtain a CE mark for the product, which entails scrutiny by applicable regulatory agencies and bears some similarity to the PMA process, including completion of one or more successful clinical trials.

We may encounter delays or rejections if changes occur in regulatory agency policies, if difficulties arise within regulatory or related agencies such as, for instance, any delays in their review time, or if reports from preclinical and clinical testing on similar technology or products raise safety and/or efficacy concerns during the period in which we develop a product candidate or during the period required for review of any application for marketing approval or certification.

Any difficulties we encounter during the approval or certification process for any of our product candidates would have a substantial adverse impact on our operations and financial condition and could cause our business to fail.

We cannot guarantee that we will be able to effectively market our product candidates.

A significant part of our success depends on the various marketing strategies we plan to implement. Our business model has historically focused solely on product development, and we have never attempted to market any product. There can be no assurance as to the success of any such marketing strategy that we develop or that we will be able to build a successful sales and marketing organization. If we cannot effectively market those products we seek to market directly, such products’ prospects will be harmed.

AC5 Advanced Wound System and any other product for which we obtain required regulatory marketing authorization are subject to post-approval regulation, and we may be subject to penalties if we fail to comply with such post-approval requirements.

AC5 Advanced Wound System and any other product for which we are able to obtain marketing approval or other required certifications, and for which we are able to obtain approval of the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and comparable foreign regulatory authorities, including through periodic inspections. These requirements include, without limitation, submissions of safety and other post-marketing information and reports, registration requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents. Maintaining compliance with any such regulations that may be applicable to us or our product candidates in the future would require significant time, attention and expense. Even if marketing approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or other conditions of approval or may contain requirements for costly and time-consuming post-marketing approval testing and surveillance to monitor the safety or efficacy of the product. Discovery after approval of previously unknown problems with any approved product candidate or related manufacturing processes, or failure to comply with regulatory requirements, may result in consequences to us such as:

If any of our product candidates achieve required regulatory marketing approvals or certifications in the future, the subsequent occurrence of any such post-approval consequences would materially adversely affect our business and operations.

Current or future legislation may make it more difficult and costly for us to obtain marketing approval or other certifications of our product candidates.

In 2007, the Food and Drug Administration Amendments Act of 2007 (“FDAAA”) was adopted. This legislation grants significant powers to the FDA, many of which are aimed at assuring the safety of medical products after approval. For example, the FDAAA grants the FDA authority to impose post-approval clinical study requirements, require safety-related changes to product labeling and require the adoption of complex risk management plans. Pursuant to the FDAAA, the FDA may require that a new product be used only by physicians with specialized training, only in specified health care settings, or only in conjunction with special patient testing and monitoring. The legislation also includes requirements for disclosing clinical study results to the public through a clinical study registry, and renewed requirements for conducting clinical studies to generate information on the use of products in pediatric patients. Under the FDAAA, companies that violate these laws are subject to substantial civil monetary penalties. The requirements and changes imposed by the FDAAA, or any other new legislation, regulations or policies that grant the FDA or other regulatory agencies additional authority that further complicates the process for obtaining marketing approval and/or further restricts or regulates post-marketing approval activities, could make it more difficult and more costly for us to obtain and maintain approval of any of our product candidates.

Public perception of ethical and social issues may limit or discourage the type of research we conduct.

Our clinical trials involve human subjects, and third parties with whom we contract also conduct research involving animal subjects. Governmental authorities could, for public health or other purposes, limit the use of human or animal research or prohibit the practice of our technology. Further, ethical and other concerns about our or our third-party contractors’ methods, particularly the use of human subjects in clinical trials or the use of animal testing, could delay our research and preclinical and clinical trials, which would adversely affect our business and financial condition.

Use of third parties to manufacture our additional product candidates may increase the risk that preclinical development, clinical development and potential commercialization of our product candidates could be delayed, prevented or impaired.

We have limited personnel with experience in medical device development and manufacturing, do not own or operate manufacturing facilities, and generally lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We currently outsource all or most of the clinical and commercial manufacturing and packaging of our product candidates to third parties. However, we have not established long-term agreements with any third-party manufacturers for the supply of any of our product candidates. There are a limited number of manufacturers that operate under cGMP regulations and that are capable of and willing to manufacture our lead product candidates utilizing the manufacturing methods that are required to produce our product candidates, and our product candidates will compete with other product candidates for access to qualified manufacturing facilities. If we have difficulty locating third-party manufacturers to develop our product candidates for preclinical and clinical work, then our product development programs will experience delays and otherwise suffer. We may also be unable to enter into agreements for the commercial supply of products with third-party manufacturers in the future or may be unable to do so when needed or on acceptable terms. Any such events could materially harm our business.

Reliance on third-party manufacturers entails risks to our business, including without limitation:

The failure of any of our contract manufacturers to maintain high manufacturing standards could result in harm to clinical trial participants or patients using the products. Such failure could also result in product liability claims, product recalls, product seizures or withdrawals, delays or failures in testing or delivery, cost overruns or other problems that could seriously harm our business or profitability. Further, our contract manufacturers will be required to adhere to FDA and other applicable regulations relating to manufacturing practices. Those regulations cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our product candidates and any products that we may commercialize in the future. The failure of our third-party manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval or other required certifications of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business, financial condition and operations.

Materials necessary to manufacture our product candidates may not be available on time, on commercially reasonable terms, or at all, which may delay or otherwise hinder the development and commercialization of those products and product candidates.

We rely on the manufacturers of our product and product candidates to purchase from third-party suppliers the materials necessary to produce the compounds for preclinical and clinical studies and may continue to rely on those suppliers for commercial distribution if we obtain marketing approval or other required certifications for any of our product candidates. The materials to produce our products may not be available when needed or on commercially reasonable terms, and the prices for such materials may be susceptible to fluctuations. We do not have any control over the process or timing of the acquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements relating to the commercial production of any of these materials. If these materials cannot be obtained for our preclinical and clinical studies, product testing and potential regulatory marketing authorization of our product candidates will be delayed, which would significantly impact our ability to develop our product candidates and materially adversely affect our ability to meet our objectives and obtain operations success.

We may not be successful in maintaining or establishing collaborations, which could adversely affect our ability to develop and, if required regulatory authorizations are obtained, commercialize our product candidates.

If required regulatory authorizations are obtained to market any of our product candidates, then we may consider entering into additional collaboration arrangements with medical technology, pharmaceutical or biotechnology companies and/or seek to establish strategic relationships with marketing partners for the development, sale, marketing and/or distribution of our products within or outside of the U.S. If we elect to expand our current relationships or seek additional collaborators in the future but are unable to reach agreements with such other collaborators, as applicable, then we may fail to meet our business objectives for the affected product or program. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement, and we may not be successful in our efforts, if any, to establish and implement additional collaborations or other alternative arrangements. The terms of any collaboration or other arrangements that we establish may not be favorable to us, and the success of any such collaboration will depend heavily on the efforts and activities of our collaborators. Any failure to engage successful collaborators could cause delays in our product development and/or commercialization efforts, which could harm our financial condition and operational results.

We compete with other pharmaceutical and medical device companies, including companies that may develop products that make our product and product candidates less attractive or obsolete.

The medical device, pharmaceutical and biotechnology industries are highly competitive. If our product candidates become available for commercial sale, we will compete in that competitive marketplace. There are several products on the market or in development that could be competitors with our lead product candidates. Further, most of our competitors have greater resources or capabilities and greater experience in the development, approval and commercialization of medical devices or other products than we do. We may not be able to compete successfully against them. We also compete for funding with other companies in our industry that are focused on discovering and developing novel improvements in surgical bleeding prevention.

We anticipate that competition in our industry will increase. In addition, the healthcare industry is characterized by rapid technological change, resulting in new product introductions and other technological advancements. Our competitors may develop and market products that render our lead product candidate or any future product candidate we may seek to develop non-competitive or otherwise obsolete. Any such circumstances could cause our operations to suffer.

If we fail to generate market acceptance of our product and product candidates and establish programs to educate and train surgeons as to the distinctive characteristics of our product and product candidates, we will not be able to generate revenues on our product candidates.

Acceptance in the marketplace of AC5 Advanced Wound System and our lead product candidates depends in part on our and our third-party contractors’ ability to establish programs for the training of surgeons in the proper usage of those product candidates, which will require significant expenditure of resources. Convincing surgeons to dedicate the time and energy necessary to properly train to use new products and techniques is challenging, and we may not be successful in those efforts. If surgeons are not properly trained, they may ineffectively use our product candidates. Such misuse could result in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us. Accordingly, even if our product candidates are superior to alternative treatments, our success will depend on our ability to gain and maintain market acceptance for those product candidates among certain select groups of the population and develop programs to effectively train them to use those products. If we fail to do so, we will not be able to generate revenue from product sales and our business, financial condition and results of operations will be adversely affected.

The use of our product and product candidates in human subjects may expose us to product liability claims, and we may not be able to obtain adequate insurance or otherwise defend against any such claims.

We face an inherent risk of product liability claims and currently have product liability and clinical trial liability coverage. If claims against us exceed any applicable insurance coverage we may obtain, then our business could be adversely impacted. Regardless of whether we would be ultimately successful in any product liability litigation, such litigation could consume substantial amounts of our financial and managerial resources, which could significantly harm our business.

Risks Related to our Intellectual Property

If we are unable to obtain and maintain protection for intellectual property rights that we own, seek, or have licensed from other parties, the value of our technology and products will be adversely affected.

Our success will depend in large part on our ability to obtain and maintain protection in the U.S. and other countries for the intellectual property rights covering or incorporated into our technology and products. The ability to obtain patents covering technology in the field of medical devices generally is highly uncertain and involves complex legal, technical, scientific and factual questions. We may not be able to obtain and maintain patent protection relating to our technology or products. Many of our owned or licensed patent applications are pending. Even if issued, patents issued or licensed to us may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, or determined not to cover our product candidates or our competitors’ products, which could limit our ability to stop competitors from marketing identical or similar products. Because our patent portfolio includes certain patents and applications that are in-licensed on a non-exclusive basis, other parties may be able to develop, manufacture, market and sell products with similar features covered by the same patent rights and technologies, which in turn could significantly undercut the value of any of our product candidates and adversely affect our business. Our licensed MIT European patent No. 1879606 was opposed; however, this patent was maintained in amended form following an administrative hearing. Both parties appealed this decision. MIT granted European patent EP1879606, to which Arch Therapeutics has an exclusive license, was the subject of a hearing at the European Patent Office Board of Appeal (the “Board of Appeal”) on November 26, 2021 as a result of an appeal by MIT to obtain broader claim scope than was upheld by the European Patent Opposition Division in 2016 and appeals by opponents for the upheld scope to be denied to MIT. At the oral proceedings, in light of concerns expressed by the Board of Appeal, MIT withdrew its appeal and the affected claims, resulting in a formal revocation of the European patent. There is a pending divisional patent application in which the concerns that the Board of Appeal expressed can be addressed. MIT can file further divisional patent applications to seek additional claim scope. There is no guarantee that any divisional patent application will result in a granted patent or that any granted patent will not be opposed and revoked. The Board of Appeal’s decision is in relation to the granted European patent EP1879606 and the various national patents that are derived therefrom, and it has no legal significance outside of Europe except in Hong Kong. Further, we cannot be certain that we were the first to make the inventions claimed in the patents we own or license, or that protection of the inventions set forth in those patents was the first to be filed in the U.S. Third parties that have filed patents or patent applications covering similar technologies or processes may challenge our claim of sole right to use the intellectual property covered by the patents we own or exclusively license. Moreover, changes in applicable intellectual property laws or interpretations thereof in the U.S. and other countries may diminish the value of our intellectual property rights or narrow the scope of our patent protection. Any failure to obtain or maintain adequate protection for our intellectual property would materially harm our business, product development programs and prospects. In addition, our proprietary information, trade secrets and know-how are important components of our intellectual property rights. We seek to protect our proprietary information, trade secrets, know-how and confidential information, in part, with confidentiality agreements with our employees, corporate partners, outside scientific collaborators, sponsored researchers, consultants and other advisors. We also have invention or patent assignment agreements with our employees and certain consultants and advisors. If our employees or consultants breach those agreements, we may not have adequate remedies for any of those breaches. In addition, our proprietary information, trade secrets and know-how may otherwise become known to or be independently developed by others. Enforcing a claim that a party illegally obtained and/or for which a party is using our proprietary information, trade secrets and/or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the U.S. may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to defend, enforce and/or determine the scope of our intellectual property rights, and failure to obtain or maintain protection thereof could adversely affect our competitive business position and results of operations.

Many of our owned patent applications are pending, and our patent portfolio includes certain patents and applications that are in-licensed on a non-exclusive basis.

As of September 15, 2023, we either own or license from others a number of U.S. patents, U.S. patent applications, foreign patents and foreign patent applications.

We have also entered into a license agreement with MIT pursuant to which we have been granted exclusive rights under two portfolios of patents and non-exclusive rights under another three portfolios of patents.

The two portfolios exclusively licensed from MIT include approximately 30 patents and pending applications drawn to self-assembling peptides, formulations and methods of use thereof and self-assembling peptidomimetics and methods of use thereof in a total of nine jurisdictions. The portfolios include five issued U.S. patents (US 9,511,113; US 9,084,837; US 10,137,166; US 9,327,010; and US 9,364,513) that expire between 2026 and 2027 (absent any potential patent term extension), as well as additional patents that have been either allowed, issued or granted in foreign jurisdictions.

The portfolios non-exclusively licensed from MIT include a number of US and foreign applications, including three issued U.S. patents (US 7,846,891; US 7,713,923; and US 8,901,084) that expire between 2024 and 2026 (absent any potential patent term extension), as well as additional patents that have been either allowed, issued or granted in foreign jurisdictions.

If we lose certain intellectual property rights owned by third parties and licensed to us, our business could be materially harmed.

We have entered into certain in-license agreements with MIT and with certain other third parties and may seek to enter into additional in-license agreements relating to other intellectual property rights in the future. To the extent we and our product candidates rely heavily on any such in-licensed intellectual property, we are subject to our and the counterparty’s compliance with the terms of such agreements in order to maintain those rights. Presently, we, our lead product candidates and our business plans are dependent on the patent and other intellectual property rights that are licensed to us under our license agreement with MIT. Although that agreement has a durational term through the life of the licensed patents, it also imposes or imposed certain diligence, capital raising, and other obligations on us, our breach of which could permit MIT to terminate the agreement. Further, we are responsible for all patent prosecution and maintenance fees under that agreement, and a failure to pay such fees on a timely basis could also entitle MIT to terminate the agreement. Any failure by us to satisfy our obligations under our license agreement with MIT or any other dispute or other issue relating to that agreement could cause us to lose some or all of our rights to use certain intellectual property that is material to our business and our lead product candidates, which would materially harm our product development efforts and could cause our business to fail.

If we infringe or are alleged to infringe the intellectual property rights of third parties, our business and financial condition could suffer.

Our research, development and commercialization activities, as well as any product candidates or products resulting from those activities, may infringe or be accused of infringing a patent or other intellectual property under which we do not hold a license or other rights. Third parties may own or control those patents or other rights in the U.S. or abroad and could bring claims against us that would cause us to incur substantial time, expense, and diversion of management attention. If a patent or other intellectual property infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales, if any, of the applicable product or product candidate that is the subject of the suit. In order to avoid or settle potential claims with respect to any of the patent or other intellectual property rights of third parties, we may choose or be required to seek a license from a third-party and be required to pay license fees or royalties or both. Any such license may not be available on acceptable terms, or at all. Even if we or our future collaborators were able to obtain a license, the rights granted to us or them could be non-exclusive, which could result in our competitors gaining access to the same intellectual property rights and materially negatively affecting the commercialization potential of our planned products. Ultimately, we could be prevented from commercializing one or more product candidates, or be forced to cease some aspects of our business operations, if, as a result of actual or threatened infringement claims, we are unable to enter into licenses on acceptable terms or at all or otherwise settle such claims. Further, if any such claims were successful against us, we could be forced to pay substantial damages. Any of those results could significantly harm our business, prospects and operations.

Risks Related to Ownership of our Common Stock and Investor Warrants

We have pursued an Uplist Transaction by filing an application to list our Common Stock to trade on the Nasdaq Capital Market. We may not satisfy the listing requirements and thereby consummate an Uplist Transaction, including the requirement to have sufficient capital to satisfy our working capital requirements for at least one year, and the minimum bid price requirement to list on the Nasdaq Capital Market. In the event we fail to list our Common Stock on the Nasdaq Capital Market, such failure may inhibit or preclude our ability to raise additional financing.

We have committed to pursue an Uplist Transaction. Accordingly, we have filed an application to list our Common Stock on the Nasdaq Capital Market. To successfully list our Common Stock, we are required to satisfy certain Nasdaq listing requirements, including having sufficient capital to satisfy our working capital requirements for at least one year, achieving a minimum bid price for our Common Stock, among other requirements relating to stockholder equity, market value of listed securities and number of market makers and stockholders. If we fail to meet any of those requirements, our application to list our Common Stock on the Nasdaq Capital Market will be denied. No assurances can be given that we will satisfy the listing requirements. If our application is not successful, our Board will weigh the available alternatives to successfully consummate an Uplist Transaction and list our Common Stock on the Nasdaq Capital Market. However, there can be no assurance that we will be able to successfully meet such listing requirements. If, for any reason, our listing application is not approved by Nasdaq and we are unable to otherwise consummate an Uplist Transaction on another national securities exchange or take action to successfully list our Common Stock on the Nasdaq Capital Market, our ability to raise additional capital may be adversely affected.

There is not now, and there may not ever be, an active market for our Common Stock, which trades in the over-the-counter market in low volumes and at volatile prices. Even if this offering is successful and our application to list our Common Stock on the Nasdaq Capital Market or an Alternate Exchange is approved, no assurance can be given that an active trading market for our Common Stock will develop or be maintained.

There currently is a limited market for our Common Stock. Although our Common Stock is quoted on the OTCQB, an over-the-counter quotation system, trading of our Common Stock is extremely limited and sporadic and generally at very low volumes. Further, the price at which our Common Stock may trade is volatile and we expect that it will continue to fluctuate significantly in response to various factors, many of which are beyond our control. The stock market in general, and securities of small-cap companies driven by novel technologies in particular, has experienced extreme price and volume fluctuations in recent years. Continued market fluctuations could result in further volatility in the price at which our Common Stock may trade, which could cause its value to decline. To the extent we seek to raise capital in the future through the issuance of equity, those efforts could be limited or hindered by low and/or volatile market prices for our Common Stock.

We have applied to list our Common Stock on the Nasdaq Capital Market under the symbol “ARTH.” No assurance can be given that our application will be approved or that, if approved, an active trading market for our securities will develop or be maintained. If our Common Stock is not approved for listing on the Nasdaq Capital Market or an Alternate Exchange, we will not complete this offering. Even if our Common Stock is approved for listing on the Nasdaq Capital Market or an Alternate Exchange, an active trading market for our Common Stock may not develop or be sustained. In the absence of an active trading market for our Common Stock, the ability of our stockholders to sell their securities could be limited. As a result, investors must bear the economic risk of holding their shares of our Common Stock for an indefinite period of time.

Under the 2022 Notes, we are obligated to complete an Uplist Transaction by October 31, 2023 to the Nasdaq Capital Market or an Alternate Exchange. In the event we are unable to uplist our Common Stock, we anticipate that our Common Stock will continue to be quoted on the OTCQB or another over-the-counter quotation system. In those venues, our stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our Common Stock and may find few buyers to purchase their stock and few market makers to support its price. There is no assurance that our Common Stock will ever be listed on a national securities exchange, that we will be able to comply with or continue to meet such applicable listing standards.

There is not now and may not be an active liquid trading market for our Investor Warrants.

There is no established public trading market for our Investor Warrants. Although we plan to apply to have the Investor Warrants listed on the Nasdaq Capital Market or Alternate Exchange under the symbol “ARTHW ,” there is no assurance our application will be approved, or even if it is approved, that a public trading market will develop or if one develops that it will be maintained. Without a public market, the liquidity of the Investor Warrants will remain limited. However, if our Investor Warrants are not approved for listing on the Nasdaq Capital Market or an Alternate Exchange, we will still complete this offering.

Even if our planned Reverse Split achieves the requisite increase in the market price of our Common Stock, there can be no assurance that we will be approved for listing on the Nasdaq Capital Market or an Alternate Exchange or be able to comply with other continued listing standards of the Nasdaq Capital Market or an Alternate Exchange.

On August 22, 2023, the stockholders approved a reverse stock split between 1.5-for-1 to 20-for-1, with the exact ratio to be determined by the Board within 1 year following the date of such approval, and without correspondingly decreasing the number of authorized shares of Common Stock (the “Reverse Split”). Even if our planned Reverse Split increases the market price of our Common Stock sufficiently so that we comply with the minimum market price requirement, no assurance can be given that we will be able to comply with the other standards that we are required to meet in order to be approved for listing on the Nasdaq Capital Market or an Alternate Exchange or maintain a listing of our Common Stock on such exchange. Our failure to meet these requirements prior to listing will result in the offering not occurring and our failure to meet these requirements following listing may result in our Common Stock being delisted from the Nasdaq Capital Market or an Alternate Exchange.

The Reverse Split may decrease the liquidity of the shares of our Common Stock.

The liquidity of the shares of our Common Stock may be affected adversely by the Reverse Split given the reduced number of shares that will be outstanding following the Reverse Split. In addition, the Reverse Split may increase the number of stockholders who own odd lots (less than 100 shares) of our Common Stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty affecting such sales.

If this offering is successful, we will be subject to the continued listing requirements of the Nasdaq Capital Market or an Alternate Exchange. If we are unable to comply with such requirements, our Common Stock and Investor Warrants would be delisted from the Nasdaq Capital Market or such Alternate Exchange, which would limit investors’ ability to effect transactions in our Common Stock and Investor Warrants and subject us to additional trading restrictions.

Even if this offering is successful and our application to list our Common Stock and Investor Warrants on the Nasdaq Capital Market or an Alternate Exchange is approved, if we fail to meet the Nasdaq Capital Market or such Alternate Exchange continued listing requirements, including stockholder equity requirements, our Common Stock and Investor Warrants could be subject to delisting by the Nasdaq Capital Market or such Alternate Exchange, which could reduce the liquidity of our Common Stock and Investor Warrants materially and result in a corresponding material reduction in the price of our Common Stock and Investor Warrants. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and business development opportunities. Such a delisting likely would impair your ability to sell or purchase our Common Stock and Investor Warrants when you wish to do so. Further, if we were to be delisted from the Nasdaq Capital Market or an Alternate Exchange, our Common Stock and Investor Warrants would no longer be recognized as a “covered security” and we would be subject to regulation in each state in which we offer our securities. Thus, delisting from the Nasdaq Capital Market or an Alternate Exchange could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly impact the ability of investors to trade our securities and would negatively impact the value and liquidity of our Common Stock and Investor Warrants.

Our Common Stock may experience extreme stock price volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Common Stock.

Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively small public float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization companies. In particular, our Common Stock may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Common Stock.

In addition, if the trading volumes of our Common Stock are low, persons buying or selling in relatively small quantities may easily influence prices of our Common Stock. This low volume of trades could also cause the price of our Common Stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our Common Stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of our Common Stock exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Common Stock.

As a result of this volatility, investors may experience losses on their investment in our Common Stock. A volatile market price of our Common Stock also could adversely affect our ability to issue additional shares of Common Stock or other securities and our ability to obtain additional financing in the future.

Substantial future sales of our shares of Common Stock or rights to purchase shares of our Common Stock, or the perception that such sales could occur, could cause the market price of our Common Stock to decline, even if our business is doing well.

As noted above under the risk factor entitled, “There is substantial doubt about our ability to continue as a going concern. Even if this offering is successful, we will need additional funding to continue our operations and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts and could cause our business to fail.” Sales of substantial amounts of our Common Stock in the public market or the perception that such sales could occur, could adversely affect the trading price of our Common Stock, and may make it more difficult for you to sell your Common Stock at a time and price that you deem appropriate. We are unable to predict the effect that such sales may have on the prevailing price of our Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

We, our directors and executive officers have entered into or will enter into lock-up agreements with the underwriter of this offering pursuant to which they and we have agreed, or will agree, that, subject to certain exceptions, we will not issue or offer, and they will not sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of any shares or any securities convertible into or exchangeable for shares of our Common Stock for a period of 6 months after the offering is completed. See the section titled “Underwriting” for more information. Sales of a substantial number of such shares upon expiration of, or the perception that such sales may occur, or early release of the securities subject to, the lock-up agreements, could cause our stock price to fall or make it more difficult for you to sell your Common Stock at a time and price that you deem appropriate. A decline in the price of our Common Stock might impede our ability to raise capital through the issuance of additional Common Stock or other equity securities.

In addition, in the future, we may issue additional shares of Common Stock, warrants or other equity or debt securities convertible into Common Stock in one or more transactions, at prices and in a manner we determine from time to time, in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause the price of our Common Stock or warrants to decline.

If we issue additional shares in the future, including issuances of shares upon exercise of our outstanding warrants and convertible notes, our existing stockholders will be significantly diluted.

As of September 21, 2023, our articles of incorporation authorize the issuance of up to 350,000,000 shares of Common Stock. The issuance of shares of our Common Stock upon the exercise of our outstanding warrants or conversion of outstanding convertible notes, summarized below, could result in substantial dilution to our stockholders, which may have a negative effect on the price of our Common Stock.

As of September 15, 2023, there were issued and outstanding: (i) options granted to employees, directors and consultants under our 2013 Plan to purchase up to an aggregate of 100,900 shares of Common Stock at exercise prices ranging from $4.00 to $130.00 per share and with a weighted average exercise price of $37.57 per share; (ii) 26,283,816 shares of Common Stock issuable upon the exercise of outstanding warrants, having a weighted average exercise price of $1.36 per share (which includes 18,798,526 Common Warrants that will automatically be cancelled and exchanged for 56,395,578 Exchange Investor Warrants at the closing of this offering); (iii) Series 2 Convertible Notes convertible into 52,917 shares of Common Stock at a conversion price of $50.00 per share; (iv) 685,846 shares of Common Stock issuable upon conversion of the 2022 Notes at the exercise price of $9.14 per share; (v) 7,522,203 shares of Common Stock to be issuable upon exercise of the Participating Pre-Funded Warrants expected to be issued at the closing of this offering; (vi) 56,395,578 shares of Common Stock to be issuable upon exercise of the Exchange Investor Warrants expected to be issued at the closing of this offering; (vii) 455,169 shares of Common Stock reserved for future issuance under the 2023 Plan; (viii) up to 6,750,000 shares (7,762,500 shares if the underwriters’ option to purchase additional Investor Warrants is exercised in full) of Common Stock issuable upon exercise of the Investor Warrants to be issued in this offering; and (ix) up to 337,500 shares (388,125 shares if the underwriters’ option to purchase additional shares of Common Stock is exercised in full) of Common Stock issuable upon exercise of the Underwriter Warrants to be issued to the Representative, or its designees, upon completion of this offering.

Additionally, the numbers issuable under the 2023 Plan will increase by specific amounts, as described above under “Prospectus Summary—Recent Developments—Equity Incentive Plan.” Any future grants of options, warrants or other securities exercisable or convertible into our Common Stock, or the exercise or conversion of such shares, and any sales of such shares in the market, could have an adverse effect on the market price of our Common Stock.

In addition to capital raising activities, other possible business and financial uses for our authorized Common Stock include, without limitation, future stock splits, acquiring other companies, businesses or products in exchange for shares of Common Stock, issuing shares of our Common Stock to partners in connection with strategic alliances, attracting and retaining employees by the issuance of additional securities under our various equity compensation plans, compensating consultants by issuing shares or options to purchase shares of our Common Stock, or other transactions and corporate purposes that our Board deems are in the Company’s best interest. Additionally, shares of Common Stock could be used for anti-takeover purposes or to delay or prevent changes in control or management of the Company. We cannot provide assurances that any issuances of Common Stock will be consummated on favorable terms or at all, that they will enhance stockholder value, or that they will not adversely affect our business or the trading price of our Common Stock. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our Common Stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current stockholders. Further, such issuance may result in a change of control of our Company.

We are a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our Common Stock less attractive to investors.

We are currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and we either have a public float of less than $250 million as of the last business day of our second fiscal quarter or annual revenues of less than $100 million during our most recently completed fiscal year and a public float of less than $700 million. Smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in a registration statement under the Exchange Act on Form 10. Decreased disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects.

Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. These FINRA requirements make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common Stock, which may limit the ability of our stockholders to buy and sell our Common Stock and could have an adverse effect on the market for our shares.

There may be additional risks because we completed a reverse merger transaction in June 2013.

Additional risks may exist because we completed a “reverse merger” transaction in June 2013. Securities analysts of major brokerage firms may not provide coverage of the Company because there may be little incentive to brokerage firms to recommend the purchase of our Common Stock. There may also be increased scrutiny by the SEC and other government agencies and holders of our securities due to the nature of the transaction, as there has been increased focus on transactions such as the Merger in recent years. Further, since the Company existed as a “shell company” under applicable rules of the SEC up until the closing of the Merger on June 26, 2013, there will be certain restrictions and limitations on the Company going forward relating to any potential future issuances of additional securities to raise funding and compliance with applicable SEC rules and regulations.

The elimination of monetary liability against our directors and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.

Our articles of incorporation eliminate the personal liability of our directors and officers to our Company and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible under Nevada law. Further, our amended and restated bylaws provide that we are obligated to indemnify any of our directors or officers to the fullest extent authorized by Nevada law and, subject to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition.

Those indemnification obligations could result in our Company incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even if such actions, if successful, might otherwise benefit us or our stockholders.

We are subject to the reporting requirements of federal securities laws, compliance with which involves significant time, expense and expertise.

We are a public reporting company in the U.S., and, accordingly, are subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including the obligations imposed by the Sarbanes-Oxley Act. The costs associated with preparing and filing annual, quarterly and current reports, proxy statements and other information with the SEC in the ordinary course, as well as preparing and filing audited financial statements, has caused, and could continue to cause, our operational expenses to remain at higher levels or continue to increase.

Shares of our Common Stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144. In addition, any shares of our Common Stock that are held by affiliates, including any that are registered, will be subject to the resale restrictions of Rule 144.

Rule 144 imposes requirements on us and our stockholders that must be met in order to effect a sale thereunder. As a result, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities unless we agree to register such securities under the Securities Act, which could cause us to expend significant additional time and cash resources and which we presently have no intention to pursue. Further, it may be more difficult for us to compensate our employees and consultants with our securities instead of cash. We were a shell company prior to the closing of the Merger, and such status could also limit our use of our securities to pay for any acquisitions we may seek to pursue in the future (although none are currently planned) and could cause the value of our securities to decline. In addition, any shares held by affiliates, including shares received in any registered offering, will be subject to certain additional requirements in order to effect a sale of such shares under Rule 144.

We do not intend to pay cash dividends on our Common Stock in the foreseeable future.

We have never declared or paid any dividends on our shares and do not anticipate paying any such dividends in the foreseeable future. Any future payment of cash dividends would depend on our financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations, anticipated cash requirements and other factors and will be at the discretion of our Board.

The market price of our Common Stock may be volatile which could subject us to securities class action litigation.

The market price for our Common Stock has been and may continue to be volatile and subject to wide fluctuations in response to factors including the following:

In the past, securities class action litigation has been brought against companies following periods of volatility of its securities in the marketplace. The stock markets in general, and the market for pharmaceutical and biotechnology companies in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our Common Stock, regardless of our actual operating performance. Due to the volatility of our stock price, we could be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources.

Risks Related to This Offering 

Management will have broad discretion as to the use of the proceeds from this offering, and we may not use the proceeds effectively. 

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our Common Stock. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. Our failure to apply these funds effectively could have a material adverse effect on our business and cause the price of our Common Stock to decline.

You will experience immediate and substantial dilution in the net tangible book value per share of the Common Stock included in the Units or issuable upon exercise of the Pre-Funded Warrants in this offering. 

The public offering price of the Units and Pre-Funded Units being offered in this offering is substantially higher than the net tangible book value per share of our Common Stock prior to the offering. Investors purchasing Units or Pre-Funded Units in this offering may pay an effective price per share of Common Stock that may substantially exceed the pro forma book value of our tangible assets after subtracting our liabilities. Based on an assumed public offering price of $2.00 per Unit (the last reported sale price of our Common Stock on the OTCQB on September 19, 2023), if you purchase shares of our Common Stock in this offering, you will suffer immediate and substantial dilution of $1.63 per share with respect to the net tangible book value of the Common Stock. See the section entitled “Dilution” below for a more detailed discussion of the dilution you will incur if you purchase securities in this offering. As a result of the dilution to investors purchasing securities in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of a liquidation of our company.

There is no public market for the Investor Warrants or the Pre-Funded Warrants.

There is no established public trading market for the Investor Warrants or the Pre-Funded Warrants, and we do not expect a market to develop for the Pre-Funded Warrants. We have applied to list the Investor Warrants on the Nasdaq Capital Market under the symbol “ARTHW.” No assurance can be given that such listing will be approved or, if successful, that an active trading market for the Investor Warrants will develop or be sustained. In addition, we do not intend to apply to list the Pre-Funded Warrants on any national securities exchange or other nationally recognized trading system. Without an active market, the liquidity of the Investor Warrants and the Pre-Funded Warrants will be limited.

The Investor Warrants and the Pre-Funded Warrants in this offering are speculative in nature.

Neither the Investor Warrants nor the Pre-Funded Warrants in this offering confer any rights of Common Stock ownership on its holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of Common Stock at a fixed price, as the case maybe. In addition, following this offering, the market value of the Investor Warrants, if any, is uncertain and there can be no assurance that the market value of the Investor Warrants will equal or exceed their imputed offering price. The Pre-Funded Warrants will not be listed or quoted for trading on any market or exchange.

USE OF PROCEEDS

We expect to receive net proceeds of approximately $11.6 million from this offering or approximately $13.5 million if the underwriters exercise their option to purchase additional shares of Common Stock and/or Investor Warrants in full, based on an assumed public offering price of $2.00 per Unit (the last reported sale price of our Common Stock on the OTCQB on September 19, 2023), after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. We currently intend to use the net proceeds we receive from this offering for product marketing and for general working capital purposes.

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot currently allocate specific percentages of the net proceeds that we may use for the purposes specified above, and we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures will depend upon numerous factors, including our sales and marketing efforts, demand for our products, our operating costs and the other factors described under “Risk Factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

Each $0.25 increase (decrease) in the assumed public offering price of $2.00 per Unit (the last reported sale price of our Common Stock on the OTCQB on September 19, 2023 ), would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $1.6 million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of Units we are offering. An increase (decrease) of 1,000,000 in the number of Units we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $1.8 million, assuming the public offering price stays the same. We do not expect that a change in the offering price or the number of Units by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.

MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED MATTERS

Market Information

Our Common Stock is currently quoted on the OTCQB over-the-counter quotation system under the stock symbol “ARTH”. Our Common Stock began quotation on the OTCBB and the OTCQB on June 27, 2013 and since that date has been primarily traded on the OTCQB. There was no trading of our Common Stock on the OTCBB, OTCQB or any other over-the-counter market prior to January 2, 2013. Although our Common Stock is currently quoted on the OTCQB, there is a limited trading market for our Common Stock and there has been limited trading activity in our Common Stock to date. Because our Common Stock is thinly traded on the OTCQB, (i) any reported sale prices may not be a true market-based valuation of our Common Stock; and (ii) such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

We have applied to list our Common Stock and Investor Warrants on the Nasdaq Capital Market under the symbols “ARTH” and “ARTHW”, respectively. There is no assurance that our listing application will be approved by the Nasdaq Capital Market, or, if successful, that an active trading market for our Common Stock or Investor Warrants will develop or be sustained. If we are unable to list our Common Stock on the Nasdaq Capital Market or an Alternate Exchange, we will not consummate this offering.

Dividends

We have never declared or paid any cash dividends or distributions on our Common Stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion, and, therefore, we do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. Any future payment of dividends will depend upon our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board.

Holders

As of September 15, 2023, there were approximately 131 holders of record of our Common Stock.

Transfer Agent and Registrar

The transfer agent and warrant agent for our Common Stock and Investor Warrants, respectively, is Empire Stock Transfer. Our transfer agent’s address is 1859 Whitney Mesa Drive, Henderson, Nevada 89014.

CAPITALIZATION

The following table sets forth our cash and capitalization as of June 30, 2023:

You should read this table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited financial statements and related notes thereto included elsewhere in this prospectus.

(1) A $0.25 increase or decrease in the assumed public offering price of $2.00 per Unit (the last reported sale price of our Common Stock on the OTCQB on September 19, 2023), would increase or decrease the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $1.6 million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same (assuming no sale of any Pre-Funded Units) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the Investor Warrants issued as part of the Units. An increase or decrease of 1,000,000 in the number of Units offered by us, as set forth on the cover page of this prospectus (assuming no sale of any Pre-Funded Units), would increase or decrease the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $1.8 million, assuming no change in the assumed public offering price per Unit and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the Investor Warrants issued as part of the Units.

Except as indicated otherwise, the total number of shares reflected in the discussion and tables above is based on 1,285,213 shares of our Common Stock outstanding as of June 30, 2023, and excludes, in each case: As of such date, (i) options granted to employees, directors and consultants under our 2013 Plan to purchase up to an aggregate of 100,900 shares of Common Stock at exercise prices ranging from $4.00 to $130.00 per share and with a weighted average exercise price of $37.57 per share; (ii) 988,417 shares of Common Stock issuable upon the exercise of outstanding warrants, having a weighted average exercise price of $17.05 per share; (iii) Series 2 Convertible Notes convertible into 52,917 shares of Common Stock at a conversion price of $50.00 per share; (iv) Series 1 Convertible Notes convertible into 59,912 shares of Common Stock; (v) 685,846 shares of Common Stock issuable upon conversion of the 2022 Notes; (vi) 7,522,203 shares of Common Stock to be issuable upon exercise of the Participating Pre-Funded Warrants expected to be issued at the closing of this offering; (vii) 56,395,578 shares of Common Stock to be issuable upon exercise of the Exchange Investor Warrants expected to be issued at the closing of this offering; (viii) up to 6,750,000 shares (7,762,500 shares if the underwriters’ option to purchase additional Investor Warrants is exercised in full) of Common Stock issuable upon exercise of the Investor Warrants to be issued in this offering; and (ix) up to 337,500 shares (388,125 shares if the underwriters’ option to purchase additional shares of Common Stock is exercised in full) of Common Stock issuable upon exercise of the Underwriter Warrants to be issued to the Representative, or its designees, upon completion of this offering.

Except as indicated otherwise, the discussion and table above assume no sale of Pre-Funded Units and no exercise of the underwriters’ option to purchase up to 1,012,500 additional shares of Common Stock and/or Investor Warrants to purchase up to 1,012,500 additional shares of Common Stock.

DILUTION

If you invest in our securities in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of Common Stock included in each Unit or issuable upon exercise of the Pre-Funded Warrants (attributing no value to the Investor Warrants) and the as adjusted net tangible book value per share of our Common Stock after this offering. We calculate net tangible book value per share by dividing the net tangible book value (tangible assets less total liabilities) by the number of outstanding shares of our Common Stock.

The net tangible book value (deficit) of our Common Stock as of June 30, 2023, was approximately $(8.0 million), or approximately $(6.24) per share of Common Stock. Net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the total number of our shares of Common Stock outstanding as of June 30, 2023.

Our pro forma net tangible book value (deficit) as of June 30, 2023 was $(1.7 million), or $(0.14) per share of Common Stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) the issuance of 3,344,321 Bridge Shares (and the Common Warrants) and 6,054,942 Bridge Pre-Funded Warrants in the Bridge Offering between July 7, 2023 and September 11, 2023 for net proceeds of approximately $2,334,788, and assuming the full exercise of all of the Bridge Pre-Funded Warrants, (ii) the conversion in full of the Series 1 Notes for the issuance of 59,912 shares of Common Stock on July 12, 2023, (iii) the expected full conversion of the Series 2 Notes into an aggregate of 52,917 shares of Common Stock at the closing of this offering and (iv) the issuance at the closing of this offering of an aggregate of 1,567,127 shares of Common Stock upon the Automatic Conversion of an aggregate of $3,134,250 of principal amount under the 2022 Notes, assuming no issuance of any 2022 Note Conversion Pre-Funded Warrants, based on the assumed offering price of $2.00 per Unit in this offering. Pro forma net tangible book value per share represents the pro forma net tangible book value divided by the total number of shares outstanding as of June 30, 2023, after giving effect to the pro forma adjustment described above.

After giving further effect to the sale of 6,750,000 shares of Common Stock included in the Units in this offering at an assumed public offering price of $2.00 per share of Common Stock included in each Unit (assuming no sale of Pre-Funded Units), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the Investor Warrants issued as part of the Units, our pro forma, as adjusted net tangible book value as of June 30, 2023 would have been approximately $10.0 million, or approximately $0.52 per share of Common Stock. This amount represents an immediate increase in actual book value of $6.76 per share to our existing stockholders and immediate dilution of approximately $1.48 per share to new investors in this offering (attributing no value to the Investor Warrants). We determine dilution by subtracting the as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Common Stock included in each Unit in this offering. The following table illustrates this dilution:

If the underwriters exercise their option to purchase additional shares of our Common Stock in full, the pro forma, as adjusted net tangible book value after this offering would be approximately $0.59 per share, the increase in pro forma net tangible book value per share would be approximately $6.83 and dilution per share to new investors would be approximately $1.41 per share.

Each $0.25 increase (decrease) in the assumed public offering price of $2.00 per Unit (the last reported sale price of our Common Stock on the OTCQB on September 19, 2023), would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $1.6 million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same (assuming no sale of any Pre-Funded Warrants) and assuming no exercise of the Investor Warrants issued as part of the Units. We may also increase or decrease the number of Units we are offering. An increase (decrease) of 1,000,000 in the number of Units we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $1.8 million, assuming the public offering price stays the same (assuming no sale of any Pre-Funded Warrants) and assuming no exercise of the Investor Warrants issued as part of the Units. We do not expect that a change in the offering price or the number of Units by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.

The total number of shares reflected in the discussion and tables above is based on 1,285,213 shares of our Common Stock outstanding as of June 30, 2023, and excludes, in each case: As of such date, (i) options granted to employees, directors and consultants under our 2013 Plan to purchase up to an aggregate of 100,900 shares of Common Stock at exercise prices ranging from $4.00 to $130.00 per share and with a weighted average exercise price of $37.57 per share; (ii) 988,417 shares of Common Stock issuable upon the exercise of outstanding warrants, having a weighted average exercise price of $17.05 per share; (iii) Series 2 Convertible Notes convertible into 52,917 shares of Common Stock at a conversion price of $50.00 per share; (iv) Series 1 Convertible Notes convertible into 59,912 shares of Common Stock; (v) 685,846 shares of Common Stock issuable upon conversion of the 2022 Notes; (vi) 7,522,203 shares of Common Stock to be issuable upon exercise of the Participating Pre-Funded Warrants expected to be issued at the closing of this offering; (vii) 56,395,578 shares of Common Stock to be issuable upon exercise of the Exchange Investor Warrants expected to be issued at the closing of this offering; (viii) up to 6,750,000 shares (7,762,500 shares if the underwriters’ option to purchase additional Investor Warrants is exercised in full) of Common Stock issuable upon exercise of the Investor Warrants to be issued in this offering; and (ix) up to 337,500 shares (388,125 shares if the underwriters’ option to purchase additional shares of Common Stock is exercised in full) of Common Stock issuable upon exercise of the Underwriter Warrants to be issued to the Representative, or its designees, upon completion of this offering.

Except as indicated otherwise, the discussion and table above assume no sale of Pre-Funded Units and no exercise of the underwriter’s option to purchase up to 1,012,500 additional shares of Common Stock and/or Investor Warrants to purchase up to 1,012,500 additional shares of Common Stock.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections of this prospectus, including our audited annual consolidated financial statements and related notes beginning on page F-1 of this prospectus. This discussion and analysis contains forward-looking statements, including information about possible or assumed results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. See “Cautionary Note Regarding Forward-Looking Statements“ beginning on page 2 of this prospectus. Our actual results may differ materially from those anticipated or suggested in any forward-looking statements.

Corporate Overview

Arch Therapeutics, Inc. (together with its subsidiary, the “Company” or “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.

Arch Biosurgery, Inc. (“ABS”) is a biotechnology company that was incorporated under the laws of the Commonwealth of Massachusetts on March 6, 2006 as Clear Nano Solutions, Inc., changed its name from Clear Nano Solutions, Inc. to Arch Therapeutics, Inc. on April 7, 2008, and, as part of the Merger transaction, changed its name from Arch Therapeutics, Inc. to Arch Biosurgery.

Almah, Inc., was incorporated under the laws of the State of Nevada on September 16, 2009 and, as part of the Merger transaction, changed its name to Arch Therapeutics, Inc. and abandoned both its prior business plan and operations in order to adopt those of ABS.

Arch Acquisition Corporation, or Merger Sub, 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 thereafter became the wholly owned subsidiary of the Company.

The Company’s principal offices are located in Framingham, Massachusetts.

The Company has recently devoted substantially all of its operational effort to the market adoption and commercial sales of AC5® Advanced Wound System, 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 shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), and warrants.

The Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercialization of current and potential products. However, there can be no assurance that the Company will be successful in securing additional capital 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 for one year past the issuance of the financial statements. The consolidated financial statements do not include any adjustments related to the recoverability of assets that might be necessary despite this uncertainty.

Liquidity

We devote a significant amount of our efforts on fundraising, planning and conducting clinical trials, activities in connection with obtaining regulatory approval, and product research. We have principally raised capital through borrowings, the issuance of convertible debt, and units consisting of Common Stock and warrants to fund our operations. For the year ended September 30, 2022, we had a net loss of $5,275,854 versus a net loss of $6,240,482 in the prior year. The losses for each of the years ended September 30, 2022 and 2021 can be attributable to research and development expense, including regulatory approval and product research, and general and administrative costs, primarily relating to legal costs associated with intellectual property and patent application, general corporate legal expense all of which were partially offset by adjustments to the derivative liabilities and, for the fiscal year ended September 30, 2021, a gain on the forgiveness of the loan issued by First Republic Bank under the Paycheck Protection Program, established under the Coronavirus Aid, Relief, and Economic Security Act. For the nine months ended June 30, 2023, we had a net loss of $4,525,640 versus a net loss of $3,387,295 in the same period in fiscal year 2022. Cash used in operating activities decreased $1,502,553 during the year ended September 30, 2022 to $4,456,075, compared to $5,958,628 for the year ended September 30, 2021. Cash used in operating activities during the nine months ended June 30, 2023 was $2,147,480, compared to $2,786,642 for the same period in fiscal year 2022.

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 managing wounds created during surgery, trauma, interventional care or disease; stopping bleeding (hemostasis); and controlling leaking (sealant). We have recently devoted substantially all of our operational effort to the market adoption and commercial sales of AC5 Advanced Wound System, our first product. Our goal is to make care faster and safer for patients with 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 self-assembling peptide (SAP) technology platform and are sometimes referred to as AC5 or the “AC5 Devices.” These include AC5 Advanced Wound System and AC5® Topical Hemostat, which have received marketing authorization as medical devices in the United States and Europe, 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 Europe 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® and 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 proprietary 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 tissue and self-assemble (i.e., self-build) 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:

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 SAP technology permits cell and tissue growth and is self-healing, in that it can dynamically self-repair around migrating cells. For instance, 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 for wounds inside or on the body, including those for which a hemostatic agent or 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 (“TTH”) 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^TM. 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. 

Marketing

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 U.S. 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.

We currently maintain an internal commercial team focused on driving 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 hospitals (“VA Hospitals”) and military treatment facilities (“MTFs”). We anticipate that material growth in the physician office setting will require product reimbursement. To that end, we submitted an application to the Centers for Medicare and Medicaid Services (“CMS”) in July 2022 for a unique product reimbursement code. Our application was subsequently approved with a go-live date of April 1, 2023. We have launched a temporary reimbursement support program in line with CMS guidance to support commercial use and adoption of AC5 Advanced Wound System both before and after the go-live date of our unique product code (A2020). In support of the VA and MTF market, we partnered with Lovell Government Services (“LGS”), a Service-Disabled Veteran-Owned Small Business, as its distributor in the government channel. As a direct result of its relationship with LGS, AC5 Advanced Wound System is listed on the four major government supply schedules (ECAT, DAPA, FSS and GSA) in order to allow doctors in any VA or MTF to order AC5 Advanced Wound System. We have also established and 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 U.S. market for advanced wound care.

Operations

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:

In furtherance of our long-term business goals, we expect to continue to focus on the following activities during the next twelve months:

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. We will require significant additional financing to fund our planned operations, including further research and development relating to AC5, seeking regulatory approval of any 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. In addition, 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 Bridge SPA (as defined below) and securities purchase agreement dated July 6, 2022, as amended (the “2022 Notes SPA”), associated with the sale of the 2022 Notes (the “2022 Notes Financing”), in each case as described in greater detail in the risk factor entitled “The terms of the Bridge Offering and 2022 Notes Financing could impose additional challenges on our ability to raise funding in the future ” under the heading “Risk Factors” in this prospectus.

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 this prospectus. 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. After giving effect to the funds received in past equity and debt financings and assuming our use of that funding at the rate we presently anticipate, as of September 15, 2023, we believe that our current cash on hand is sufficient to meet our anticipated cash requirements into the first fiscal quarter of 2024, and we must obtain additional financing in order to continue to operate our business. Even if this offering is successful, we could spend our financial resources much faster than we expect, in which case we would need to raise additional capital as our current funds may not be sufficient to operate our business for the entire duration of that period.

Preclinical Testing

We have engaged and continue to engage third parties in the United States and abroad to advise on and perform certain preclinical bench-top and animal research and development studies, typically with assistance from our team. These third parties can include contract research organizations, academic institutions, consultants, advisors, scientists, clinicians, and/or other collaborators.

We completed the biocompatibility studies required to receive marketing authorizations for AC5 Advanced Wound System in the United States and AC5 Topical Hemostat in Europe, and such test results support that the products are biocompatible. We will perform further biocompatibility testing that we deem necessary for additional indications, classifications, jurisdictions, and/or as required by regulatory authorities.

Acute and survival animal studies assessing the safety and performance of our technology have also demonstrated favorable outcomes in Dermal Sciences and BioSurgical applications.

Clinical Testing

We have engaged and continue to engage third parties in the United States and abroad to advise on and perform certain clinical studies and related activities, typically with assistance from our team. These third parties can include contract research organizations, academic institutions, consultants, advisors, scientists, clinicians, and/or other collaborators.

We completed two clinical studies. The first study, which met its primary and secondary endpoints, assessed the safety and performance of our product candidate in 46 patients with bleeding skin wounds that resulted from excision of skin lesions and followed for 30 days. The second study assessed our product candidate on skin, determining that it was neither an irritant nor a sensitizer, and no immunogenic response or serious or other adverse events attributable to our product were reported in any of the approximately 50 enrolled volunteers. The product candidate in these studies subsequently received marketing authorization and is presently known as AC5 Advanced Wound System in the United States and AC5 Topical Hemostat in Europe.

Post marketing clinical case reports have been published demonstrating both efficacy and safety in a range of challenging acute surgical or chronic wounds on patients.

Commercialization

Our commercialization efforts are currently focused on Dermal Sciences. Our BioSurgery products for internal use will require additional preclinical and clinical testing before we seek marketing authorization to commercialize them.

Our Dermal Sciences products are AC5 Advanced Wound System in the United States and AC5 Topical Hemostat in Europe, and the indication for use, or purpose, for each product follows, respectively:

In practice, we envision that both products will be used in comparable wounds, including, in particular, acute or chronic wounds that require surgical intervention. Examples include, surgical excision of dead, contaminated, or damaged tissue, otherwise known as debridement, in chronic wounds; complicated wounds created during an acute surgical procedure; failed acute surgical wounds; wounds requiring wound bed preparation in advance of other procedures; wounds in need of an advanced dressing that incorporates an initial protective barrier function followed by a scaffolding or lattice function that enables healing.

We announced receipt of 510(k) premarket notification clearances for AC5 Advanced Wound System on December 17, 2018, providing marketing authorization, and on March 23, 2020, clearing use of an additional supplier and additional manufacturing processes. We announced receipt of the CE mark for AC5 Topical Hemostat on April 13, 2020.

The COVID-19 pandemic environment introduced new challenges related to product launch, marketing and sales, as clinicians and facilities are increasingly focused on managing resources, the disease, or its potential spread. We believe that these challenges have also highlighted some potential opportunities for our new technology to address certain poorly met needs. For instance, wound interventions are too often considered to be elective procedures instead of being treated essentially or emergently as National Pressure Ulcer Advisory Panel guidelines and others recommend, resulting in a projected increased risk to limb and life while elective procedures are delayed and not prioritized. Furthermore, the implications of these delays are a growing backlog of chronic wounds awaiting care and a worsening of such wounds, leading to greater morbidity, such as infection, necrosis, and amputation, and potentially mortality.

We expect our Dermal Sciences product commercialization to be gradual, initially, and moderately accelerate into new market channels. In addition to identifying and encouraging product use by key opinion leaders and early adopters, we will prioritize our focus on private and government facilities. VA Hospitals, for example, tend to have many patients whose needs we believe we can help address. We prioritized the launch of AC5 Advanced Wound System in the United States over that of AC5 Topical Hemostat in Europe to maximize operational efficiencies in light of the COVID-19 pandemic and have not yet determined when we will launch the product in Europe.

On December 13, 2021, we announced that in partnership with Lovell Government Services, our AC5 Advanced Wound System has been added to the Federal Supply Schedule and General Services Administration contracts and is approved for purchase by all federal government agencies, including the Department of VA, Indian Health Services, and Department of Defense Medical Treatment Facilities effective December 15, 2021.

On March 14, 2022, we announced the Company had entered into a distribution agreement with Centurion Therapeutics Inc. (“Centurion”), an exclusive strategic partner to the world’s largest tissue bank, to expand sales opportunities for AC5 Advanced Wound System. Centurion distributes a comprehensive portfolio of aseptically processed human tissues to support surgeons in a broad array of specialties through over a hundred contracted wound care distributors nationwide. AC5 Advanced Wound System will be added to their advanced wound care product line as part of this distribution agreement.

We have engaged and continue to engage third parties in the United States and abroad to advise on and perform certain sales and marketing activities, typically with assistance from our team. These third parties can include contract organizations, consultants, advisors, scientists, clinicians, and/or other collaborators.

The COVID-19 Pandemic Impact on Commercialization

The COVID-19 pandemic environment introduced significant challenges related to product launch, marketing and sales, as clinicians and facilities became overburdened and increasingly focused on managing resources, the disease, and the virus spread. While the overall environment has improved, many negative effects linger. We have observed the following effects at different times, and anticipate that they will variously wax and wane over time:

We believe that these challenges have also highlighted some potential opportunities for our new technology to address certain poorly met needs. For instance, wound interventions are too often considered to be elective procedures instead of being treated essentially or emergently as National Pressure Ulcer Advisory Panel guidelines and others recommend, resulting in a projected increased risk to limb and life while elective procedures are delayed and not prioritized. Furthermore, the implications of these delays are a growing backlog of chronic wounds awaiting care and a worsening of such wounds, leading to greater morbidity, such as infection, necrosis, and amputation, and potentially mortality.

While highlighted by the COVID-19 pandemic, we also believe that these challenges reveal an underlying problem in the healthcare system-clinicians and other providers are being asked to accomplish more in less time with fewer resources. These resources may include higher acuity settings, such as operating rooms; expensive wound care products that may not work as well as desired; nursing time to change wound dressings; and surgeon time for managing wounds during debridement; repeat patient visits over months and often years, and others. Our COVID-19 related discussions with surgeons, economic stakeholders and other decision-making personnel often include whether AC5 Advanced Wound System may enable them to accomplish more for their patients while deploying overall fewer resources and achieving desired outcomes.

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 preclinical 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, in order 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 ABS and Related Activities

On June 26, 2013, the Company completed the Merger with ABS, pursuant to which ABS became a wholly owned subsidiary of the Company. In contemplation of the Merger, effective May 24, 2013, the Company increased its authorized shares of 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 one 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 our Common Stock trades on the OTC Bulletin Board from “AACH” to “ARTH”.

Recent Events

On July 18, 2023, the board of directors of the Company (the “Board”) adopted resolutions by unanimous written consent, pursuant to which the Board determined that it is advisable and in ‎the best interests of the Company to ‎amend the Certificate of Incorporation of the ‎Company (the “Amendment”) to (i) increase the total number of authorized shares of Common Stock from 12,000,000 to 350,000,000 (the “Authorized Share Increase”), (ii) authorize 5,000,000 shares of “blank check” preferred stock of the Company, thereby giving the Board the authority to designate from time to time one or more series of preferred stock (the “Blank Check Preferred”), and (iii) provide for a reverse stock split of the outstanding Common Stock, at a ratio within a range of 1.5-for-1 to 20-for-1, with the exact ratio to be determined by the Board subsequent to the applicable approval by the Company’s stockholders, within 1 year following the date of such approval, and without correspondingly decreasing the number of authorized shares of Common Stock (the “Reverse Split” and, together with the Authorized Share Increase and the Blank Check Preferred, the “Charter Amendments”). On August 22, 2023, stockholders representing a majority of the voting power of the then outstanding shares of voting stock of the Company (the “Majority Stockholders”) executed a written consent approving the Charter Amendments and the Company filed a preliminary Information Statement with the SEC with respect to the transactions contemplated hereby. The Company filed a definitive Information Statement with the SEC and mailed the definitive Information Statement to the Company’s stockholders notifying them of the action taken by written consent on September 1, 2023. Accordingly, the Company filed the Amendment with respect to the Authorized Share Increase and the Blank Check Preferred with the Secretary of State of Nevada on September 21, 2023. The Company intends to effect the Reverse Split prior to the pricing of this offering.

Reverse Stock Split

On January 17, 2023, the Company effected a prior reserve stock split (the “Prior Reverse Stock Split”) of the Common Stock at a ratio of 1-for-200. As a result of the Prior Reverse Stock Split, every two hundred (200) shares of Common Stock issued and outstanding were combined into one (1) share of Common Stock, with a proportionate 1:200 reduction in the Company’s authorized Common Stock. The Prior 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 Prior Reverse Stock Split would have resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the Prior Reverse Stock Split. Any fractional shares of Common Stock resulting from the Prior Reverse Stock Split were rounded up to the nearest whole post-Prior Reverse Stock Split share and no stockholders received cash in lieu of fractional shares. The Prior 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 Prior Reverse Stock Split, as required by the terms of those securities. The Prior Reserve Stock Split was approved by the Company’s stockholders on September 29, 2022.

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.

Bridge Offering

Between July 7, 2023 and September 11, 2023, pursuant to a Securities Purchase Agreement dated July 7, 2023, as subsequently amended (the “Bridge SPA”), among the Company and certain institutional and accredited individual investors (collectively, the “Bridge Investors”) the Company issued and sold to the Bridge Investors an aggregate of (i) 3,344,321 shares (the “Bridge Shares”) of Common Stock; (ii) warrants (the “Bridge Pre-Funded Warrants”) to purchase an aggregate of 6,054,942 shares of Common Stock (the “Bridge Pre-Funded Warrant Shares”); and (iii) warrants (the “Common Warrants” and together with the Bridge Pre-Funded Warrants, the “Bridge Warrants”) to purchase an aggregate 18,798,526 shares of Common Stock (the “Common Warrant Shares” and together with the Bridge Pre-Funded Warrant Share, the “Bridge Warrant Shares”), at a purchase price of $0.275 per Bridge Share and accompanying Common Warrant to purchase two shares of Common Stock, and $0.274 per Bridge Pre-Funded Warrant to purchase one share of Common Stock and accompanying Common Warrant to purchase two shares of Common Stock. The Shares, Bridge 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 Bridge SPA, the Bridge 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”), which this offering is intended to be, with an aggregate purchase price equal to at least 4.3 multiplied by the aggregate purchase price paid by the Bridge Investor for the Bridge Shares and Bridge Warrants under the Bridge SPA or (B) be subject to a lock-up provision not to sell or otherwise transfer any of the Bridge Shares or Bridge Warrant Shares acquired by them in the Bridge Offering until the one-year anniversary of the Bridge Closing Date (as defined below). The aggregate gross proceeds for the sale of the Bridge Shares, Bridge Pre-Funded Warrants, and Common Warrants was approximately $2.6 million, before deducting the placement agent’s fees and other estimated fees and offering expenses payable by the Company. The first closing of the sales of these securities under the Bridge SPA occurred on July 7, 2023 (the “Bridge Closing Date”).

Under the Bridge SPA, the Company also agreed that upon the closing of the next underwritten public offering of Common Stock (a “Qualifying Offering”), if the effective offering price to the public per share of Common Stock (the “Qualifying Offering Price”) is lower than the $4.00 per share, then the Company shall issue additional Bridge Pre-Funded Warrants in an amount reflecting a reduction in the purchase price paid for the Bridge Shares and Bridge Pre-Funded Warrants that equals the proportion by which the Qualifying Offering Price is less than the $4.00.

The Company retained Dawson James Securities, Inc. (“DJ”) as placement agent in connection with the Bridge Offering. The Company paid DJ a cash fee equal to 8.0% of the aggregate gross proceeds of the Bridge Offering and reimbursement of expenses of $50,000. Additionally, on September 7, 2023 the Company issued to DJ, or its designees, warrants (the “Placement Agent Warrants”) to purchase an aggregate of 441,938 shares of Common Stock. The Placement Agent Warrants are exercisable at any time and from time to time, in whole or in part, during the five-year period commencing March 7, 2024, at a price per share equal to $0.275.

Bridge Pre-Funded Warrants

The Bridge Pre-Funded Warrants (i) have a nominal exercise price of $0.001 per share; (ii) are exercisable after the earlier of (A) the six-month anniversary after the date of issuance, (B) 120 days after the closing date of an Uplist Transaction, and (C) the date that a registration statement registering the Bridge Pre-Funded Warrant Shares is declared effective; (iii) are exercisable until all of the Bridge Pre-Funded Warrants are exercised in full; and (iv) have a provision preventing the exercisability of such Bridge Pre-Funded Warrants if, as a result of the exercise of the Bridge Pre-Funded Warrants, 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 either 4.99% or 9.99% of the Common Stock (the “Ownership Limitation”) immediately after giving effect to the exercise of the Bridge Pre-Funded Warrants.

Common Warrants

The Common Warrants (i) have an exercise price of $1.00 per share; (ii) have a term of exercise equal to 5 years after their issuance date; (iii) are exercisable after the earlier of (A) the six-month anniversary after the date of issuance and (B) the date that a registration statement registering the Common Warrant Shares is declared effective; (iv) have a provision permitting voluntary adjustments to the exercise price by the Company, subject to the prior written consent of the Common Warrant holder; (v) are automatically exchanged upon the closing of an Uplist Transaction for a new warrant that is identical to the warrants (other than any pre-funded warrants), if any, being issued to investors in such Uplist Transaction, with the number of shares underlying such new warrant being equal to the number of Common Warrant Shares then underlying the Common Warrant multiplied by three and (vi) have a provision preventing the exercisability of such Common Warrants if, as a result of the exercise of the Common Warrants, the holder, together with its affiliates and any other persons whose beneficial ownership of Company Common Stock would be aggregated with the holder’s, would be deemed to beneficially own more than the Ownership Limitation immediately after giving effect to the exercise of the Common Warrants. Accordingly, at the closing of this offering, the Common Warrants will be cancelled and exchanged for newly issued warrants identical to the Investor Warrants to purchase an aggregate of 56,395,578 shares of Common Stock at an exercise price per share equal to the exercise price per share of the Investor Warrants (the “Exchange Investor Warrants”).

Registration Rights Agreement

The Company also entered into a registration rights agreement with the Bridge Investors dated July 7, 2023, as subsequently amended (the “Registration Rights Agreement”), pursuant to which the Company is obligated, subject to certain conditions, to file with the Securities and Exchange Commission within the earlier of (i) 30 days following the closing date of the Uplist Transaction and (ii) October 31, 2023 one or more registration statements (any such registration statement, a “Resale Registration Statement”) to register the Shares, the Bridge Warrant Shares, the shares of Common Stock issuable upon exercise in full of the Exchange Investor Warrants (the “Exchange Investor Warrant Shares”) and the shares of Common Stock issuable upon exercise in full of the Participating Pre-Funded Warrant (as defined below) (the “Conversion Warrant Shares”) for resale under the Securities Act of 1933, as amended (the “Securities Act”). The Company’s failure to satisfy certain filing and effectiveness deadlines with respect to a Resale Registration Statement and certain other requirements set forth in the Registration Rights Agreement may subject the Company to payment of monetary penalties.

Note Modification Agreements

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 Senior Secured Convertible Promissory Notes, as separately amended on February 14, 2023, March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, July 31, 2023, August 30, 2023 and September 30, 2023 (as amended, the “First Notes”), issued in connection with a private placement financing the Company completed on July 6, 2022 (the “First Closing”). On July 7, 2023, the Company also entered into an amendment (“Amendment No. 8 to the Second Notes”) with the holders of the Company’s outstanding Unsecured Convertible Promissory Notes, as separately amended on February 14, 2023, March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, July 31, 2023, August 30, 2023 and September 30, 2023 (as amended, the “Second Notes”), issued in connection with a private placement financing the Company completed on January 18, 2023 (the “Second Closing”). On July 7, 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 Unsecured Convertible Promissory Notes, as separately amended on June 15, 2023, July 1, 2023, July 31, 2023, August 30, 2023 and September 30, 2023 (as amended, the “Third Notes” and, together with the First Notes and Second Notes, the “2022 Notes”), 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 will be simultaneously effective upon the closing of the Uplist Transaction. The Specified Percentage (as defined below) of the then outstanding principal amount of the 2022 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 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 (such criteria in clauses (i) and (ii) above, the “Participation Criteria”), 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 90^th 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 as determined by each Holder thereof); provided, that in no event shall the Specified Percentage for the 2022 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.

Further, on September 30, 2023, the Company entered into an amendment (“Amendment No. 11 to the First Notes”) to the First Notes, an amendment (“Amendment No. 11 to the Second Notes”) to the Second Notes and an amendment (“Amendment No. 6 to the Third Notes” and, together with Amendment No. 11 to the First Notes and Amendment No. 11 to the Second Notes, the “September Amendments to the 2022 Notes”) to the Third Notes. The September Amendments to the 2022 Notes extend the deadline by which the Company must close the Uplist Transaction to October 31, 2023 and provide that upon the Automatic Conversion and to the extent that a Holder’s beneficial ownership would increase over the applicable Ownership Limitation, the Holder will receive pre-funded warrants (the “2022 Note Conversion Pre-Funded Warrants”) in lieu of shares of Common Stock otherwise issuable to the Holder in connection with the Automatic Conversion, which 2022 Note Conversion Pre-Funded Warrants shall have an exercise price of $0.001 per share, may be exercised on a cashless basis, shall be exercisable immediately upon issuance and shall contain a customary beneficial ownership limitation provision.

Accordingly, it is currently anticipated that the Specified Percentage will be 50%, and thus, at the closing of this offering: (i) an aggregate of 1,567,127 shares of Common Stock (assuming no issuance of 2022 Note Conversion Pre-Funded Warrants) will be issued upon the Automatic Conversion of an aggregate of $3,134,250 of principal amount under the 2022 Notes, representing 50% of the $6,268,501 in principal amount currently outstanding under the 2022 Notes, based on the assumed offering price of $2.00 per Unit in this offering; and (ii) assuming that all Holders fulfill the Participation Criteria, the Holders will be issued Participating Pre-Funded Warrants to purchase an aggregate of 7,522,203 shares of Common Stock, based on a Specified Number of 2.4 multiplied by the $3,134,250 of principal amount converted in the Automatic Conversion.

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, amending the 2022 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 and 2022 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.

2022 Notes

The 2022 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 issuance date until the 2022 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. The 2022 Notes mature January 6, 2024. Any amount of principal or interest on the 2022 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. As of September 15, 2023, the outstanding unpaid principal balance including all accrued interest under the 2022 Notes totaled $6,935,071.

The 2022 Notes are convertible into shares of Common Stock at the option of each Holder from the date of issuance at $9.14 (the “Conversion Price”), subject to adjustment, 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).

The 2022 Notes contain 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; and (ii) our failure to complete an Uplist Transaction by October 31, 2023.

The 2022 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 if, as a result of the exercise of the 2022 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. As long as the 2022 Notes and 2022 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, except for any offering conducted in connection with the Uplist Transaction which this offering is intended to be,  the Company has an obligation to notify the holders of the 2022 Notes and 2022 Warrants of such more favorable terms, and to use best efforts to effect such terms in the 2022 Notes and 2022 Warrants.

Under the Second Amended and Restated Registration Rights Agreement, dated as of May 15, 2023, as amended, the Company is required to file a registration statement registering the securities issued in the Second Closing and Third Closing, including the applicable 2022 Notes and 2022 Warrants, no later than 45 days following the closing of the Uplist Transaction.

As discussed above, it is currently anticipated that 50% of the of the $6,268,501 unpaid principal balance currently outstanding under the 2022 Notes will convert into 1,567,127 shares of Common Stock (assuming no issuance of 2022 Note Conversion Pre-Funded Warrants) in connection with the Automatic Conversion.

Series 1 and 2 Convertible 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, as amended (“Series 2 Notes”, and collectively with the Series 1 Notes, the “Series Convertible Notes”). 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, which had an aggregate of $718,918 of principal and interest outstanding at the time of conversion.

As of September 15, 2023, there was $587,959 of principal and accrued interest (through maturity) outstanding under the Series 2 Notes. The Series 2 Notes have a “Conversion Price” of $50.00 and allow the Company to convert all obligations thereunder upon the Uplist Transaction, or the maturity date, using the Conversion Price and multiplying the obligations then outstanding by 4.5. Accordingly, it is currently anticipated that an aggregate of 52,917 shares of Common Stock will be issued at the closing of this offering upon the conversion of the remaining outstanding amount under the Series 2 Notes.

Insurance Financing

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.

Warrant Exchange Agreement

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 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.

Reimbursements and Support Program

During the month of September 2022, the Company launched and announced a reimbursement support program designed to help drive increased commercial use of the company’s FDA-approved AC5 Advanced Wound System. During the fiscal year ended September 30, 2022, the Company invoiced and shipped a total of 33 units, of which 23 units were shipped in connection with the launch of the Company’s reimbursement support program. Under the terms of the program, the invoice amount may be adjusted through full or partial write-offs based on actual reimbursement amounts paid by CMS for AC5 units applied and billed by doctors. As such, revenue, if any, for the units shipped in connection with the Company’s reimbursement support program will be booked in future periods when all conditions have been satisfied.

Results of Operations

The following discussion of our results of operations should be read together with the consolidated financial statements included in this prospectus and the notes thereto. Our historical results of operations and the period-to-period comparisons of our results of operations that follow are not necessarily indicative of future results.

Nine Months Ended June 30, 2023 Compared to Nine Months Ended June 30, 2022

Revenue

Revenue 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.

Year Ended September 30, 2022 Compared to Year Ended September 30, 2021