9. SUBSEQUENT EVENTS

From April 1, 2024 through April 3, 2024, the Company raised an additional $125,000 from three investors in the form of shareholder advances provided as a partial prepayment of each investor’s purchase price set forth on their respective signature pages to the PIPE SPA. If the transaction underlying the PIPE SPA, with respect to these advances, was not consummated by April 30, 2024, as amended, the Company would be obligated to repay all of the advances within three business days thereafter, provided, however, that in lieu of repayment each investor may in its sole discretion elect to receive, by notice to the Company, prefunded warrants and common warrants in lieu of repayment as if the PIPE SPA transaction had closed.

With respect to the $125,000 of the above referenced shareholder advances received in April 2024, if the Company’s Common Stock had not been approved to be listed on a qualifying national exchange by May 2, 2024, as amended, then the amount of prefunded warrants and common warrants that would otherwise be issuable in connection with the PIPE SPA specific to these advances shall be increased by twenty-five percent.

As of May 9, 2024, the Company had not been approved to be listed on a qualifying national exchange, had not repaid any advances, and had not received notice from any investors to receive pre-funded warrants and common warrants in lieu of prepayment.

From April 12, 2024 through May 1, 2024, the Company raised an additional $600,000 in shareholder advances from five investors. Such amounts are expected to be exchanged into a new senior secured note with 20% OID. Upon closing, all prior shareholder advances are expected to be applied toward or exchanged into the new senior note with a maturity date of June 30, 2024.

In May 2024, the Company issued its convertible notes payable totaling $2,220,000, in exchange for cash of $1,850,000, net of original issue discount of $370,000. The convertible notes payable are secured by the Company’s tangible and intangible assets, bears interest at a rate of 10% per annum, convertible to common stock at a conversion price of $0.50 per share and will mature on June 30, 2024. In addition, upon the closing of a transaction that results in the uplist of the Company’s common stock to a National Exchange, 100% of the then outstanding principal amount shall automatically convert into shares of common stock at a conversion price of $0.515625 per share, subject beneficial ownership limitation.

On June 12, 2024, the Company completed a second closing of its convertible notes payable totaling $180,000, in exchange for cash of $150,000, net of original issue discount of $30,000. All other terms were identical to the convertible notes payable issued by the Company in May 2024.

12. SUBSEQUENT EVENTS

In October and November 2023, the Company received shareholder advances in the aggregate of $450,000 to support the operations of the Company.

On November 8, 2023, the Company entered into a Securities Purchase Agreement (the “PIPE SPA”) with certain institutional and accredited individual investors (collectively, the “Investors”) providing for the issuance and sale by the Company to the Investors of (i) pre-funded warrants (the “PIPE Pre-Funded Warrants”) and (ii) warrants (the “PIPE Common Warrants” and together with the PIPE Pre-Funded Warrants, the “PIPE Warrants”). The PIPE Warrants will be issued as part of a private placement offering authorized by the Company’s Board of Directors (the “PIPE Offering”). The estimated aggregate gross proceeds for the sale of the PIPE Warrants will be approximately $7.1 million, before deducting the placement agent’s fees and other estimated fees and offering expenses payable by the Company. The closing of the PIPE Offering is contingent upon, among other conditions, a registration statement that registers the PIPE Warrant shares for resale being declared effective by the SEC, and the approval of the listing of the Common Stock on Nasdaq. The closing is expected to occur immediately prior to the pricing of the Uplist Transaction.

In November 2023, certain provisions of the Company’s Convertible Notes Payable, Senior Secured (See Note 6) and Exchange Notes (see Note 7) were amended to extend the date of the completion of an Uplist Transaction to March 15, 2024. In addition, upon effectivity of the Uplist Transaction, 50% of the then outstanding principal amount of the Convertible Notes Payable, Senior Secured and Exchange Notes shall automatically convert (the “Automatic Conversion”) into shares of Common Stock, with the conversion price for purposes of such Automatic Conversion of $4.00. Upon the Automatic Conversion and to the extent that the beneficial ownership of a holder of Convertible Notes Payable, Senior Secured and Convertible Notes Payable, Unsecured would increase over the applicable Ownership Limitation, the Holder will receive pre-funded warrants in lieu of shares of Common Stock otherwise issuable to the Holder in connection with the Automatic Conversion, which may be exercised on a cashless basis, shall be exercisable immediately upon issuance and shall contain a customary beneficial ownership limitation provision. In addition, upon the Automatic Conversion, the Holder shall receive a warrant (the “Uplist Conversion Warrant”) to purchase a number of shares of Common Stock equal to 6.3812 times the dollar amount under the Convertible Notes Payable, Senior Secured and Convertible Notes Payable, Unsecured that was converted in the Automatic Conversion. The Uplist Conversion Warrant shall have an exercise price per share of $4.00 and shall otherwise be identical to the PIPE Common Warrant.

In November 2023, the Company amended the Second A&R Registration Rights Agreement to that certain Second Amended and Restated Registration Rights Agreement, dated as of May 15, 2023 to (I) extend the filing deadline by which the Company is obligated to file with the SEC a registration statement under the Securities Act of 1933, as amended, registering certain securities issued in the 2022 Convertible Note Offering to the earlier of (i) the date that is 30 days following the Uplist Transaction and (ii) January 31, 2024 (such date was subsequently extended to March 15, 2024), and (II) to provide for the inclusion of the Registerable Securities (as defined therein) in the Uplist S-1 (as defined therein).

In November 2023, the Company also entered into an amendment to the Bridge SPA, with certain institutional and accredited individual investors that participated in the Bridge Offering. Under amendment, upon the closing of the next underwritten public offering of Common Stock (the “Qualifying Offering”), which the Company agreed is the Uplist Transaction, if the effective offering price to the public per share of Common Stock (the “Qualifying Offering Price”) is lower than $4.00 per share, then the Company shall issue additional Bridge Pre-Funded Warrants, or shares of Common Stock in lieu thereof to the extent necessary to cause the Company to meet the listing requirements of the Company’s proposed trading market in the Uplist Transaction, 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 $4.00.

Arch Therapeutics, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

As of March 31, 2024 (Unaudited) and September 30, 2023

The accompanying notes are an integral part of these condensed consolidated financial statements.

Arch Therapeutics, Inc. and Subsidiary

Condensed Consolidated Statements of Operations (Unaudited)

For the Three and Six Months Ended March 31, 2024 and 2023

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Arch Therapeutics, Inc. and Subsidiary

Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)

For the Three and Six Months Ended March 31, 2024 and 2023

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Arch Therapeutics, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended March 31, 2024 and 2023

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ARCH THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX-MONTHS ENDED MARCH 31, 2024 AND 2023

(Unaudited)