Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS DEFICIT

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STOCKHOLDERS DEFICIT
 9 Months Ended
Jun. 30, 2024
Equity [Abstract]  
STOCKHOLDERS DEFICIT

7. STOCKHOLDERS DEFICIT

 

Common Stock

 

In January 2024 certain shareholders of the Company exchanged a total of 300,000 shares of Company’s Common Stock for 300,073 of pre-funded warrants to purchase shares of Common Stock. At the date of the exchange, the fair value of the common stock received approximates the fair value of the warrants issued. The pre-funded warrants are fully vested, exercisable at $0.001 per share, and expire in 5 years.

 

2013 Stock Incentive Plan

 

On September 1, 2023, a majority of shareholders approved the 2023 Stock Plan with 455,169 common shares reserved to be issued under the plan. As of June 30, 2024, there were no issuances under the new plan.

 

On June 18, 2013, the Company established the 2013 Stock Incentive Plan (the “2013 Plan”). Under the 2013 Plan, the Company can issue or grant a total of 185,571 shares, as amended. On June 18, 2023, the 2013 Stock Incentive Plan expired, and no shares are available for grants under the 2013 Plan.

 

 

ARCH THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2024 AND 2023

(Unaudited)

 

Common Stock Options

 

Stock compensation activity under the 2013 Plan for the nine months ended June 30, 2024 follows:

 

   

Option

Shares

Outstanding

    

Weighted

Average

Exercise

Price

    

Weighted

Average

Remaining

Contractual

Term

(years)

    

Aggregate

Intrinsic

Value

  
Outstanding at September 30, 2023     102,125     $ 38.00       5.58     $ —  
Awarded     —       —       —       —  
Forfeited/Cancelled     (1,825 )     (67.00 )     —       —  
Outstanding at December 31, 2023     100,300       38.00       4.00       11,000  
Awarded     —       —       —       —  
Forfeited/Cancelled     (12,025 )     (58.00 )     —       —  
Outstanding at March 31, 2024     88,275     $ 35.00       5.00       —  
Awarded     —       —       —       —  
Forfeited/Cancelled     (250 )     (58.00 )     —       —  
Outstanding at June 30, 2024     88,025       35.00       4.00       —  
Vested at June 30, 2024     77,812     $ 40.00       3.25       —  

 

During the nine months ended June 30, 2024 and 2023, the Company recorded stock compensation expense of $36,232 and $210,789 to account the fair value of the stock options that vested.

 

As of June 30, 2024, there is approximately $34,397 of unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the 2013 Plan. The unrecognized compensation expense will be recognized over a weighted average vesting period of 1.18 years.

 

Common Stock Warrants

 

Common Stock Warrants activity for the nine months ended June 30, 2024 follows:

 

SCHEDULE OF STOCK WARRANTS ACTIVITY

   

Warrant

Shares

Outstanding

    

Weighted

Average

Exercise

Price

    

Weighted

Average

Remaining

Contractual

Term

(years)

    

Aggregate

Intrinsic

Value

  
Outstanding at September 30, 2023     26,284,002     $ 0.85       4.80     $ 13,958,846  
Awarded     —       —       —       —  
Forfeited/Cancelled     —       —       —       —  
Outstanding at December 31, 2023     26,284,002       0.74       4.51       170,879,690  
Awarded     440,238       0.15       4.75          
Forfeited/Cancelled     —       —       —       —  
Outstanding at March 31, 2024     26,724,240     $ 0.73       4.28       32,897,525  
Awarded     3,012,416       0.10       4.89          
Forfeited/Cancelled     —       —       —       —  
Outstanding at June 30, 2024     29,736,656     $ 0.67       4.12     $ 15,092,000  
Vested at June 30, 2024     29,736,656     $ 0.67                  

 

During the three months ended June 30, 2024, the Company issued warrants to purchase an aggregate of 3,012,416 shares of common stock to a number of investors as compensation for participation in debt and equity financing activities of the Company. The warrants were valued as of the dates of the issuances using the Black-Scholes Model, resulting an aggregate fair value of $3,961,276, which was recorded as financing expense. The warrants have exercise prices ranging between $0.000125 and $0.50 per share, have a term of 5 years, and are exercisable immediately.

 

Warrant Repricing

 

The Company had 29,736,656 warrants outstanding, including 19,661,911 warrants with exercise prices above $0.50 per share that were subject to a down-round anti-dilution provision. In May 2024 the Company issued notes (the “2024 First Notes”, see Note 4) convertible into common stock of the Company at an exercise price of $0.50 per share, resulting in a triggering event lowering the conversion price of the 19,661,191 warrants to $0.50 per share. When a down round provision is triggered, a financial impact due to the difference between the fair value of the warrants post-adjustment and their fair value immediately prior to the adjustment is recognized as deemed dividends. As a result, the Company recorded deemed dividends of $730,002 in our condensed consolidated financial statements for the three month and nine-month periods ended June 30, 2024.

 

Restricted Stock

 

For the three months ended June 30, 2024 and 2023, compensation expense recorded for the restricted stock awards was approximately $0, respectively. For the nine months ended June 30, 2024 and 2023, compensation expense recorded for the restricted stock awards was approximately $0 and $3,000, respectively.

 

As of June 30, 2024, there was no unrecognized compensation expense related to unvested restricted stock.