false 0001537561 0001537561 2023-01-18 2023-01-18

 

 

 

 

Date of Report (Date of earliest event reported): January 18, 2023

 

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code: (617) 431-2313

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

As previously disclosed in the Current Report on Form 8-K filed by Arch Therapeutics, Inc. (the “Company) with the Securities and Exchange Commission (the “SEC”) on July 8, 2022, the Company entered into a Securities Purchase Agreement, dated July 6, 2022 (“SPA”), with certain institutional and accredited individual investors (collectively, the “Investors”) for the issuance and sale by the Company to the Investors of convertible promissory notes, warrants to purchase shares of common stock, par value $0.001 per share (the “Common Stock”), and shares of Common Stock (the “Convertible Notes Offering”). The first closing of the Convertible Notes Offering occurred on July 6, 2022.

 

On January 18, 2023, the Company entered into Amendment No. 1 to the SPA (the “Amendment” and, together with the SPA, the “Amended SPA”), with certain Investors in connection with the second closing of the Convertible Notes Offering for the issuance and sale by the Company to such Investors of an aggregate of (i) Unsecured Convertible Promissory Notes (each a “Second Note” and collectively, the “Second Notes”) in the aggregate principal amount of $636,000, which includes an aggregate $106,000 original issue discount in respect of the Second Notes; (ii) Warrants (the “Second Warrants”) to purchase an aggregate of 127,968 shares (the “Warrant Shares”) of Common Stock; and (iii) 9,598 shares of Common Stock (the “Inducement Shares”). The aggregate gross proceeds for the sale of the Second Notes, Second Warrants and Inducement Shares was approximately $530,000, before deducting the placement agent’s fees and other estimated fees and offering expenses payable by the Company. The second closing of the sales of these securities under the Amended SPA occurred on January 18, 2023 (the “Second Closing Date”).

 

The Company retained a placement agent in connection with the private placement of $500,000 of the Second Notes to the institutional investors. The Company also agreed to (i) pay the placement agent 10% of the gross proceeds in the second closing of the Convertible Notes Offering from the institutional investors, or $50,000, and (ii) issue to the placement agent, or its designees, warrants (the “Placement Agent Warrants”) to purchase up to 10% of the aggregate number of shares sold to the institutional investors in the second closing of the Convertible Notes Offering, or warrants to purchase up to 6,565 shares (the “Placement Agent Warrant Shares”).

 

 

The net proceeds to the Company from the Convertible Notes Offering, after deducting the placement agent’s fees and the Company’s other estimated fees and offering expenses and excluding the proceeds, if any, from the conversion of the Second Notes and the exercise of the Second Warrants, are expected to be approximately $465,000. The Company intends to use the net proceeds from the Convertible Notes Offering primarily for working capital and general corporate purposes, and has not allocated specific amounts for any specific purposes.

 

 

The Second Notes become due and payable on January 6, 2024 (the “Maturity Date”) and may not be prepaid, in whole or in part, at any time except with the written consent of the lead investor, with such prepayment amounts subject to adjustment as a result of certain time-based prepayment premiums set forth in the Second 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 (as defined below). The Second 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 Second Closing Date until the Second 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 Second Notes. Any amount of principal or interest on the Second Notes which is not paid when due shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum amount allowed by law from the due date thereof until payment in full (the “Default Interest”).

 

 

The Second Notes are convertible into an aggregate of 69,585 shares of Common Stock (such shares of Common Stock, the “Conversion Shares”) at the option of each holder of the Second Notes from the Second Closing Date at the Conversion Price (as defined below) through the later of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in the Second Note); provided, however, certain Second Notes include a provision preventing such conversion if, as a result, the holder, together with its affiliates and any other persons whose beneficial ownership of Company Common Stock would be aggregated with the holder’s, would be deemed to beneficially own more than 4.99% of the outstanding shares of the Company’s Common Stock (the “Notes Ownership Limitation”) immediately after giving effect to the Conversion; and provided further, the holder, upon notice to the Company, may increase or decrease the Notes Ownership Limitation; provided that (i) the Notes Ownership Limitation may only be increased to a maximum of 9.99% of the outstanding shares of the Company’s Common Stock; and (ii) any increase in the Notes Ownership Limitation will not become effective until the 61st day after delivery of such waiver notice. The initial conversion price of the Second Notes (the “Conversion Price”) shall be equal to $9.14 and may be reduced or increased proportionately as a result of any stock dividends, recapitalizations, reorganizations, and similar transactions. If the Company fails to deliver the shares of Common Stock issuable upon a conversion by the Deadline (as defined in the Second Notes), then the Company is obligated to pay such Second Note holder $5,000 per day in cash for each day beyond the Deadline.

 

The Second Notes contain customary events of default, which include, among other things, (i) the Company’s failure to pay when due any principal or interest payment under the Second Notes; (ii) the insolvency of the Company; (iii) delisting of the Company’s Common Stock; (iv) the Company’s breach of any material covenant or other material term or condition under the Second Notes; and (v) the Company’s breach of any representations or warrants under the Second Notes which cannot be cured within five (5) days. Further, events of default under the Second Notes also include (i) the unavailability of Rule 144 on or after July 18, 2023; (ii) the Company’s failure to deliver the shares of Common Stock to the Second Note holder upon exercise by such holder of its conversion rights under the Second Note; (iii) the Company’s loss of the “bid” price for its Common Stock and/or a market and such loss is not cured during the specified cure periods; and (iv) the Company’s failure to complete an uplist to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American by February 15, 2023 (an “Uplist Transaction”).

 

Upon an event of default, the Second Notes shall become immediately due and payable and the Company shall pay to each Second Note holder an amount equal to 125% (the “Default Premium”) multiplied by the sum of the outstanding principal amount of the Second Notes plus any accrued and unpaid interest on the unpaid principal amount of the Second Notes to the date of payment, plus any Default Interest and any other amounts owed to the Holder under the Amended SPA (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 five percent (5%) to the Default Premium for each subsequent event of default. At the election of each Second Note holder, the Default Amount may be paid in cash or shares of Common Stock equal to the Default Amount divided by the Conversion Price at the time of payment.

 

 

The Second 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) are exercisable immediately after their issuance; and (iv) have a provision preventing the exercisability of such Second Warrant if, as a result of the exercise of the Second Warrant, 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 either 4.99% or 9.99% of the outstanding shares of the Company’s Common Stock (the “Warrant Ownership Limitation”) immediately after giving effect to the exercise of the Second Warrant. The holder, upon notice to the Company, may increase or decrease the Warrant Ownership Limitation; provided that (i) the Warrant Ownership Limitation may only be increased to a maximum of 9.99% of the outstanding shares of the Company’s Common Stock; and (ii) any increase in the Warrant Ownership Limitation will not become effective until the 61st day after delivery of such waiver notice. The number of shares of Common Stock into which each of the Second Warrants is exercisable and the exercise price therefor are subject to adjustment as set forth in the Second Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise).

 

 

On the Second Closing Date, the Company entered into an amended and restated registration rights agreement with certain Investors (as amended and restated, the “A&R Registration Rights Agreement”), pursuant to which the Company is obligated, subject to certain conditions, to file with the SEC one or more registration statements (any such registration statement, a “Resale Registration Statement”) to register the Inducement Shares, the Conversion Shares and the Warrant Shares for resale under the Securities Act of 1933, as amended (the “Securities Act”), within the earlier of (i) the date that is 45 days following the Uplist Transaction, and (ii) the date that is 90 days following the Second Closing Date. 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 A&R Registration Rights Agreement may subject the Company to payment of monetary penalties.

 

 

 

The Amended SPA contains certain restrictions on the Company’s ability to conduct subsequent sales of its equity securities and certain business activities. In particular, commencing on the Second Closing Date and until (A) the payment of the Second Notes in full, or full conversion of the Second Notes, and (B) exercise of the Second Warrants in full, the Company will be 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 any variable rate debt transactions that does not contain a floor price that is more than $3.20, or 50% of the closing price of the Common Stock on the trading day immediately prior to the Second Closing Date; in each instance without each Second Warrant holder’s prior written consent, which shall not be unreasonably withheld.

 

The issuance and sale of the Second Notes, Conversion Shares, Second Warrants, Warrant Shares, Inducement Shares, Placement Agent Warrants and Placement Agent Warrant Shares (collectively, the “Securities”) has not been, and will not upon issuance be, registered under the Securities Act, and the Securities may not be offered or sold in the United States absent registration under or exemption from the Securities Act and any applicable state securities laws. The Securities will be issued and sold in reliance upon an exemption from registration afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated under the Securities Act based on the following facts: each of the applicable Investors has represented that it is an accredited investor as defined in Rule 501 promulgated under the Securities Act; that it is acquiring the Securities for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof in violation of applicable securities; the Company used no advertising or general solicitation in connection with the issuance and sale of the Securities to the applicable Investors; and the Securities will be issued as restricted securities. This Current Report on Form 8-K is not and shall not be deemed to be an offer to sell or the solicitation of an offer to buy any of the Securities.

 

The preceding descriptions of the Amendment, the Second Notes, the Second Warrants, and the A&R Registration Rights Agreement are qualified in their entirety by reference to the copies of the form of Amendment, form of Second Note, form of Second Warrant, and form of A&R Registration Rights Agreement filed herewith as Exhibit 10.1, Exhibit 10.2, Exhibit 10.3, and Exhibit 10.4 to this Current Report on Form 8-K, respectively, which are incorporated herein by reference.

 

 

Reference is made to the disclosure set forth in Item 1.01 of this Current Report on Form 8-K, which disclosure is incorporated by reference into this Item 2.03.

 

 

Reference is made to the disclosure set forth in Item 1.01 of this Current Report on Form 8-K, which disclosure is incorporated by reference into this Item 3.02.

 

 

 

(d) The following exhibits are being filed herewith:

 

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.