This Prospectus Supplement No. 1 supplements
the prospectus of Arch Therapeutics, Inc. (the “Company”, “we”, “us”,
or “our”) dated February 8, 2021 (as supplemented to date, the “Prospectus”)
with the following attached documents which we filed with the Securities and Exchange Commission on February 12, 2021:
This Prospectus Supplement No. 1 should be read in conjunction
with the Prospectus, which is required to be delivered with this Prospectus Supplement. This
prospectus supplement updates, amends and supplements the information included in the Prospectus. If there is any inconsistency
between the information in the Prospectus and this prospectus supplement, you should rely on the information in this Prospectus
Supplement.
The date of this Prospectus Supplement No. 1 is February 16,
2021
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):
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 ¨
On February 11, 2021, Arch Therapeutics,
Inc. (the “Company”) entered into a Securities Purchase Agreement (the “SPA”) with certain
institutional and accredited investors (collectively, the “Investors”) providing for the issuance and sale by
the Company to the Investors of an aggregate of (i) 43,125,004 shares (the “Shares”) of the Company’s
common stock, $0.001 par value per share (“Common Stock”), and (ii) Series K Warrants (the “Series
K Warrants”) to purchase an aggregate of 32,343,753 shares (the “Warrant Shares”) of Common Stock,
at a combined offering price of $0.16 per share and related warrant (the “2021 Financing”). The aggregate gross
proceeds for the sale of the Shares and Series K Warrants will be approximately $6.9 million, before deducting the placement
agent’s fees and expenses and other offering expenses payable by the Company. The closing of the sales of these securities
under the SPA is expected to occur on or about February 17, 2021 (the “Closing Date”).
The net proceeds to the Company from the 2021 Financing, after
deducting the placement agent’s fees and expenses other Company’s estimated offering expenses and excluding the proceeds,
if any, from the exercise of the Series K Warrants and Placement Agent Warrants (as defined below), are expected to be approximately
$6.2 million. The Company intends to use the net proceeds from the 2021 Financing primarily for working capital and general corporate
purposes, and has not allocated specific amounts of any such remaining net proceeds from this 2021 Financing for any specific purposes.
Upon the closing of the 2021 Financing,
the Investors will be issued Series K Warrants to purchase up to an aggregate of 32,343,753 shares of the Company’s
Common Stock in the aggregate. The Series K Warrants will (i) have an exercise price of $0.17 per share; (ii) have a term of
exercise equal to 5.5 years after their issuance date; (iii) be exercisable immediately after their issuance; and (iv) have a
provision preventing the exercisability of such Series K Warrant if, as a result of the exercise of the Series K 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 Company’s
Common Stock (the “Ownership Limitation”) immediately after giving effect to the exercise of the Series K
Warrant. The holder, upon notice to the Company, may increase or decrease the Ownership Limitation; provided that (i)
the Ownership Limitation may only be increased to a maximum of 9.99% of the Company’s Common Stock; and (ii) any
increase in the Ownership Limitation will not become effective until the 61st day after delivery of such waiver
notice. The number of shares of the Company’s Common Stock into which each of the Series K Warrants is exercisable and
the exercise price therefor are subject to adjustment as set forth in the Series K Warrants, including adjustments for stock
subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or
otherwise).
On February 11, 2021, the Company entered into a
registration rights agreement with the Investors (the “Registration Rights Agreement”), pursuant to which
the Company will be obligated, subject to certain conditions, to file with the Securities and Exchange Commission within 15
days after February 11, 2021 one or more registration statements (any such registration statement, a
“Resale Registration Statement”) to register the Shares and the 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.
SIGNATURES
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.
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ARCH THERAPEUTICS, INC.
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Dated: February 12, 2021
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By:
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/s/ Terrence W. Norchi, M.D.
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Name: Terrence W. Norchi, M.D.
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Title: President, Chief Executive Officer
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Exhibit 10.1
SECURITIES
PURCHASE AGREEMENT
This Securities Purchase
Agreement (this “Agreement”) is dated as of February 11, 2021, between Arch Therapeutics, Inc., a Nevada corporation
(the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors
and assigns, a “Purchaser” and collectively the “Purchasers”).
WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended
(the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions.
In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:
“Acquiring
Person” shall have the meaning ascribed to such term in Section 4.5.
“Action”
shall have the meaning ascribed to such term in Section 3.1(j).
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Board
of Directors” means the board of directors of the Company.
“Business
Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized
or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized
or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee”
or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental
authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New
York are generally are open for use by customers on such day.
“Closing”
means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
“Closing
Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable
parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii)
the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived.
“Commission”
means the United States Securities and Exchange Commission.
“Common
Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed.
“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.
“Company
Counsel” means Lowenstein Sandler LLP, with offices located at 1251 Avenue of the Americas, New York, NY 10020.
“Disclosure
Schedules” means the Disclosure Schedules of the Company delivered concurrently herewith.
“Disclosure
Time” means, (i) if this Agreement is signed on a day that is not a Trading Day or after 9:00 a.m. (New York City time)
and before midnight (New York City time) on any Trading Day, 9:01 a.m. (New York City time) on the Trading Day immediately following
the date hereof, unless otherwise instructed as to an earlier time by the Placement Agent, and (ii) if this Agreement is signed
between midnight (New York City time) and 9:00 a.m. (New York City time) on any Trading Day, no later than 9:01 a.m. (New York
City time) on the date hereof, unless otherwise instructed as to an earlier time by the Placement Agent.
“Effective
Date” means the earliest of the date that (a) the initial Registration Statement registering for resale all Shares and
Warrant Shares has been declared effective by the Commission, (b) all of the Shares and Warrant Shares have been sold pursuant
to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public
information required under Rule 144 and without volume or manner-of-sale restrictions, (c) following the one year anniversary
of the Closing Date provided that a holder of Shares or Warrant Shares is not an Affiliate of the Company, or (d) all of the Shares
and Warrant Shares may be sold pursuant to an exemption from registration under Section 4(a)(1) of the Securities Act without
volume or manner-of-sale restrictions and Company Counsel has delivered to such holders a standing written unqualified opinion
that resales may then be made by such holders of the Shares and Warrant Shares pursuant to such exemption which opinion shall
be in form and substance reasonably acceptable to such holders.
“Escrow
Agent” means Continental Stock Transfer & Trust Company, with offices at State Street, 30th Floor, New York, NY
10004.
“Escrow
Agreement” means the escrow agreement entered into, by and among the Company, the Escrow Agent and the Placement Agent
pursuant to which the Purchasers shall deposit Subscription Amounts with the Escrow Agent to be applied to the transactions contemplated
hereunder.
“Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(s).
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, consultants, officers or directors
of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of
the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for
services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder,
warrants to the Placement Agent in connection with the transactions pursuant to this Agreement and/or other securities exercisable
or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided
that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease
the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations)
or to extend the term of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved
by a majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities”
(as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection
therewith during the prohibition period in Section 4.12(a) herein, and provided that any such issuance shall only be to a Person
(or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset
in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to
the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in securities.
“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.
“FDA”
shall have the meaning ascribed to such term in Section 3.1(kk).
“FDCA”
shall have the meaning ascribed to such term in Section 3.1(kk).
“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).
“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(bb).
“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section 3.1(p).
“Legend
Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Material
Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(n).
“Per
Share Purchase Price” equals $0.16, subject to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Pharmaceutical
Product” shall have the meaning ascribed to such term in Section 3.1(jj).
“Placement
Agent” means H.C. Wainwright & Co., LLC.
“Prior
Registration Statement” means the registration statement with Commission file No. 333-213878 which registered the
sale of the Series F Warrants, Series G Warrants, Series H Warrants, Series I Warrants, Series I Placement Agent Warrants and
the shares issuable upon the exercise of such warrants.
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
“Public
Information Failure” shall have the meaning ascribed to such term in Section 4.2(b).
“Public
Information Failure Payments” shall have the meaning ascribed to such term in Section 4.2(b).
“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.8.
“Registration
Rights Agreement” means the Registration Rights Agreement, dated on or about the date hereof, among the Company and
the Purchasers, in the form of Exhibit A attached hereto.
“Registration
Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and
covering the resale by the Purchasers of the Shares and the Warrant Shares.
“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.
“Rule
424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.
“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means the Shares, the Warrants and the Warrant Shares.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Series
F Warrants” means the Company’s Series F Warrants that were issued upon the February 24, 2017 closing of the financing
that the Company conducted pursuant to the Prior Registration Statement.
“Series
G Warrants” means the Company’s Series G Warrants that were issued upon the July 2, 2018 closing of the financing
that the Company conducted pursuant to the Prior Registration Statement.
Series
H Warrants” means the Company’s Series H Warrants that were issued upon the May 14, 2019 closing of the financing
that the Company conducted pursuant to the Prior Registration Statement.
Series
I Warrants” means the Company’s Series I Warrants that were issued upon the October 18, 2019 closing of the financing
that the Company conducted pursuant to the Prior Registration Statement.
Series
I Placement Agent Warrants” means the Company’s Series I Warrants that were issued upon the October 18, 2019 closing
of the financing that the Company conducted pursuant to the Prior Registration Statement.
“Shares”
means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement, but excluding the Warrant Shares.
“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall
not be deemed to include locating and/or borrowing shares of Common Stock).
“Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as
specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available funds.
“Subsidiary”
means any subsidiary of the Company as set forth in the SEC Reports and shall, where applicable, also include any direct or indirect
subsidiary of the Company formed or acquired after the date hereof.
“Trading
Day” means a day on which the principal Trading Market is open for trading.
“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).
“Transaction
Documents” means this Agreement, the Warrants, the Registration Rights Agreement, all exhibits and schedules thereto
and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Transfer
Agent” means Empire Stock transfer, the current transfer agent of the Company, with a mailing address of 1859 Whitney
Mesa Drive, Henderson, NV 89014 and a facsimile number of (702) 974-1444, and any successor transfer agent of the Company.
“Variable
Rate Transaction” shall have the meaning ascribed to such term in Section 4.12(b).
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a
Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or
OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the
Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market
value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority
in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall
be paid by the Company.
“Warrants”
means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Warrants shall be exercisable immediately upon issuance and have a term of exercise equal to five (5) years,
in the form of Exhibit A attached hereto.
“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing.
On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution
and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly,
agree to purchase, up to an aggregate of approximately $6.9 million of Shares and Warrants. Each Purchaser shall deliver to the
Escrow Agent, via wire transfer, immediately available funds equal to such Purchaser’s Subscription Amount as set forth
on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Shares
and Warrants, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth
in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of the Placement Agent or such other location as the parties shall mutually agree. Notwithstanding
anything to the contrary herein and the Purchaser’s Subscription Amount set forth on the signature pages attached hereto,
the number of Shares purchased by a Purchaser (and its Affiliates) hereunder shall not, when aggregated with all other shares
of Common Stock beneficially owned by such Purchaser (and its Affiliates) at such time, result in such Purchaser beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act) in excess of 9.99% of the number of shares of the
Common Stock issued and outstanding immediately after giving effect to the issuance of the Securities on the Closing Date(the
“Beneficial Ownership Maximum”), and such Purchaser’s Subscription Amount, to the extent it would otherwise
exceed the Beneficial Ownership Maximum immediately prior to the Closing, shall be conditioned upon the issuance of Shares at
the Closing to the other Purchasers signatory hereto. To the extent that a Purchaser’s beneficial ownership of the Shares
would otherwise be deemed to exceed the Beneficial Ownership Maximum, such Purchasers’ Subscription Amount shall automatically
be reduced as necessary in order to comply with this paragraph.
2.2 Deliveries.
(a) On
or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:
(i) this
Agreement duly executed by the Company;
(ii) a
legal opinion of Company Counsel, in a form reasonably acceptable to the Placement Agent and Purchasers;
(iii) a
copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver, on an expedited basis, a
certificate evidencing a number of Shares equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase
Price, registered in the name of such Purchaser;
a Common Warrant
registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 75% of such Purchaser’s
Shares, with an exercise price equal to $0.17, subject to adjustment therein; and
(iv) the
Registration Rights Agreement duly executed by the Company.
(b) On
or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company or the Escrow Agent, as applicable,
the following:
(i) this
Agreement duly executed by such Purchaser;
(ii) the
Escrow Agent, such Purchaser’s Subscription Amount by wire transfer to the account specified in the Escrow Agreement; and
(iii) the
Registration Rights Agreement duly executed by such Purchaser.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse
Effect, in all respects) on the Closing Date of the representations and warranties of the Purchasers contained herein (unless
as of a specific date therein in which case they shall be accurate as of such date);
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been
performed; and
(iii) the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.
(b)
The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions
being met:
(i) the
accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse
Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein
(unless as of a specific date therein in which case they shall be accurate as of such date);
(ii) all
obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been
performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company since the date hereof; and
(v) from
the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s
principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the
Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations
and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed
a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding
section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:
(a) Subsidiaries.
All of the direct and indirect subsidiaries of the Company are set forth in the SEC Reports. The Company owns, directly or indirectly,
all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or
any of them in the Transaction Documents shall be disregarded.
(b) Organization
and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power
and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company
nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c) Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders
in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction
Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by applicable law.
(d) No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon
any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, anti-dilution
or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected,
or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i)
the filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission pursuant to the Registration
Rights Agreement, (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities
and the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby and (iv) the filing
of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively,
the “Required Approvals”).
(f) Issuance
of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares, when issued in accordance with the
terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed
by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its
duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants.
(g) Capitalization.
The capitalization of the Company as of the date hereof is as set forth on Schedule 3.1(g). The Company has not issued
any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of
employee stock options under the Company’s stock option plans, the issuance of stock options or shares of Common Stock to
employees or consultants pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise
of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. Except
as described in Schedule 3.1(g), no Person has any right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by the Transaction Documents. Except as described in Schedule
3.1(g) and except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible
into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock
or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any
Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common
Stock or other securities to any Person (other than the Purchasers). There are no outstanding securities or instruments of the
Company or any Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or
instrument upon an issuance of securities by the Company or any Subsidiary. Other than the Series F Warrants, Series G Warrants,
Series H Warrants, Series I Warrants and Series I Placement Agent Warrants, there are no outstanding securities or instruments
of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary.
The Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities.
There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
(h) SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and
none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company is an issuer subject to Rule 144(i) under the Securities Act. The financial statements
of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as set forth on Schedule 3.1(i), (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant
to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed
or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated
by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development
has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective
businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.
(j) Litigation.
There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse
Effect. Since May 24, 2013, neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject
of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or (from May 24, 2013) former director or officer of the Company. Except as described
in Schedule 3.1(j), the Commission has not issued any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company
or any Subsidiary is, or is now expected to be, in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company
or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are
in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices,
terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Compliance.
Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree, or order of any
court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse Effect.
(m) Environmental
Laws. The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to
pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or
subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment,
or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental
Laws”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license
or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect.
(n) Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation
or modification of any Material Permit.
(o) Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them
and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries,
in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens
for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP
and the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance in all material respects.
(p) Intellectual
Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, copyrights, licenses and other intellectual property rights necessary
or required for use in connection with their respective businesses as described in the SEC Reports and which the failure to so
have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). As of the date
hereof, except as described on Schedule 3.1(p), neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or
terminate or be abandoned, within two (2) years from the date of this Agreement, except those Intellectual Property Rights which
the Company has determined not to pursue. Except as described on Schedule 3.1(p), neither the Company nor any Subsidiary
has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a
claim or otherwise has any knowledge that the Company’s proposed products violate or infringe upon the rights of any Person,
except as could not have or reasonably be expected to not have a Material Adverse Effect. Except as described on Schedule 3.1(p),
to the knowledge of the Company, all of its Intellectual Property Rights are enforceable and as of the date hereof, there is no
existing infringement by another Person of any of its Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except
where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(q) Insurance.
The Company and the Subsidiaries are insured against such losses and risks and in such amounts as the Board of Directors of the
Company has determined, in its good faith business judgment, to be necessary or prudent for the businesses in which the Company
and the Subsidiaries are currently engaged, including, but not limited to, customary directors and officers insurance coverage
at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business.
(r) Transactions
with Affiliates and Employees. Except as set forth on Schedule 3.1(r), since October 1, 2016, none of the officers
or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any
Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise
requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member
or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.
(s) Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance in all material respects with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable
rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing
Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance
that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and
procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company
and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such
date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial
reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or
is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
(t) Certain
Fees. Except for the fees and expenses of the Placement Agent, no brokerage or finder’s fees or commissions are or will
be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall
have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
(u) Private
Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
(v) Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject
to registration under the Investment Company Act of 1940, as amended.
(w) Registration
Rights. Except as set forth on Schedule 3.1(w) and other than each of the Purchasers, no Person has any right to cause
the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
(x) Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating
terminating such registration. Except as set forth on Schedule 3.1(x), the Company has not, in the 12 months preceding
the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and
has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance
requirements. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established
clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established
clearing corporation) in connection with such electronic transfer.
(y) Application
of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation
as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.
(z) Disclosure.
Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel
with any information that it believes constitutes or might constitute material, non-public information. The Company understands
and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.
All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their
respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true
and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order
to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The press releases
disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any
untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were made and when made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2 hereof.
(aa) No
Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2,
neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering
of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would
require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions
of any Trading Market on which any of the securities of the Company are listed or designated.
(bb) Solvency.
Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements
and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. Schedule 3.1(bb) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred
in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness
of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required
to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
(cc) Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and
local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which
it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably
adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company or of any Subsidiary know of no basis for any such claim.
(dd) No
General Solicitation. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers
and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.
(ee) Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent
or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties
or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary
(or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated
in any material respect any provision of FCPA.
(ff) Accountants.
Moody, Famiglietti & Andronico, LLP is the Company’s independent registered public accounting firm. To the knowledge
and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act
and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual
Report for the fiscal year ending December 31, 2020.
(gg) No
Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the
Transaction Documents.
(hh) Acknowledgment
Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated
thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given
by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents
to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been
based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
(ii) Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Sections 3.2(g) and 4.14 hereof), it is understood and acknowledged by the Company that: (i) none of the
Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold
the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future
financing transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any
Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly,
presently may have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have
any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company
further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant
Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce
the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are
being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any
of the Transaction Documents.
(jj) Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting
another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company’s placement agent in connection with the placement of the Securities.
(kk) FDA.
As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (“FDA”) under the Federal
Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged,
labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical
Product”), to the Company’s knowledge, such Pharmaceutical Product is being manufactured, packaged, labeled, tested,
distributed, sold and/or marketed by the Company in compliance with all applicable requirements under FDCA and similar laws, rules and
regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing
practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping
and filing of reports, except where the failure to be in compliance could not reasonably be expected to have a Material Adverse
Effect. There is no pending or, to the Company's knowledge, threatened, action (including any lawsuit, arbitration, or legal or
administrative or regulatory proceeding, charge, complaint, or investigation) against the Company or any of its Subsidiaries,
and none of the Company or any of its Subsidiaries has received any written notice, warning letter or other communication from
the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval
of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion
of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws
or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes
a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility
of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction
with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations
by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect. The properties, business and operations of the Company have been and are being conducted in all
material respects in accordance with all applicable laws, rules and regulations of the FDA. The Company has not received
written notice from the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product
proposed to be developed, produced or marketed by the Company.
(ll) RESERVED.
(mm) Stock
Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in
accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the
fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law.
No stock option granted under the Company’s stock option plan has been backdated. The Company has not knowingly granted,
and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly
coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company
or its Subsidiaries or their financial results or prospects.
(nn) Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer,
agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office
of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
(oo) U.S.
Real Property Holding Corporation. The Company is not and since May 24, 2013 has not been a U.S. real property holding
corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so
certify upon Purchaser’s request.
(pp) Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of its Affiliates
is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board
of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries
nor, to the Company’s knowledge, any of its or Affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries
or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the
BHCA and to regulation by the Federal Reserve.
(qq) Money
Laundering. The operations of the Company and its Subsidiaries are and since May 24, 2013 have been conducted at all
times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively,
the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority
or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to
the knowledge of the Company or any Subsidiary, threatened.
(rr) No
Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506
under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer,
other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s
outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405
under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”
and, together, “Issuer Covered Persons”) is subject to any of the "Bad Actor" disqualifications described
in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except
for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine
whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable,
with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided
thereunder.
(ss) Other
Covered Persons. Other than the Placement Agent, the Company is not aware of any person (other than any Issuer Covered Person)
that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale
of any Securities.
(tt) Notice
of Disqualification Events. The Company will notify the Purchasers and the Placement Agent in writing, prior to the Closing
Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the
passage of time, become a Disqualification Event relating to any Issuer Covered Person.
3.2 Representations
and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as
of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they
shall be accurate as of such date):
(a) Organization;
Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability
company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary
corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction
Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with
the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited
by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar
as indemnification and contribution provisions may be limited by applicable law.
(b) Own
Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered
under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account
and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act
or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons
to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities
law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.
(c) Purchaser
Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on
which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer”
as defined in Rule 144A(a) under the Securities Act. Such Purchaser hereby represents that neither such Purchaser nor
any of its Rule 506(d) Related Parties (as defined below) is a “bad actor” within the meaning of Rule 506(d) promulgated
under the Securities Act. For purposes of this Agreement, “Rule 506(d) Related Party” shall mean a person
or entity covered by the “Bad Actor disqualification” provision of Rule 506(d) of the Securities Act.
(d) Experience
of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e) General
Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented
at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.
(f) Access
to Information. Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including
all exhibits and schedules thereto) and the SEC Reports and has been afforded (i) the opportunity to ask such questions as
it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of
the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about
the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses
or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to
the investment. Such Purchaser acknowledges and agrees that neither the Placement Agent nor any Affiliate of the Placement
Agent has provided such Purchaser with any information or advice with respect to the Securities nor is such information or advice
necessary or desired. Neither the Placement Agent nor any Affiliate has made or makes any representation as to the Company
or the quality of the Securities and the Placement Agent and any Affiliate may have acquired non-public information with respect
to the Company which such Purchaser agrees need not be provided to it. In connection with the issuance of the Securities
to such Purchaser, neither the Placement Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such
Purchaser.
(g) Certain
Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser has not,
nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any
purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that
such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting
forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall
only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchaser’s representatives,
including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates,
such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including
the existence and terms of this transaction). Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein
shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order
to effect Short Sales or similar transactions in the future.
The Company acknowledges and agrees that
the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely
on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained
in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement
or the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance of doubt, nothing
contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing
shares in order to effect Short Sales or similar transactions in the future.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser
or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide
to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration
of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing
to be bound by the terms of this Agreement and the Registration Rights Agreement and shall have the rights and obligations of
a Purchaser under this Agreement and the Registration Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the
following form:
[NEITHER] THIS SECURITY [NOR
THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE] [HAS NOT BEEN] REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY [AND
THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH
A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED
IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company
acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement,
such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall
be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s
expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably
request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant
to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under
the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders
(as defined in the Registration Rights Agreement) thereunder.
(c) Certificates
evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof),
(i) while a registration statement (including the Registration Statement) covering the resale of such security is effective
under the Securities Act, (ii) following any sale of such Shares or Warrant Shares pursuant to Rule 144 (assuming cashless
exercise of the Warrants), (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144 (assuming cashless
exercise of the Warrants), or (iv) if such legend is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue
a legal opinion to the Transfer Agent or the Purchaser promptly after the Effective Date if required by the Transfer Agent to
effect the removal of the legend hereunder, or if requested by a Purchaser, respectively. If all or any portion of a Warrant is
exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares, or if such Shares
or Warrant Shares may be sold under Rule 144 (assuming cashless exercise of the Warrants), or if the Shares or Warrant Shares
may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of the Commission) then such Warrant Shares shall be
issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required
under this Section 4.1(c), it will, no later than two (2) Trading Days following the delivery by a Purchaser to the
Company or the Transfer Agent of a certificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive
legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records
or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates
for Securities subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the
account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used
herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days,
on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate
representing Shares or Warrants Shares, as the case may be, issued with a restrictive legend.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, (i) as partial
liquidated damages and not as a penalty, for each $1,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock on
the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c),
$10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for
each Trading Day after the Legend Removal Date until such certificate is delivered without a legend and (ii) if the Company
fails to (a) issue and deliver (or cause to be delivered) to a Purchaser by the Legend Removal Date a certificate representing
the Securities so delivered to the Company by such Purchaser that is free from all restrictive and other legends and (b) if
after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of Common Stock, or a sale of
a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock that such Purchaser anticipated
receiving from the Company without any restrictive legend, then, an amount equal to the excess of such Purchaser’s total
purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased
(including brokerage commissions and other out-of-pocket expenses, if any) (the “Buy-In Price”) over the product
of (A) such number of Shares or Warrant Shares that the Company was required to deliver to such Purchaser by the Legend Removal
Date multiplied by (B) the lowest closing sale price of the Common Stock on any Trading Day during the period commencing
on the date of the delivery by such Purchaser to the Company of the applicable Shares or Warrant Shares (as the case may be) and
ending on the date of such delivery and payment under this clause (ii).
(e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities
pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements,
or in compliance with Rule 144 promulgated under the Securities Act, and that if Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal
of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the
Company’s reliance upon this understanding.
4.2 Furnishing
of Information; Public Information.
(a) Until
the earliest of the time that (i) no Purchaser owns Securities or (ii) the Warrants have expired, the Company covenants
to use its reasonable best efforts to maintain the registration of the Common Stock under Section 12(b) or 12(g) of
the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then
subject to the reporting requirements of the Exchange Act.
(b) At
any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that
all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and
otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy
the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or
becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a
“Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company
shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction
of its ability to sell the Securities, an amount in cash equal to the product of (A) two percent (2.0%); (B) the Per
Share Purchase Price; and (C)) the number of Shares held by the Purchaser on the date a Public Information Failure Payment (as
defined below) accrues. Public Information Payments shall accrue on the day of a Public Information Failure and on every thirtieth
(30th) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date
such Public Information Failure is cured and (b) such time that such public information is no longer required for the
Purchasers to transfer the Shares and Warrant Shares pursuant to Rule 144. The payments to which a Purchaser shall
be entitled pursuant to this Section 4.2(b) are referred to herein as “Public Information Failure Payments.”
Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such
Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure
giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information
Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages
for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance and/or injunctive relief.
4.3 Integration.
The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined
in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent
transaction.
4.4 Securities
Laws Disclosure; Publicity. The Company shall (a) by the Disclosure Time, issue a press release disclosing the material
terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K, including the Transaction
Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. From and after the issuance of
such press release, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information
delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors,
employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon
the issuance of such press release, the Company acknowledges and agrees that any and all confidentiality or similar obligations
under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers,
directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other
hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect
to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise
make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably
be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide
the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal
securities law in connection with (i) any registration statement contemplated by the Registration Rights Agreement and (ii) the
filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under
this clause (b).
4.5 Shareholder
Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that
any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted
by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.
4.6 Non-Public
Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction
Documents, which shall be disclosed pursuant to Section 4.4, the Company covenants and agrees that neither it, nor any other
Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the
Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented
to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands
and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
To the extent that the Company delivers any material, non-public information to a Purchaser without such Purchaser’s consent,
the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of
its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, any
of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis
of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that
any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding
the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company.
4.7 Use
of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction of any
portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business
and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement
of any outstanding litigation or (d) in violation of FCPA or OFAC regulations.
4.8 Indemnification
of Purchasers. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and
its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent
role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers,
shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding
such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation
that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any
action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder
of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a material breach of such Purchaser Party’s representations, warranties or covenants
under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or
any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which is finally
judicially determined to constitute fraud, gross negligence or willful misconduct). If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party
except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company
and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses
of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for
any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable
to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.8 shall be
made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received
or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any
Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
4.9 Reservation
of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available
at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company
to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.10 Listing
of Common Stock. The Company hereby agrees to use its best efforts to maintain the listing or quotation of the Common Stock
on the Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply to list or quote
all of the Shares and Warrant Shares on such Trading Market and promptly secure the listing of all of the Shares and Warrant Shares
on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading
Market, it will then include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary
to cause all of the Shares and Warrant Shares to be listed or quoted on such other Trading Market as promptly as possible. The
Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market
and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of
the Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository
Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository
Trust Company or such other established clearing corporation in connection with such electronic transfer.
4.11 [RESERVED]
4.12 Subsequent
Equity Sales.
(a) From
the date hereof until 30 days after the Effective Date, neither the Company nor any Subsidiary shall (i) issue, enter into
any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents
or (ii) file any registration statement or any amendment or supplement thereto, in each case other than as contemplated pursuant
to the Registration Rights Agreement.
(b) From
the date hereof until the one-year anniversary of the date hereof, the Company shall be prohibited from effecting or entering
into an agreement 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. “Variable Rate Transaction” means
a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price,
exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for
the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company
or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not
limited to, an equity line of credit, whereby the Company may issue securities at a future determined price; provided, however,
that after the 30 day time period in Section 4.12(a) expires, the Company may enter into and effect sales pursuant to
an at–the-market offering facility with the Placement Agent. Any Purchaser shall be entitled to obtain injunctive relief
against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
(c) Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.
4.13 Equal
Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid
to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate
right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect
to the purchase, disposition or voting of Securities or otherwise.
4.14 Certain
Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither
it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including
Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending
at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release
as described in Section 4.4. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until
such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press
release as described in Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms of this
transaction and the information included in the Disclosure Schedules. Notwithstanding the foregoing and notwithstanding
anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser
makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the
Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial
press release as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions
in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated
by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 and (iii) no
Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries
after the issuance of the initial press release as described in Section 4.4. Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of
such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered
by this Agreement.
4.15 Form D;
Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation
D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers
at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide
evidence of such actions promptly upon request of any Purchaser.
4.16 Capital
Changes. Until the 180 day anniversary of the Effective Date, the Company shall not undertake a reverse or forward stock split
or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interest of
the Shares, other than in connection with the uplisting of the Common Stock to the Nasdaq Stock Market or the New York Stock Exchange.
4.17 Acknowledgment
of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including, without limitation, its obligation to issue the Shares and Warrant Shares
pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay
or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless
of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
ARTICLE V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing
has not been consummated on or before the fifth (5th) Trading Day following the date hereof; provided, however,
that no such termination will affect the right of any party to sue for any breach by any other party (or parties).
5.2 Fees
and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident
to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent
fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company
and any exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery
of any Securities to the Purchasers.
5.3 Entire
Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of
the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral
or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and
shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is
delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached
hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission,
if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as
set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York
City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to
be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. To
the extent that any notice provided pursuant to any Transaction Document constitutes, or contains material, non-public information
regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant
to a Current Report on Form 8-K.
5.5 Amendments;
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Company and Purchasers which purchased at least 50.1% in interest of the Shares based on the
initial Subscription Amounts hereunder or, in the case of a waiver, by the party against whom enforcement of any such waived provision
is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group
of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No
waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser
relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely
affected Purchaser. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder
of Securities and the Company.
5.6 Headings.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of
each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to
whom such Purchaser assigns or transfers any Securities, provided that (i) such transfer complies with applicable securities
laws and (ii) such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions
of the Transaction Documents that apply to the “Purchasers.”
5.8 No
Third-Party Beneficiaries. The Placement Agent shall be the third party beneficiary of the representations and warranties
of the Company in Section 3.1 and the representations and warranties of the Purchasers in Section 3.2. This Agreement
is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8 and this
Section 5.8.
5.9 Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall
be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including
with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action
or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence
an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company
under Section 4.8, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for
its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution
of such Action or Proceeding.
5.10 Survival.
The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.
5.11 Execution.
This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being
understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.
5.12 Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of)
any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser
may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand
or election in whole or in part without prejudice to its future actions and rights; provided, however, that, in
the case of a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded exercise notice concurrently with the return to such Purchaser of the aggregate exercise price
paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such
Purchaser’s Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
5.14 Replacement
of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation),
or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory
to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances
shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement
Securities.
5.15 Remedies.
In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 Payment
Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document
or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from,
disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
5.17 Independent
Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several
and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance
or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers
are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser
to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate
legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each
Purchaser and its respective counsel have chosen to communicate with the Company through Sheppard Mullin. Sheppard Mullin does
not represent any of the Purchasers and only represents the Placement Agent. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested
to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in
each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers
collectively and not between and among the Purchasers.
5.18 Liquidated
Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction
Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages
or other amounts are due and payable shall have been canceled.
5.19 Saturdays,
Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such
action may be taken or such right may be exercised on the next succeeding Business Day.
5.20 Construction.
The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition,
each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment
for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that
occur after the date of this Agreement.
5.21 WAIVER
OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY
AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
ARCH THERAPEUTICS, INC.
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Address for Notice:
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By:
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Email:
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Name:
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Fax:
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Title:
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With a copy to (which shall not constitute notice):
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO ARTH SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF,
the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.
Name of Purchaser: _________________________________________________________________
Signature of Authorized Signatory of
Purchaser: ___________________________________________
Name of Authorized Signatory: _____________________________________________________________
Title of Authorized Signatory: ______________________________________________________________
Email Address of Authorized Signatory:
_______________________________________________________
Facsimile Number of Authorized Signatory: ______________________________________________________
Address for Notice to Purchaser:
Address for Delivery of Securities to Purchaser (if not same
as address for notice):
Subscription Amount: $____________________
Shares: ____________________
Common Warrants: _____________________
EIN Number: __________________________
[SIGNATURE PAGES CONTINUE]
Exhibit 10.2
NEITHER THIS SECURITY NOR THE SECURITIES
FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE
OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
SERIES K COMMON STOCK PURCHASE WARRANT
Arch
therapeutics, inc.
Warrant Shares: I-
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Initial Exercise Date: February 17, 2021
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THIS SERIES K COMMON
STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the
“Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New
York City time) on August 17, 2026 (the “Termination Date”) but not thereafter, to subscribe for and purchase
from Arch Therapeutics, Inc., a Nevada corporation (the “Company”), up to ______ shares (as subject to
adjustment hereunder, the “Warrant Shares”) of the Company’s Common Stock. The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the “Purchase Agreement”), dated February 11, 2021 among the Company and the purchasers signatory
thereto.
Section 2. Exercise.
a) Exercise
of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times
on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or
agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing
on the books of the Company) of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice
of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading
Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein)
following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified
in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless
exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original
Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice
of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading
Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting
in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder
and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company
shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following
the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any
given time may be less than the amount stated on the face hereof.
b) Exercise
Price. The exercise price per share of Common Stock under this Warrant shall be $0.17, subject to adjustment hereunder (the
“Exercise Price”).
c) Cashless
Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained
therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may only be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number
of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
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(A)
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as applicable: (i) the VWAP
on the Trading Day immediately preceding the date of the applicable Notice of Exercise
if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof
on a day that is not a Trading Day or (2) both executed and delivered pursuant to
Section 2(a) hereof on a Trading Day prior to the opening of “regular
trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated
under the federal securities laws) on such Trading Day, (ii) at the option of the
Holder, either (y) the VWAP on the Trading Day immediately preceding the date of
the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the
principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s
execution of the applicable Notice of Exercise if such Notice of Exercise is executed
during “regular trading hours” on a Trading Day and is delivered within two
(2) hours thereafter (including until two (2) hours after the close of “regular
trading hours” on a Trading Day) pursuant to Section 2(a) hereof
or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of
such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed
and delivered pursuant to Section 2(a) hereof after the close of “regular
trading hours” on such Trading Day;
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(B)
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=
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the Exercise Price of this Warrant, as adjusted hereunder; and
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(X)
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=
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the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant
if such exercise were by means of a cash exercise rather than a cashless exercise.
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“Bid
Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the
nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or
OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if
prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of
a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which
shall be paid by the Company.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is
then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX
is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on
OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices
for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of
a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which
shall be paid by the Company.
d) Mechanics
of Exercise.
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i.
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Delivery of Warrant Shares Upon
Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted
by the Transfer Agent to the Holder by crediting the account of the Holder’s or
its designee’s balance account with The Depository Trust Company through its Deposit
or Withdrawal at Custodian system (“DWAC”) if the Company is then
a participant in such system and either (A) there is an effective registration statement
permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the
Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise
by physical delivery of a certificate, registered in the Company’s share register
in the name of the Holder or its designee, for the number of Warrant Shares to which
the Holder is entitled pursuant to such exercise to the address specified by the Holder
in the Notice of Exercise by the date that is the earlier of (A) the earlier of
(i) two (2) Trading Days and (ii) the number of days comprising the Standard
Settlement Period, in each case after the delivery to the Company of the Notice of Exercise
and (B) one (1) Trading Day after delivery of the aggregate Exercise Price
to the Company (such date, the “Warrant Share Delivery Date”). Upon
delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes
to have become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares,
provided that payment of the aggregate Exercise Price (other than in the case of a cashless
exercise) is received by the Warrant Share Delivery Date. If the Company fails for any
reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by
the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise
(based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise),
$10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after
such liquidated damages begin to accrue) for each Trading Day after such Warrant Share
Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
The Company agrees to maintain a transfer agent that is a participant in the FAST program
so long as this Warrant remains outstanding and exercisable. As used herein, “Standard
Settlement Period” means the standard settlement period, expressed in a number
of Trading Days, on the Company’s primary Trading Market with respect to the Common
Stock as in effect on the date of delivery of the Notice of Exercise.
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ii. Delivery
of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing
the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant.
iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by
the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation
for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder,
if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions
of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which
the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash
to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of
Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the
price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder,
either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in
which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No
Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
vi. Charges,
Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for
any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice
of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions)
required for same-day electronic delivery of the Warrant Shares.
vii. Closing
of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.
e) Holder’s
Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to
such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates,
and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution
Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes
of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution
Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise
or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation,
any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence,
for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company
is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and
the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation
contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant
is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be
the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together
with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the
Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.
In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in
determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common
Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case
may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder,
the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect
to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution
Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be [9.99/4.99%] of the number of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may
increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall
continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after
such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall
apply to a successor holder of this Warrant.
Section 3. Certain
Adjustments.
a) Stock
Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines
(including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues
by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares,
if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted
such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall
become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company
grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata
to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could
have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before
the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result
in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase
Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent)
and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto
would not result in the Holder exceeding the Beneficial Ownership Limitation).
c) Pro
Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation
in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution
would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution
to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time,
if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more
related transactions effects any merger or consolidation of the Company with or into another Person (other than for the purpose
of changing the name or the domicile of the Company), (ii) the Company (and all of its Subsidiaries, taken as a whole), directly
or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer
or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted
to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or
more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects
any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which
the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly
or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person
or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the
other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each
Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction,
at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant),
the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental
Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such
Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For
purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting
the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice
as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company
shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor
Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents
in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall,
at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by
a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number
of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock
(but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value
of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting
the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this
Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant
and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
e) Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding
as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
f) Notice
to Holder.
i. Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company
shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and
any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause
to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the
Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified,
a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities,
cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided
that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes,
or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously
file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise
this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice
except as may otherwise be expressly set forth herein.
Section 4. Transfer
of Warrant.
a) Transferability.
Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to
the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the
Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants
in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender
this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to
the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new
holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New
Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of
the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved
in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated
the Issue Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant
thereto.
c) Warrant
Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
d) Transfer
Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer
of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act
and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions
or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such
transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of
the Purchase Agreement.
e) Representation
by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any
exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities
law, except pursuant to sales registered or exempted under the Securities Act.
Section 5. Miscellaneous.
a) No
Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly
set forth in Section 3.
b) Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case
of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
c) Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.
d) Authorized
Shares.
The Company
covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The
Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common
Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant
Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens
and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
Except and
to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending
its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as
may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares
upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform
its obligations under this Warrant.
Before taking
any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction.
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
f) Restrictions.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder
does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver
and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision
of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant,
which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings,
incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
h) Notices.
Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered
in accordance with the notice provisions of the Purchase Agreement.
i) Limitation
of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
j) Remedies.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors
and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.
n) Headings.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company has caused
this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
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arch therapeutics, inc.
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By:
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Name:
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Title:
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SERIES K COMMON STOCK PURCHASE WARRANT
NOTICE OF EXERCISE
To: arch
therapeutics, inc.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only
required if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Payment
shall take the form of (check applicable box):
¨ in lawful money of the United
States; or
¨ if permitted the cancellation
of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise
this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set
forth in subsection 2(c).
(3) Please
issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
__________________________________
The Warrant Shares shall be delivered
to the following DWAC Account Number:
__________________________________
__________________________________
__________________________________
[SIGNATURE
OF HOLDER]
Name of Investing Entity:
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Signature of Authorized Signatory of Investing Entity:
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Name of Authorized Signatory:
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Title of Authorized Signatory:
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EXHIBIT B
SERIES K COMMON STOCK PURCHASE WARRANT
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant
and all rights evidenced thereby are hereby assigned to
Name:
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(Please Print)
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Address:
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(Please Print)
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Phone Number:
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Email Address:
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Dated: _______________ __, ______
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Holder’s Signature:
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Holder’s Address:
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Exhibit 10.3
Execution Version
February 8, 2021
STRICTLY CONFIDENTIAL
Arch Therapeutics, Inc.
235 Walnut Street, Suite 6
Framingham, Massachusetts 01702
Attn: Terrence W. Norchi, M.D., President and Chief Executive
Officer
Dear Dr. Norchi:
This letter agreement
(this “Agreement”) constitutes the agreement between Arch Therapeutics, Inc. (the “Company”)
and H.C. Wainwright & Co., LLC (“Wainwright”), that Wainwright shall serve as the exclusive agent, advisor
or underwriter in any offering (each, an “Offering”) of securities of the Company (the “Securities”)
during the Term (as hereinafter defined) of this Agreement. The terms of each Offering and the Securities issued in connection
therewith shall be mutually agreed upon by the Company and Wainwright and nothing herein implies that Wainwright would have the
power or authority to bind the Company and nothing herein implies that the Company shall have an obligation to issue any Securities.
It is understood that Wainwright’s assistance in an Offering will be subject to the satisfactory completion of such investigation
and inquiry into the affairs of the Company as Wainwright deems appropriate under the circumstances and to the receipt of all internal
approvals of Wainwright in connection with an Offering. The Company expressly acknowledges and agrees that Wainwright’s involvement
in an Offering is strictly on a reasonable best efforts basis and that the consummation of an Offering will be subject to, among
other things, market conditions. The execution of this Agreement does not constitute a commitment by Wainwright to purchase the
Securities and does not ensure a successful Offering of the Securities or the success of Wainwright with respect to securing any
other financing on behalf of the Company. Wainwright may retain other brokers, dealers, agents or underwriters on its behalf in
connection with an Offering.
A. Compensation;
Reimbursement. At the closing of each Offering (each, a “Closing”), the Company shall compensate Wainwright
as follows:
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1.
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Cash Fee. The Company shall pay to Wainwright a cash fee, or as to an underwritten Offering
an underwriter discount, equal to 7.5% of the aggregate gross proceeds raised in each Offering; provided, however, that the cash
fee will be reduced to 6.0% with respect to any aggregate gross proceeds raised from the investors who are listed on Exhibit
A hereto.
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2.
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Warrant Coverage. The Company shall issue to Wainwright or its designees at each Closing,
warrants (the “Wainwright Warrants”) to purchase that number of shares of common stock of the Company equal
to 7.5% of the aggregate number of shares of common stock (or common stock equivalent, if applicable, but shall not include any
shares of common stock underlying warrants issued in each Offering (other than pre-funded warrants)) placed in each Offering (and
if an Offering includes a “greenshoe” or “additional investment” component, such number of shares of common
stock underlying such “greenshoe” or “additional investment” component, with the Wainwright Warrants issuable
upon the exercise of such component). If the Securities included in an Offering are convertible, the Wainwright Warrants shall
be determined by dividing the gross proceeds raised in such Offering by the Offering Price (as defined hereunder). The Wainwright
Warrants shall be in a customary form reasonably acceptable to Wainwright and the Company, have a term of five (5) years and an
exercise price equal to 125% of the offering price per share (or unit, if applicable) in the applicable Offering and if such offering
price is not available, the market price of the common stock on the date an Offering is commenced (such price, the “Offering
Price”). If warrants are issued to investors in an Offering, the Wainwright Warrants shall have the same terms as the
warrants issued to investors in the applicable Offering, except that such Wainwright Warrants shall have an exercise price equal
to 125% of the Offering Price.
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430 Park Avenue | New York,
New York 10022 | 212.356.0500 | www.hcwco.com
Member: FINRA/SIPC
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3.
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Expense Allowance. Out of the proceeds of each Closing, the Company also agrees to pay Wainwright
(a) $10,000 for non-accountable expenses (to be increased to $35,000 in case of a public Offering); (b) up to $50,000 for fees
and expenses of legal counsel and other out-of-pocket expenses (to be increased to $100,000 in case of a public Offering); plus
the additional amount payable by the Company pursuant to Paragraph D.3 hereunder and, if applicable, the costs associated with
the use of a third-party electronic road show service (such as NetRoadshow); provided, however, that such amount in no way limits
or impairs the indemnification and contribution provisions of this Agreement. Such Expense Allowance shall be payable immediately
upon (but only in the event of) the closing of an Offering.
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4.
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Tail. Wainwright shall be entitled to compensation under clauses (1) and (2) hereunder,
calculated in the manner set forth therein, with respect to any public or private offering or other financing or capital-raising
transaction of any kind (“Tail Financing”) to the extent that such financing or capital is provided to the Company
by investors whom Wainwright had contacted during the Term or introduced to the Company during the Term, if such Tail Financing
is consummated at any time within the 12-month period following the expiration or termination of this Agreement; provided, however,
that any of the investors who are listed on Exhibit B hereto shall be excluded from this Paragraph A.4.
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5.
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Right of First Refusal. If, during the 9-month period following the consummation of each
Offering, the Company or any of its subsidiaries (a) decides to finance or refinance any indebtedness using a manager or agent,
Wainwright (or any affiliate designated by Wainwright) shall have the right to act as sole book-runner, sole manager, sole placement
agent or sole agent with respect to such financing or refinancing; or (b) decides to raise funds by means of a public offering
(including at-the-market facility) or a private placement or any other capital-raising financing of equity, equity-linked or debt
securities using an underwriter or placement agent, Wainwright (or any affiliate designated by Wainwright) shall have the right
to act as sole book-running manager, sole underwriter or sole placement agent for such financing. If Wainwright or one of its affiliates
decides to accept any such engagement, the agreement governing such engagement will contain, among other things, provisions for
customary fees for transactions of similar size and nature and the provisions of this Agreement, including indemnification, which
are appropriate to such a transaction; provided, however, that this Paragraph A.5 shall not apply to (i) any financing by the Company
whereby the Company does not engage an underwriter, placement agent or other broker-dealer, (ii) any financing with the participation
of non-U.S. institutional investors (other than Israeli investors or any offshore investor controlled by a U.S. institutional investor),
or (iii) a Strategic Transaction. For the purpose of this Agreement, Strategic Transaction means the issuance of securities in
connection with a license, partnership or other strategic transaction; provided that any such issuance shall only be to a person
which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business
of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities ((i) through (iii), the “Excluded Transaction”). For the avoidance of doubt, Paragraph
A.4 shall apply with respect to any Excluded Transaction.
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B. Term
and Termination of Engagement; Exclusivity. The term of Wainwright’s exclusive engagement will begin on the date hereof
and end six (6) months thereafter (the “Term”). Notwithstanding anything to the contrary contained herein, the
Company agrees that the provisions relating to the payment of fees, reimbursement of expenses, right of first refusal, tail, indemnification
and contribution, confidentiality, conflicts, independent contractor and waiver of the right to trial by jury will survive any
termination or expiration of this Agreement. Notwithstanding anything to the contrary contained herein, the Company has the right
to terminate the Agreement for cause in compliance with FINRA Rule 5110(g)(5)(B)(i). The exercise of such right of termination
for cause eliminates the Company’s obligations with respect to the provisions relating to the tail fees and right of first
refusal. Notwithstanding anything to the contrary contained in this Agreement, in the event that an Offering pursuant to this Agreement
shall not be carried out for any reason whatsoever during the Term, the Company shall be obligated to pay to Wainwright its actual
and accountable out-of-pocket expenses related to an Offering (including the fees and disbursements of Wainwright’s legal
counsel) and, if applicable, for electronic road show service used in connection with an Offering, all up to an aggregate of $25,000.
During Wainwright’s engagement hereunder: (i) the Company will not, and will not permit its representatives to, other than
in coordination with Wainwright, contact or solicit institutions, corporations or other entities or individuals as potential purchasers
of the Securities and (ii) the Company will not pursue any financing transaction which would be in lieu of an Offering; provided,
that the Company shall not be restricted from pursuing a Strategic Transaction or a financing outside of the United States (other
than Israel) and without the participation on any U.S. institutional investors (or any offshore investor controlled by a U.S. institutional
investor). Furthermore, the Company agrees that during Wainwright’s engagement hereunder, all inquiries from prospective
investors will be referred to Wainwright. Additionally, except as set forth hereunder, the Company represents, warrants
and covenants that no brokerage or finder’s fees or commissions are or will be payable by the Company or any subsidiary of
the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other third-party
with respect to any Offering.
C. Information;
Reliance. The Company shall furnish, or cause to be furnished, to Wainwright all information requested by Wainwright for the
purpose of rendering services hereunder and conducting due diligence (all such information being the “Information”).
In addition, the Company agrees to make available to Wainwright upon request from time to time the officers, directors, accountants,
counsel and other advisors of the Company. The Company recognizes and confirms that Wainwright (a) will use and rely on the Information,
including any documents provided to investors in each Offering (the “Offering Documents”) which shall include
any Purchase Agreement (as defined hereunder), and on information available from generally recognized public sources in performing
the services contemplated by this Agreement without having independently verified the same; (b) does not assume responsibility
for the accuracy or completeness of the Offering Documents or the Information and such other information; and (c) will not make
an appraisal of any of the assets or liabilities of the Company. Upon reasonable request, the Company will meet with Wainwright
or its representatives to discuss all information relevant for disclosure in the Offering Documents and will cooperate in any investigation
undertaken by Wainwright thereof, including any document included or incorporated by reference therein. At each Offering, at the
request of Wainwright, the Company shall deliver such legal letters (including, without limitation, negative assurance letters),
opinions, comfort letters, officers’ and secretary certificates and good standing certificates, all in form and substance
satisfactory to Wainwright and its counsel as is customary for such Offering. Wainwright shall be a third party beneficiary of
any representations, warranties, covenants, closing conditions and closing deliverables made by the Company in any Offering Documents,
including representations, warranties, covenants, closing conditions and closing deliverables made to any investor in an Offering.
D. Related
Agreements. At each Offering, the Company shall enter into the following additional agreements:
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1.
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Underwritten Offering. If an Offering is an underwritten Offering, the Company and Wainwright
shall enter into a customary underwriting agreement in form and substance reasonably satisfactory to Wainwright and its counsel.
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2.
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Best Efforts Offering. If an Offering is on a best efforts basis, the sale of Securities
to the investors in the Offering will be evidenced by a purchase agreement (“Purchase Agreement”) between the
Company and such investors in a form reasonably satisfactory to the Company and Wainwright. Wainwright shall be a third party beneficiary
with respect to the representations, warranties, covenants, closing conditions and closing deliverables included in the Purchase
Agreement. Prior to the signing of any Purchase Agreement, officers of the Company with responsibility for financial affairs will
be available to answer inquiries from prospective investors.
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3.
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Escrow, Settlement and Closing. If each Offering is not settled via delivery versus payment
(“DVP”), the Company and Wainwright shall enter into an escrow agreement with a third party escrow agent pursuant
to which Wainwright’s compensation and expenses shall be paid from the gross proceeds of the Securities sold. If the Offering
is settled in whole or in part via DVP, Wainwright shall arrange for its clearing agent to provide the funds to facilitate such
settlement; provided, however, if the clearing firm provides the funds in a best efforts offering and subsequent to such delivery
an investor fails to provide the necessary funds to the clearing agent for such purchase of Securities, Wainwright shall instruct
the clearing agent to promptly return any such Securities to the Company and the Company shall promptly return such investor’s
purchase price to the clearing agent. The Company shall pay Wainwright reasonable closing costs, which shall also include the reimbursement
of the out-of-pocket cost of the escrow agent or clearing agent, as applicable, which closing costs shall not exceed $15,950.
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4.
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FINRA Amendments. Notwithstanding anything herein to the contrary, in the event that Wainwright
determines that any of the terms provided for hereunder shall not comply with a FINRA rule, including but not limited to FINRA
Rule 5110, then the Company shall agree to amend this Agreement (or include such revisions in the final underwriting agreement)
in writing upon the request of Wainwright to comply with any such rules; provided that any such amendments shall not provide for
terms that are less favorable to the Company than are reflected in this Agreement.
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E. Confidentiality.
In the event of the consummation or public announcement of any Offering, Wainwright shall have the right to disclose its participation
in such Offering, including, without limitation, the Offering at its cost of “tombstone” advertisements in financial
and other newspapers and journals.
F. Indemnity.
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1.
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In connection with the Company’s engagement of Wainwright hereunder, the Company hereby agrees
to indemnify and hold harmless Wainwright and its affiliates, and the respective controlling persons, directors, officers, members,
shareholders, agents and employees of any of the foregoing (collectively the “Indemnified Persons”), from and
against any and all claims, actions, suits, proceedings (including those of shareholders), damages, liabilities and expenses incurred
by any of them (including the reasonable fees and expenses of counsel), as incurred, whether or not the Company is a party thereto
(collectively a “Claim”), that are (A) related to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by the Company, or (ii) any actions taken or omitted
to be taken by any Indemnified Person in connection with the Company’s engagement of Wainwright, or (B) otherwise relate
to or arise out of Wainwright’s activities on the Company’s behalf under Wainwright’s engagement, and the Company
shall reimburse any Indemnified Person for all expenses (including the reasonable fees and expenses of counsel) as incurred by
such Indemnified Person in connection with investigating, preparing or defending any such claim, action, suit or proceeding, whether
or not in connection with pending or threatened litigation in which any Indemnified Person is a party. The Company will not, however,
be responsible for any Claim that is finally judicially determined to have resulted from the gross negligence or willful misconduct
of any such Indemnified Person for such Claim. The Company further agrees that no Indemnified Person shall have any liability to
the Company for or in connection with the Company’s engagement of Wainwright except for any Claim incurred by the Company
as a result of such Indemnified Person’s gross negligence or willful misconduct.
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2.
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The Company further agrees that it will not, without the prior written consent of Wainwright, settle,
compromise or consent to the entry of any judgment in any pending or threatened Claim in respect of which indemnification may be
sought hereunder (whether or not any Indemnified Person is an actual or potential party to such Claim), unless such settlement,
compromise or consent includes an unconditional, irrevocable release of each Indemnified Person from any and all liability arising
out of such Claim.
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3.
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Promptly upon receipt by an Indemnified Person of notice of any complaint or the assertion or institution
of any Claim with respect to which indemnification is being sought hereunder, such Indemnified Person shall notify the Company
in writing of such complaint or of such assertion or institution but failure to so notify the Company shall not relieve the Company
from any obligation it may have hereunder, except and only to the extent such failure results in the forfeiture by the Company
of substantial rights and defenses. If the Company is requested by such Indemnified Person, the Company will assume the defense
of such Claim, including the employment of counsel for such Indemnified Person and the payment of the fees and expenses of such
counsel, provided, however, that such counsel shall be satisfactory to the Indemnified Person and provided further that if the
legal counsel to such Indemnified Person reasonably determines that the use of counsel chosen by the Company to represent such
Indemnified Person would present such counsel with a conflict of interest or if the defendant in, or target of, any such Claim,
includes an Indemnified Person and the Company, and legal counsel to such Indemnified Person reasonably concludes that there may
be legal defenses available to it or other Indemnified Persons different from or in addition to those available to the Company,
such Indemnified Person will employ its own separate counsel (including local counsel, if necessary) to represent or defend him,
her or it in any such Claim and the Company shall pay the reasonable fees and expenses of such counsel. If such Indemnified Person
does not request that the Company assume the defense of such Claim, such Indemnified Person will employ its own separate counsel
(including local counsel, if necessary) to represent or defend him, her or it in any such Claim and the Company shall pay the reasonable
fees and expenses of such counsel. Notwithstanding anything herein to the contrary, if the Company fails timely or diligently to
defend, contest, or otherwise protect against any Claim, the relevant Indemnified Person shall have the right, but not the obligation,
to defend, contest, compromise, settle, assert crossclaims, or counterclaims or otherwise protect against the same, and shall be
fully indemnified by the Company therefor, including without limitation, for the reasonable fees and expenses of its counsel and
all amounts paid as a result of such Claim or the compromise or settlement thereof. In addition, with respect to any Claim in which
the Company assumes the defense, the Indemnified Person shall have the right to participate in such Claim and to retain his, her
or its own counsel therefor at his, her or its own expense.
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4.
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The Company agrees that if any indemnity sought by an Indemnified Person hereunder is held by a
court to be unavailable for any reason then (whether or not Wainwright is the Indemnified Person), the Company and Wainwright shall
contribute to the Claim for which such indemnity is held unavailable in such proportion as is appropriate to reflect the relative
benefits to the Company, on the one hand, and Wainwright on the other, in connection with Wainwright’s engagement referred
to above, subject to the limitation that in no event shall the amount of Wainwright’s contribution to such Claim exceed the
amount of fees actually received by Wainwright from the Company pursuant to Wainwright’s engagement. The Company hereby agrees
that the relative benefits to the Company, on the one hand, and Wainwright on the other, with respect to Wainwright’s engagement
shall be deemed to be in the same proportion as (a) the total value paid or proposed to be paid or received by the Company pursuant
to the applicable Offering (whether or not consummated) for which Wainwright is engaged to render services bears to (b) the fee
paid or proposed to be paid to Wainwright in connection with such engagement.
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5.
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The Company’s indemnity, reimbursement and contribution obligations under this Agreement
(a) shall be in addition to, and shall in no way limit or otherwise adversely affect any rights that any Indemnified Person may
have at law or at equity and (b) shall be effective whether or not the Company is at fault in any way.
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G. Limitation
of Engagement to the Company. The Company acknowledges that Wainwright has been retained only by the Company, that Wainwright
is providing services hereunder as an independent contractor (and not in any fiduciary or agency capacity) and that the Company’s
engagement of Wainwright is not deemed to be on behalf of, and is not intended to confer rights upon, any shareholder, owner or
partner of the Company or any other person not a party hereto as against Wainwright or any of its affiliates, or any of its or
their respective officers, directors, controlling persons (within the meaning of Section 15 of the Securities Act or Section 20
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), employees or agents. Unless otherwise
expressly agreed in writing by Wainwright, no one other than the Company is authorized to rely upon this Agreement or any other
statements or conduct of Wainwright, and no one other than the Company is intended to be a beneficiary of this Agreement. The Company
acknowledges that any recommendation or advice, written or oral, given by Wainwright to the Company in connection with Wainwright’s
engagement is intended solely for the benefit and use of the Company’s management and directors in considering a possible
Offering, and any such recommendation or advice is not on behalf of, and shall not confer any rights or remedies upon, any other
person or be used or relied upon for any other purpose. Wainwright shall not have the authority to make any commitment binding
on the Company. The Company, in its sole discretion, shall have the right to reject any investor introduced to it by Wainwright.
H. Limitation
of Wainwright’s Liability to the Company. Wainwright and the Company further agree that neither Wainwright nor any of
its affiliates or any of its or their respective officers, directors, controlling persons (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act), employees or agents shall have any liability to the Company, its security
holders or creditors, or any person asserting claims on behalf of or in the right of the Company (whether direct or indirect, in
contract, tort, for an act of negligence or otherwise) for any losses, fees, damages, liabilities, costs, expenses or equitable
relief arising out of or relating to this Agreement or the services rendered hereunder, except for losses, fees, damages, liabilities,
costs or expenses that arise out of or are based on any action of or failure to act by Wainwright and that are finally judicially
determined to have resulted solely from the gross negligence or willful misconduct of Wainwright.
I. Governing
Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements
made and to be fully performed therein. Any disputes that arise under this Agreement, even after the termination of this Agreement,
will be heard only in the state or federal courts located in the City of New York, State of New York. The parties hereto expressly
agree to submit themselves to the jurisdiction of the foregoing courts in the City of New York, State of New York. The parties
hereto expressly waive any rights they may have to contest the jurisdiction, venue or authority of any court sitting in the City
and State of New York. In the event Wainwright or any Indemnified Person is successful in any action, or suit against the Company,
arising out of or relating to this Agreement, the final judgment or award entered shall be entitled to have and recover from the
Company the costs and expenses incurred in connection therewith, including its reasonable attorneys’ fees. Any rights to
trial by jury with respect to any such action, proceeding or suit are hereby waived by Wainwright and the Company.
J. Notices.
All notices hereunder will be in writing and sent by certified mail, hand delivery, overnight delivery or e-mail, if sent to Wainwright,
at the address set forth on the first page hereof, e-mail: notices@hcwco.com, Attention: Head of Investment Banking, and if sent
to the Company, to the address set forth on the first page hereof, e-mail: rdavis@archtherapeutics.com, Attention: Chief Executive
Officer. Notices sent by certified mail shall be deemed received five days thereafter, notices sent by hand delivery or overnight
delivery shall be deemed received on the date of the relevant written record of receipt, notices sent by e-mail shall be deemed
received as of the date and time they were sent.
K. Conflicts.
The Company acknowledges that Wainwright and its affiliates may have and may continue to have investment banking and other relationships
with parties other than the Company pursuant to which Wainwright may acquire information of interest to the Company. Wainwright
shall have no obligation to disclose such information to the Company or to use such information in connection with any contemplated
transaction.
L. Anti-Money
Laundering. To help the United States government fight the funding of terrorism and money laundering, the federal laws of the
United States require all financial institutions to obtain, verify and record information that identifies each person with whom
they do business. This means Wainwright must ask the Company for certain identifying information, including a government-issued
identification number (e.g., a U.S. taxpayer identification number) and such other information or documents that Wainwright considers
appropriate to verify the Company’s identity, such as certified articles of incorporation, a government-issued business license,
a partnership agreement or a trust instrument.
M. Miscellaneous.
The Company represents and warrants that it has all requisite power and authority to enter into and carry out the terms and provisions
of this Agreement and the execution, delivery and performance of this Agreement does not breach or conflict with any agreement,
document or instrument to which it is a party or bound. This Agreement shall not be modified or amended except in writing signed
by Wainwright and the Company. This Agreement shall be binding upon and inure to the benefit of both Wainwright and the Company
and their respective assigns, successors, and legal representatives. This Agreement constitutes the entire agreement of Wainwright
and the Company with respect to the subject matter hereof and supersedes any prior agreements with respect to the subject matter
hereof. If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will
not affect such provision in any other respect, and the remainder of the Agreement shall remain in full force and effect. This
Agreement may be executed in counterparts (including electronic counterparts), each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
*********************
In acknowledgment that
the foregoing correctly sets forth the understanding reached by Wainwright and the Company, please sign in the space provided below,
whereupon this letter shall constitute a binding Agreement as of the date indicated above.
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Very truly yours,
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H.C. WAINWRIGHT & CO., LLC
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By:
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Name:
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Title:
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Date:
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Accepted and Agreed:
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Arch Therapeutics,
Inc.
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By:
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Name: Terrence W. Norchi
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Title: Chief Executive Officer
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Exhibit 10.4
NEITHER THIS SECURITY NOR THE SECURITIES
FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE
OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES..
PLACEMENT AGENT COMMON STOCK PURCHASE
WARRANT
Arch
therapeutics, inc.
Warrant Shares: _______
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Initial Exercise Date: February 17, 2021
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THIS PLACEMENT AGENT
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns
(the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New
York City time) on August 17, 2026 (the “Termination Date”) but not thereafter, to subscribe for and purchase
from Arch Therapeutics, Inc., a Nevada corporation (the “Company”), up to ______ shares (as subject to
adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock
under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant is being issued
pursuant to that certain engagement letter, dated as of February 8, 2021, by and between the Company and H.C. Wainwright &
Co., LLC.
Section 1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the “Purchase Agreement”), dated February 11, 2021 among the Company and the purchasers signatory
thereto.
Section 2. Exercise.
a) Exercise
of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times
on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or
agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing
on the books of the Company) of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice
of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading
Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein)
following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified
in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless
exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original
Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice
of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading
Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting
in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder
and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company
shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following
the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any
given time may be less than the amount stated on the face hereof.
b) Exercise
Price. The exercise price per share of Common Stock under this Warrant shall be $0.20, subject to adjustment hereunder (the
“Exercise Price”).
c) Cashless
Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained
therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may only be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number
of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
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(A)
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as applicable: (i) the VWAP
on the Trading Day immediately preceding the date of the applicable Notice of Exercise
if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof
on a day that is not a Trading Day or (2) both executed and delivered pursuant to
Section 2(a) hereof on a Trading Day prior to the opening of “regular
trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated
under the federal securities laws) on such Trading Day, (ii) at the option of the
Holder, either (y) the VWAP on the Trading Day immediately preceding the date of
the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the
principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s
execution of the applicable Notice of Exercise if such Notice of Exercise is executed
during “regular trading hours” on a Trading Day and is delivered within two
(2) hours thereafter (including until two (2) hours after the close of “regular
trading hours” on a Trading Day) pursuant to Section 2(a) hereof
or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of
such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed
and delivered pursuant to Section 2(a) hereof after the close of “regular
trading hours” on such Trading Day;
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(B)
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=
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the Exercise Price of this Warrant, as adjusted hereunder; and
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(X)
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=
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the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant
if such exercise were by means of a cash exercise rather than a cashless exercise.
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“Bid
Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the
nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or
OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if
prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of
a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which
shall be paid by the Company.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is
then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX
is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on
OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices
for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of
a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which
shall be paid by the Company.
d) Mechanics
of Exercise.
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i.
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Delivery of Warrant Shares Upon
Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted
by the Transfer Agent to the Holder by crediting the account of the Holder’s or
its designee’s balance account with The Depository Trust Company through its Deposit
or Withdrawal at Custodian system (“DWAC”) if the Company is then
a participant in such system and either (A) there is an effective registration statement
permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the
Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise
by physical delivery of a certificate, registered in the Company’s share register
in the name of the Holder or its designee, for the number of Warrant Shares to which
the Holder is entitled pursuant to such exercise to the address specified by the Holder
in the Notice of Exercise by the date that is the earlier of (A) the earlier of
(i) two (2) Trading Days and (ii) the number of days comprising the Standard
Settlement Period, in each case after the delivery to the Company of the Notice of Exercise
and (B) one (1) Trading Day after delivery of the aggregate Exercise Price
to the Company (such date, the “Warrant Share Delivery Date”). Upon
delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes
to have become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares,
provided that payment of the aggregate Exercise Price (other than in the case of a cashless
exercise) is received by the Warrant Share Delivery Date. If the Company fails for any
reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by
the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise
(based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise),
$10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after
such liquidated damages begin to accrue) for each Trading Day after such Warrant Share
Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
The Company agrees to maintain a transfer agent that is a participant in the FAST program
so long as this Warrant remains outstanding and exercisable. As used herein, “Standard
Settlement Period” means the standard settlement period, expressed in a number
of Trading Days, on the Company’s primary Trading Market with respect to the Common
Stock as in effect on the date of delivery of the Notice of Exercise.
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ii. Delivery
of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing
the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant.
iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by
the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation
for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder,
if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions
of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which
the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash
to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of
Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the
price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder,
either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in
which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No
Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
vi. Charges,
Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for
any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice
of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions)
required for same-day electronic delivery of the Warrant Shares.
vii. Closing
of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.
e) Holder’s
Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to
such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates,
and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution
Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes
of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution
Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise
or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation,
any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence,
for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company
is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and
the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation
contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant
is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be
the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together
with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the
Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.
In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in
determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common
Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case
may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder,
the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect
to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution
Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to
the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase
or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to
the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall
continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after
such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall
apply to a successor holder of this Warrant.
Section 3. Certain
Adjustments.
a) Stock
Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines
(including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues
by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares,
if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted
such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall
become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company
grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata
to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could
have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before
the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result
in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase
Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent)
and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto
would not result in the Holder exceeding the Beneficial Ownership Limitation).
c) Pro
Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise, other than cash (including, without limitation, any distribution of stock or other securities, property or options
by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall
be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations
on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a
record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common
Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the
Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation,
then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any
shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in
abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding
the Beneficial Ownership Limitation).
d) Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more
related transactions effects any merger or consolidation of the Company with or into another Person (other than for the purpose
of changing the name or the domicile of the Company), (ii) the Company (and all of its Subsidiaries, taken as a whole), directly
or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially
all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer
or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted
to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or
more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects
any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which
the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly
or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person
or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the
other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each
Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction,
at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant),
the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental
Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such
Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For
purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting
the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice
as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company
shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor
Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents
in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall,
at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by
a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number
of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock
(but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value
of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting
the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this
Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant
and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
e) Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding
as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
f) Notice
to Holder.
i. Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company
shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and
any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause
to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the
Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified,
a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities,
cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided
that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes,
or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously
file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise
this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice
except as may otherwise be expressly set forth herein.
Section 4. Transfer
of Warrant.
a) Transferability.
Subject to compliance with any applicable securities laws and the conditions of Section 4(d) hereof and to the provisions
of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated
agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder
or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.
Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the
Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company
within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant
in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.
b) New
Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of
the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved
in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated
the Issue Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant
thereto.
c) Warrant
Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
d) Transfer
Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer
of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act
and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions
or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such
transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of
the Purchase Agreement.
e) Representation
by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any
exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities
law, except pursuant to sales registered or exempted under the Securities Act.
Section 5. Miscellaneous.
a) No
Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly
set forth in Section 3.
b) Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case
of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
c) Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.
d) Authorized
Shares.
The Company
covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The
Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common
Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant
Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens
and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
Except and
to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending
its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as
may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares
upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform
its obligations under this Warrant.
Before taking
any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction.
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
f) Restrictions.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder
does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver
and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision
of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant,
which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings,
incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
h) Notices.
Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered
to the address for the Holder in the Warrant Register.
i) Limitation
of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
j) Remedies.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors
and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.
n) Headings.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company has caused
this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
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arch therapeutics, inc.
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By:
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Name:
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Title:
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PLACEMENT AGENT COMMON STOCK PURCHASE
WARRANT
NOTICE OF EXERCISE
To: arch
therapeutics, inc.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only
required if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Payment
shall take the form of (check applicable box):
¨
in lawful money of the United States; or
¨ if permitted the cancellation
of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise
this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set
forth in subsection 2(c).
(3) Please
issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
__________________________________
The Warrant Shares shall be delivered
to the following DWAC Account Number:
__________________________________
__________________________________
__________________________________
[SIGNATURE
OF HOLDER]
Name of Investing Entity:
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Signature of Authorized Signatory of Investing Entity:
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Name of Authorized Signatory:
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Title of Authorized Signatory:
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EXHIBIT B
PLACEMENT AGENT COMMON STOCK PURCHASE WARRANT
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant
and all rights evidenced thereby are hereby assigned to
Name:
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(Please Print)
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Address:
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(Please Print)
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Phone Number:
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Email Address:
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Dated: _______________ __, ______
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Holder’s Signature:
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Holder’s Address:
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Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT
This Registration
Rights Agreement (this “Agreement”) is made and entered into as of February 11, 2021, between Arch Therapeutics, Inc.,
a Nevada corporation (the “Company”), and each of the several purchasers signatory hereto (each such purchaser,
a “Purchaser” and, collectively, the “Purchasers”).
This Agreement is
made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “Purchase
Agreement”).
The Company and each
Purchaser hereby agrees as follows:
1. Definitions.
Capitalized
terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:
“Advice”
shall have the meaning set forth in Section 6(d).
“Effectiveness
Date” means, with respect to the Initial Registration Statement required to be filed hereunder, the 60th
calendar day following the date hereof (or, in the event of a “full review” by the Commission, the 90h
calendar day following the date hereof) and with respect to any additional Registration Statements which may be required pursuant
to Section 2(c) or Section 3(c), the 45th calendar day following the date on which an additional Registration
Statement is required to be filed hereunder (or, in the event of a “full review” by the Commission, the 75th
calendar day following the date such additional Registration Statement is required to be filed hereunder); provided,
however, that in the event the Company is notified by the Commission that one or more of the above Registration Statements
will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement
shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise
required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness
Date shall be the next succeeding Trading Day.
“Effectiveness
Period” shall have the meaning set forth in Section 2(a).
“Event”
shall have the meaning set forth in Section 2(d).
“Event
Date” shall have the meaning set forth in Section 2(d).
“Filing
Date” means, with respect to the Initial Registration Statement required hereunder, the 15th calendar day
following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or
Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration
Statement related to the Registrable Securities.
“Holder”
or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.
“Indemnified
Party” shall have the meaning set forth in Section 5(c).
“Indemnifying
Party” shall have the meaning set forth in Section 5(c).
“Initial
Registration Statement” means the initial Registration Statement filed pursuant to this Agreement.
“Losses”
shall have the meaning set forth in Section 5(a).
“Plan
of Distribution” shall have the meaning set forth in Section 2(a).
“Prospectus”
means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated
by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to
be incorporated by reference in such Prospectus.
“Registrable
Securities” means, as of any date of determination, (a) all Shares, (b) all Warrant Shares then issued and
issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise
limitations therein) and (c) any securities issued or then issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing; provided, however, that any such Registrable Securities
shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file
another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect
to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable
Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable
Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale
without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in
a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming
that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which,
such securities were issued or are issuable, were at no time held by any Affiliate of the Company, and all Warrants are exercised
by “cashless exercise” as provided in Section 2(c) of each of the Warrants), as reasonably determined by
the Company, upon the advice of counsel to the Company.
“Registration
Statement” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any
additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus,
amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration
statement.
“Rule 415”
means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.
“Rule 424”
means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.
“SEC”
means the U.S. Securities and Exchange Commission.
“Selling
Stockholder Questionnaire” shall have the meaning set forth in Section 3(a).
“SEC
Guidance” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements
or requests of the Commission staff and (ii) the Securities Act.
2. Shelf
Registration.
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(a)
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On or prior to each Filing Date,
the Company shall prepare and file with the Commission a Registration Statement covering
the resale of all of the Registrable Securities that are not then registered on an effective
Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415.
Each Registration Statement filed hereunder shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities on Form S-3,
in which case such registration shall be on another appropriate form in accordance herewith,
subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed
by at least 85% in interest of the Holders) substantially the “Plan of Distribution”
attached hereto as Annex A and substantially the “Selling Stockholder”
section attached hereto as Annex B; provided, however, that no Holder
shall be required to be named as an “underwriter” without such Holder’s
express prior written consent; provided; however, that in the event the staff
of the SEC (the “Staff”) or the SEC seeks to characterize any Holder
of Registrable Securities as an underwriter, the Company shall not be required to register
such Holder’s Registrable Securities unless such Holder consents to be named as
an “underwriter. Subject to the terms of this Agreement, the Company shall use
its best efforts to cause a Registration Statement filed under this Agreement (including,
without limitation, under Section 3(c)) to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event no later than
the applicable Effectiveness Date, and shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date that all Registrable
Securities covered by such Registration Statement (i) have been sold, thereunder
or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale
restrictions pursuant to Rule 144 and without the requirement for the Company to
be in compliance with the current public information requirement under Rule 144,
as determined by the counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Transfer Agent and the affected Holders (the
“Effectiveness Period”). The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 p.m. (New York City time) on
a Trading Day. The Company shall immediately notify the Holders via facsimile or by e-mail
of the effectiveness of a Registration Statement on the same Trading Day that the Company
telephonically confirms effectiveness with the Commission, which shall be the date requested
for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. (New
York City time) on the Trading Day after the effective date of such Registration Statement,
file a final Prospectus with the Commission as required by Rule 424. Failure to
so notify the Holder within one (1) Trading Day of such notification of effectiveness
or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d).
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(b) Notwithstanding
the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable
Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single
registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable
efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of
Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register
for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); with respect to
filing on Form S-3 or other appropriate form, and subject to the provisions of Section 2(d) with respect to the
payment of liquidated damages; provided, however, that prior to filing such amendment, the Company shall be obligated
to use reasonably diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in
accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.
(c) Notwithstanding
any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission
or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular
Registration Statement as a secondary offering (and notwithstanding that the Company used reasonably diligent efforts to advocate
with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in
writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration
Statement will be reduced as follows:
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a.
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First,
the Company shall reduce or eliminate any securities to be included other than Registrable
Securities;
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b.
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Second,
the Company shall reduce Registrable Securities represented by Warrant Shares (applied,
in the case that some Warrant Shares may be registered, to the Holders on a pro rata
basis based on the total number of unregistered Warrant Shares held by such Holders);
and
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c.
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Third,
the Company shall reduce Registrable Securities represented by Shares (applied, in the
case that some Shares may be registered, to the Holders on a pro rata basis based on
the total number of unregistered Shares held by such Holders).
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In the event of a cutback hereunder,
the Company shall give the Holder at least three (3) Trading Days prior written notice along with the calculations as to
such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing,
the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided
to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other
form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration
Statement, as amended.
(d) If:
(i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files the Initial Registration
Statement without affording [one counsel for] the Holders the opportunity to review and comment on the same as required by Section 3(a) herein,
the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission
a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant
to the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier)
by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review,
or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within ten (10) calendar
days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration
Statement to be declared effective, or (iv) a Registration Statement registering for resale all of the Registrable Securities
is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after
the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective
as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize
the Prospectus therein to resell such Registrable Securities, for more than twenty (20) consecutive calendar days or more than
an aggregate of thirty (30) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure
or breach being referred to as an “Event”, and for purposes of clauses (i) and (iv), the date on which
such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and
for purpose of clause (iii) the date which such ten (10) calendar day period is exceeded, and for purpose of clause
(v) the date on which such twenty (20) or thirty (30) calendar day period, as applicable, is exceeded being referred to as
an “Event Date”), then, in addition to any other rights the Holders may have hereunder or under applicable
law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been
cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated
damages and not as a penalty, equal to the product of (A) 1.0%; (B) the Per Share Purchase Price; and (C)) the number
of Shares held by the Purchaser on the Event Date. The parties agree that the maximum aggregate liquidated damages payable to
a Holder under this Agreement shall be 5% of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement.
If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date
payable, the Company will pay interest thereon at a rate of 15% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a
daily pro rata basis for any portion of a month prior to the cure of an Event.
(e) If
Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register
the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities
on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration
Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has
been declared effective by the Commission.
(f) Notwithstanding
anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder
as any Underwriter without the prior written consent of such Holder.
3. Registration
Procedures.
In connection with
the Company’s registration obligations hereunder, the Company shall:
(a) Not
less than three (3) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading
Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all
such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference)
will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered
public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each
Holder, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration
Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later
than three (3) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading
Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder
agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex C (a
“Selling Stockholder Questionnaire”) on a date that is not less than two (2) Trading Days prior to the
Filing Date or by the end of the fourth (4th) Trading Day following the date on which such Holder receives draft materials
in accordance with this Section.
(b) (i) Prepare
and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements
in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus
to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented
or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received
from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible
to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement
(provided that, the Company shall excise any information contained therein which would constitute material non-public information
regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions
of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration
Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition
by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.
(c) If
during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common
Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case
prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than
the number of such Registrable Securities.
(d) Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof,
be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly
as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when
a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when
the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental
authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of
the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness
of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose,
(iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding
for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions
to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading,
and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company
believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow
continued availability of a Registration Statement or Prospectus; provided, however, that in no event shall any
such notice contain any information which would constitute material, non-public information regarding the Company or any of its
Subsidiaries.
(e) Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the
effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.
(f) Furnish
to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent
requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the Commission, provided that any such item which is available
on the EDGAR system (or successor thereto) need not be furnished in physical form.
(g) Subject
to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).
(h) Prior
to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate
with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification)
of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition
in such jurisdictions of the Registrable Securities covered by each Registration Statement, provided that the Company shall not
be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to
any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any
such jurisdiction.
(i) If
requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free,
to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be
in such denominations and registered in such names as any such Holder may request.
(j) Upon
the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking
into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the
premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration
Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference,
and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will
contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies
the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any
Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.
The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The
Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration
Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d),
for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.
(k) Otherwise
use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities
Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including
any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the
Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172
and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities
and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.
(l) Reserved.
(m) The
Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive
control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration
of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s
request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise
occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.
4. Registration
Expenses. All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be
borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with
respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which
the Common Stock is then listed for trading, and (C) in compliance with applicable state securities or Blue Sky laws reasonably
agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection
with Blue Sky qualifications or exemptions of the Registrable Securities), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees
and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no
event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for
in the Transaction Documents, any legal fees or other costs of the Holders.
5. Indemnification.
(a) Indemnification
by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder,
the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal
as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and
any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or
any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees
(and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title
or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and
all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses
(collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement
thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder,
in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that
(i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly
for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder
has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi),
the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder
in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt
by such Holder of the Advice contemplated in Section 6(d). The Company shall notify the Holders promptly of the institution,
threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which
the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf
of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with
Section 6(h).
(b) Indemnification
by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: any untrue or
alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto,
in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that
such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly
for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such
information relates to such Holder’s information provided in the Selling Stockholder Questionnaire or the proposed method
of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use
in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus
or in any amendment or supplement thereto. In no event shall the liability of a selling Holder be greater in amount than the dollar
amount of the proceeds (net of all expenses paid by such Holder in connection with any claim relating to this Section 5 and
the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received
by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification
obligation.
(c) Conduct
of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder
(an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense
thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof, provided that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent
that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further
review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.
An Indemnified
Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying
Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding,
or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and
the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is
likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no
more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld
or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of
any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses
to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with
this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying
Party, provided that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.
(d) Contribution.
If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold
an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified
Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among
other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by
such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if
the indemnification provided for in this Section was available to such party in accordance with its terms.
The parties
hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by
pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred
to in the immediately preceding paragraph. In no event shall the contribution obligation of a Holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Holder in connection with any claim
relating to this Section 5 and the amount of any damages such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities
giving rise to such contribution obligation.
The indemnity
and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.
6. Miscellaneous.
(a) Remedies.
In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder
or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement,
including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company
and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance
in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.
(b) No
Piggyback on Registrations; Prohibition on Filing Other Registration Statements. Except as set forth on Schedule 6(b) attached
hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in any Registration Statements other than the Registrable Securities. The Company shall not file any
other registration statements until all Registrable Securities are registered pursuant to a Registration Statement that is declared
effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to
registration statements filed prior to the date of this Agreement.
(c) [RESERVED]
(d) Discontinued
Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company
will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees
and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities
hereunder shall be subject to the provisions of Section 2(d).
(e) Reserved.
(f) Amendments
and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing
and signed by the Company and the Holders of 50.1% or more of the then outstanding Registrable Securities (for purposes of clarification,
this includes any Registrable Securities issuable upon exercise or conversion of any Security), provided that, if any amendment,
modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately
impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable
Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities
to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate
which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or
some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders
of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions
of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence
of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification
of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.
(g) Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as
set forth in the Purchase Agreement.
(h) Successors
and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations
hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase
Agreement.
(i) No
Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities,
that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions
hereof. Except as set forth on Schedule 6(i), neither the Company nor any of its Subsidiaries has previously entered into
any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied
in full.
(j) Execution
and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other
party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered
by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid
and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as
if such facsimile or “.pdf” signature page were an original thereof.
(k) Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined
in accordance with the provisions of the Purchase Agreement.
(l) Cumulative
Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.
(m) Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings.
The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
(o) Independent
Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations
of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association,
a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert
or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters,
and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such
claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as
an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company
contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience
of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that
each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders
collectively and not between and among Holders.
********************
(Signature Pages Follow)
IN WITNESS WHEREOF,
the parties have executed this Registration Rights Agreement as of the date first written above.
|
ARCH THERAPEUTICS, INC.
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
Title:
|
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
[SIGNATURE
PAGE OF HOLDERS TO ARTH RRA]
Name of Holder: __________________________
Signature
of Authorized Signatory of Holder: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
Annex A
Organization and Description of Business
Arch Therapeutics, Inc., (together with its subsidiary,
the “Company” or “Arch”) was incorporated under the laws of the State of Nevada on September 16, 2009,
under the name “Almah, Inc.”. Effective June 26, 2013, the Company completed a merger (the “Merger”)
with Arch Biosurgery, Inc. (formerly known as Arch Therapeutics, Inc.), a Massachusetts corporation (“ABS”),
and Arch Acquisition Corporation (“Merger Sub”), the Company’s wholly owned subsidiary formed for the purpose
of the transaction, pursuant to which Merger Sub merged with and into ABS and ABS thereby became the wholly owned subsidiary of
the Company. As a result of the acquisition of ABS, the Company abandoned its prior business plan and changed its operations to
the business of a biotechnology company. Our principal offices are located in Framingham, Massachusetts.
For financial reporting purposes, the Merger represented a “reverse
merger”. ABS was deemed to be the accounting acquirer in the transaction and the predecessor of Arch. Consequently, the accumulated
deficit and the historical operations that are reflected in the Company’s consolidated financial statements prior to the
Merger are those of ABS. All share information has been restated to reflect the effects of the Merger. The Company’s financial
information has been consolidated with that of ABS after consummation of the Merger on June 26, 2013, and the historical financial
statements of the Company before the Merger have been replaced with the historical financial statements of ABS before the Merger
in this report.
ABS was incorporated under the laws of the Commonwealth of Massachusetts
on March 6, 2006 as Clear Nano Solutions, Inc. On April 7, 2008, ABS changed its name from Clear Nano Solutions, Inc.
to Arch Therapeutics, Inc. Effective upon the closing of the Merger, ABS changed its name from Arch Therapeutics, Inc.
to Arch Biosurgery, Inc.
The Company has generated no operating revenues to date and
is devoting substantially all of its efforts toward product research and development. To date, the Company has principally raised
capital through debt borrowings, the issuance of convertible debt, and the issuance of units consisting of common stock and warrants.
The Company expects to incur substantial expenses for the foreseeable
future relating to research, development and commercialization of its potential products. However, there can be no assurance that
the Company will be successful in securing additional resources when needed, on terms acceptable to the Company, if at all. Therefore,
there exists substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements
do not include any adjustments related to the recoverability of assets that might be necessary despite this uncertainty.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The accompanying unaudited interim consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”). The interim consolidated financial statements included herein are unaudited; however, they contain all normal recurring
accruals and adjustments that, in the opinion of management, are necessary to present fairly our results of operations and financial
position for the interim periods.
Although we believe that the disclosures in these unaudited
interim consolidated financial statements are adequate to make the information presented not misleading, certain information normally
included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of
the Securities and Exchange Commission (“SEC”). These unaudited interim consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual
Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the SEC on December 11, 2020.
For a complete summary of our significant accounting policies,
please refer to Note 2 included in Item 8 of our Form 10-K for the fiscal year ended September 30, 2020. There have been
no material changes to our significant accounting policies during the three months ended December 31, 2020.
Basis of Presentation
The consolidated financial statements include the accounts of
Arch Therapeutics, Inc. and its wholly owned subsidiary, Arch Biosurgery, Inc., a biotechnology company. All intercompany
accounts and transactions have been eliminated in consolidation.
We are a biotechnology company marketing or developing a number
of products and are devoting substantially all of its efforts to developing technologies, raising capital, establishing customer
and vendor relationships, and recruiting and retaining new employees.
Use of Estimates
Management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those
estimates.
Recently Issued Accounting Guidance
Accounting Standards Update (ASU) 2018-13, “Fair Value
Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” was
issued by the Financial Accounting Standards Board (FASB) in August 2018. The purpose of this amendment in this Update is to modify
the disclosure requirements on fair value measurements in Topic 820. The amendments in this Update are effective for public business
entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted
ASU 2018-13 during our first quarter of fiscal year 2021.
Cash
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents. The Company had no cash equivalents as of December 31, 2020
and September 30, 2020.
Inventories
Inventories are stated at the lower of cost or net
realizable value. The cost of inventories comprises expenditures incurred in acquiring the inventories, the cost of
conversion and other costs incurred in bringing them to their existing location and condition. The cost of raw materials,
goods-in-process and finished goods are determined on a First in First out (FiFo) basis. When determining
net realizable value, appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of cash. The Company maintains its cash in bank deposits accounts, which, at times,
may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash.
Property and Equipment
Property and equipment are recorded at cost and depreciated
using the straight-line method over the estimated useful life of the related asset. Upon sale or retirement, the cost and accumulated
depreciation are eliminated from their respective accounts, and the resulting gain or loss is included in income or loss for the
period. Repair and maintenance expenditures are charged to expense as incurred.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when circumstances
indicate the carrying value of an asset may not be recoverable in accordance with ASC 360, Property, Plant and Equipment.
For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the
asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down
to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined
based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed
of are carried at the lower of carrying value or estimated net realizable value. For the three months ended December 31, 2020
and 2019 there has not been any impairment of long-lived assets.
Leases
The Company determines if an arrangement is a lease at its inception.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As our lease does not provide an implicit interest rate, we use an incremental borrowing
rate based on the information available at commencement date in determining the present value of lease payments. Lease expense
for lease payments is recognized on a straight-line basis over the lease term. As of December 31, 2020 and September 30,
2020, our ROU asset is included in prepaid expenses and other current assets and the lease obligations is included in accrued
expenses and other current liabilities on our consolidated balance sheets. As of December 31, 2020, ROU asset of approximately $30,000 represents our right to
use an underlying asset for the lease term and the lease liabilities of approximately $30,000 represents our obligation to make
lease payments arising from the lease.
Income Taxes
In accordance with FASB ASC 740, Income Taxes, we
recognize deferred tax assets and liabilities for the expected future tax consequences or events that have been included in our
consolidated financial statements and/or tax returns. Deferred tax assets and liabilities are based upon the differences between
the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards
using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not
be realized.
We provide reserves for potential payments of tax to various
tax authorities related to uncertain tax positions when management determines that it is probable that a loss will be incurred
related to these matters and the amount of the loss is reasonably determinable.
Research and Development
The Company expenses internal and external research and development
costs, including costs of funded research and development arrangements, in the period incurred.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance
with the guidance of FASB ASC Topic 718, Compensation-Stock Compensation (“FASB ASC Topic 718”), which requires
all share-based payments be recognized in the consolidated financial statements based on their fair values. In accordance with
FASB ASC Topic 718, the Company has elected to use the Black-Scholes option pricing model to determine the fair value of options
granted and recognizes the compensation cost of share-based awards on a straight-line basis over the vesting period of the award.
The determination of the fair value of share-based payment
awards utilizing the Black-Scholes model is affected by the fair value of the common stock and a number of other assumptions,
including expected volatility, expected life, risk-free interest rate and expected dividends. Prior to January 1, 2018,
the Company’s expected volatility was derived from the historical daily change in the market price of its common stock
since it exited shell company status, as well as the historical daily change in the market price for the peer group as
determined by the Company. Effective January 1, 2018, the Company’s expected volatility is derived from the
historical daily change in the market price of its common stock since it exited shell company status. The expected life
for awards uses the simplified method for all “plain vanilla” options, as defined in ASC 718-10-S99 and the
contractual term for all other employee and non-employee awards. The risk-free interest rate assumption is based on observed
interest rates appropriate for the terms of our awards. The dividend yield assumption is based on history and the expectation
of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Stock-based compensation expense, when recognized in the consolidated
financial statements, is based on awards that are ultimately expected to vest.
Fair Value Measurements
The Company measures both financial and nonfinancial assets
and liabilities in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, including those that are
recognized or disclosed in the consolidated financial statements at fair value on a recurring basis. The standard created a fair
value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are inputs
other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;
and Level 3 inputs are unobservable inputs that reflect the Company’s own views about the assumptions market participants
would use in pricing the asset or liability.
At December 31, 2020 and September 30, 2020, the
carrying amounts of cash, accounts payables and accrued expenses and other liabilities approximate fair value because of
their short-term nature. The carrying amounts for the PPP Loan and the Convertible Notes approximate fair
value.
Derivative Liabilities
The Company accounts for its warrants and other derivative financial
instruments as either equity or liabilities based upon the characteristics and provisions of each instrument, in accordance with
FASB ASC Topic 815, Derivatives and Hedging. Warrants classified as equity are recorded at fair value as of the date of
issuance on the Company’s consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified
as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded
on the Company’s consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent
balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods
recorded as other income or expense. Management estimates the fair value of these liabilities using option pricing models and assumptions
that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for
future financings, expected volatility, expected life, yield, and risk-free interest rate.
Financial Statement Reclassification
Certain balances in the prior year consolidated financial statements
have been reclassified for comparison purposes to conform to the presentation in the current period consolidated financial statements.
Subsequent Events
The Company evaluated all events or transactions that occurred
commencing from January 1, 2021 and ending on February 11, 2021 the date which these unaudited interim consolidated
financial statements were issued. The Company disclosed material subsequent events, if any, in Note 16.
Going Concern Basis of Accounting
As reflected in the consolidated financial statements, the Company
has an accumulated deficit, has suffered significant net losses and negative cash flows from operations, has not generated operating
revenues, and has limited working capital. The continuation of our business as a going concern is dependent upon raising additional
capital and eventually attaining and maintaining profitable operations. In particular, as of December 31, 2020, the Company
will be required to raise additional capital, obtain alternative means of financial support, or both, in order to continue to fund
operations, and therefore there is substantial doubt about our ability to continue as a going concern. The Company expects to incur
substantial expenses into the foreseeable future for the research, development and commercialization of its potential products.
In addition, the Company will require additional financing in order to seek to license or acquire new assets, research and develop
any potential patents and the related compounds, and obtain any further intellectual property that the Company may seek to acquire.
Finally, some of our product candidates or the materials contained therein (such as the Active Pharmaceutical Ingredients (“APIs”)
for our AC5® product line), are manufactured from facilities in areas impacted by the outbreak of the coronavirus,
which could result in shortages due to ongoing efforts to address the outbreak. Historically, the Company has principally funded
operations through debt borrowings, the issuance of convertible debt, and the issuance of units consisting of common stock and
warrants. Provisions in the Securities Purchase Agreements that the Company entered into on February 20, 2017 (“2017
SPA”) and on June 28, 2018 (“2018 SPA”) restrict the Company’s ability to effect or enter into an
agreement to effect any issuance by the Company or its subsidiary of Common Stock or securities convertible, exercisable or exchangeable
for Common Stock (or a combination of units thereof) involving a Variable Rate Transaction (as defined in the 2017 SPA and 2018
SPA) including, but not limited to, an equity line of credit or “At-the-Market” financing facility until the three
lead investors in the 2017 Financing and the institutional investors in the 2018 SPA collectively own less than 20% of the Series F
Warrants and the Series G Warrants purchased by them pursuant to the 2017 SPA and 2018 SPA, respectively. The continued spread
of coronavirus and uncertain market conditions may also limit the Company’s ability to access capital. If the Company is
unable to obtain adequate capital, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned activities. These conditions, in the aggregate, raise substantial doubt as to the Company’s ability to continue
as a going concern.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments
that might result from this uncertainty.
3.
|
PROPERTY AND EQUIPMENT
|
At December 31, 2020 and September 30,
2020, property and equipment consisted of:
|
|
Estimated
Useful
Life
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Furniture and fixtures
|
|
5 years
|
|
$
|
9,357
|
|
|
$
|
9,357
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
Life of Lease
|
|
|
8,983
|
|
|
|
8,983
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
3 years
|
|
|
11,141
|
|
|
|
11,141
|
|
|
|
|
|
|
|
|
|
|
|
|
Lab equipment
|
|
5 years
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,481
|
|
|
|
30,481
|
|
|
|
|
|
|
|
|
|
|
|
|
Less – accumulated depreciation
|
|
|
|
|
26,301
|
|
|
|
25,929
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
4,180
|
|
|
$
|
4,552
|
|
For the three months ended December 31, 2020 and 2019 depreciation
expense recorded was $372 and $1,936, respectively.
Inventories consist of the following:
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Finished Goods
|
|
$
|
300,009
|
|
|
$
|
-
|
|
Goods-in-process
|
|
|
715,731
|
|
|
|
967,993
|
|
Total
|
|
$
|
1,015,740
|
|
|
$
|
967,993
|
|
The Company capitalizes inventory that has been produced for
commercial sale and has been determined to have a probable future economic
benefit. The determination of whether or not the inventory has a future economic benefit requires estimates by management. Our
inventory levels are analyzed to identify inventory that may expire prior to sale. To the extent that inventory is expected to
expire prior to being sold, the Company will write down the value of inventory.
5.
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STOCK-BASED COMPENSATION
|
2013 Stock Incentive Plan
On June 18, 2013, the Company established the 2013 Stock
Incentive Plan (the “2013 Plan”). Under the 2013 Plan, during the fiscal year ended September 30, 2020, a maximum
number of 28,114,256 shares of the Company’s authorized and available common stock could be issued in the form of options,
stock appreciation rights, sales or bonuses of restricted stock, restricted stock units or dividend equivalent rights, and an award
may consist of one such security or benefit, or two or more of them in any combination or alternative. The 2013 Plan provides that
on the first business day of each fiscal year commencing with fiscal year 2014, the number of shares of our common stock reserved
for issuance under the 2013 Plan for all awards except for incentive stock option awards will be subject to increase by an amount
equal to the lesser of (A) 3,000,000 Shares, (B) four (4) percent of the number of shares outstanding on the last
day of the immediately preceding fiscal year of the Company, or (C) such lesser number of shares as determined by the Company’s
Board of Directors (the “Board”). The exercise price of each option shall be the fair value as determined in good faith
by the Board at the time each option is granted. On October 1, 2020, the aggregate number of authorized shares under the Plan
was further increased by 3,000,000 shares to a total of 31,114,256 shares.
As of December 31, 2020, a total of 19,179,212 options
had been issued to employees and directors and 8,692,500 options had been issued to consultants. The exercise price of each option
has either been equal to the closing price of a share of our common stock on the date of grant or has been determined to be in
compliance with Internal Revenue Section 409A.
Share-based awards
During the three months ended December 31, 2020, the
Company granted no options to employees and directors and 975,000 options to consultants to purchase shares of common stock
under the 2013 Plan.
The Company recognizes compensation expense for stock option
awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period,
with the exception of options granted subject to a consulting agreement, whereby the option vesting period and the service period
are defined pursuant to the terms of the consulting agreement. Share-based compensation expense for awards granted during the three
months ended December 31, 2020 was based on the fair market value or grant date fair value estimated using the Black-Scholes
Option Pricing Model. The following assumptions were used to calculate the fair value of share based compensation for the three
months ended December 31, 2020; expected volatility, 79.44% - 119.44%, risk-free interest rate, 0.13% - 2.85%, expected forfeiture
rate, 0%, expected dividend yield, 0%, expected term, 5.6 years. Expected price volatility is the measure by which the Company’s
stock price is expected to fluctuate during the expected term of an option. The Company exited shell company status on June 26,
2013. In situations where a newly public entity has limited historical data on the price of its publicly traded shares and no other
traded financial instruments, authoritative guidance is provided on estimating this assumption by basing its expected volatility
on the historical, expected, or implied volatility of similar entities whose share option prices are publicly available. In making
the determination as to similarity, the guidance recommends the consideration of industry, stage of life cycle, size and financial
leverage of such other entities. Prior to January 1, 2018, the Company’s expected volatility was derived from the historical
daily change in the market price of its common stock since it exited shell company status, as well as the historical daily change
in the market price for the peer group as determined by the Company. Effective January 1, 2018, the Company’s expected
volatility is derived from the historical daily change in the market price of its common stock since it exited shell company status.
For so called “plain vanilla” options granted to
employees, the expected term of the options is based upon the simplified method as defined in ASC 718-10-S99 which averages an
award’s weighted-average vesting period and the contractual term for share options. The Company will continue to use the
simplified method until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with
ASC Topic 718. The Company’s estimation of the expected term for stock options not subject to the simplified method is based
upon the contractual term of the option award. For the purposes of estimating the fair value of stock option awards, the risk-free
interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield. The Company has never paid
any dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future.
Stock-based compensation expense recognized in the Company’s
consolidated statements of operations is based on awards ultimately expected to vest, reduced for estimated forfeitures. Authoritative
guidance requires forfeitures to be estimated at the time of grant, and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Since the Company has a limited history of occurrences of stock option forfeitures and
a small number of employees it continues to estimate the forfeiture rate of its outstanding stock options as zero but will continually
evaluate its historical data as a basis for determining expected forfeitures.
Common Stock Options
Stock compensation activity under the 2013 Plan for the three
months ended December 31, 2020 follows:
|
|
Option
Shares
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at September 30, 2020
|
|
|
18,248,346
|
|
|
$
|
0.36
|
|
|
|
2.59
|
|
|
$
|
79,330
|
|
Awarded
|
|
|
975,000
|
|
|
$
|
0.17
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/Cancelled
|
|
|
(148,191
|
)
|
|
$
|
0.44
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2020
|
|
|
19,075,155
|
|
|
$
|
0.35
|
|
|
|
2.61
|
|
|
$
|
119,733
|
|
Vested at December 31, 2020
|
|
|
16,587,085
|
|
|
$
|
0.37
|
|
|
|
2.64
|
|
|
$
|
70,693
|
|
Vested and expected to vest at December 31, 2020
|
|
|
19,075,155
|
|
|
$
|
0.35
|
|
|
|
2.61
|
|
|
$
|
119,733
|
|
As of December 31, 2020, 6,873,199 shares are available
for future grants under the 2013 Plan. Share-based compensation expense recorded in the Company’s Consolidated Statements
of Operations for the three months ended December 31, 2020 and 2019 resulting from stock options awarded to the Company’s
employees, directors and consultants was approximately $86,000 and $159,000, respectively. Of this amount during the three months
ended December 31, 2020 and 2019, $26,000 and $76,000, respectively, were recorded as research and development expenses, and
$60,000 and $83,000, respectively were recorded as general and administrative expenses in the Company’s Consolidated Statements
of Operations.
During the three months ended December 31, 2020 and
2019, no stock options awarded under the 2013 Stock Incentive Plan were exercised.
As of December 31, 2020, there is approximately $265,000
of unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the 2013 Plan. That
cost is expected to be recognized over a weighted average period of 1.41 years.
Restricted Stock
On October 14, 2020, the Company awarded 50,000 shares
of Restricted Stock to a consultant. The shares subject to this grant are awarded under the 2013 Plan and vest 90 days from the
date of the award. In addition, in the event of a Change of Control (as such term is defined in the 2013 Plan), 100% of the grants
will immediately vest.
On July 19, 2018, the Company awarded 745,000 shares of
Restricted Stock to members of the Board of Directors and management and 220,000 shares of Restricted Stock to Dr. Avtar Dhillon
in his capacity as a consultant. The shares subject to this grant are awarded under the 2013 Plan and shall fully vest on the second
anniversary of the date of grant. In addition, in the event of a Change of Control (as such term is defined in the 2013 Plan),
100% of the grants will immediately vest. As of September 30, 2020, all restricted shares have vested.
On September 5, 2018, the Company awarded 100,000 shares
of Restricted Stock to a consultant. The shares subject to this grant are awarded under the 2013 Plan and 50,000 vest 90 days from
the date of the award and 50,000 vest 365 days from the date of the award. In addition, in the event of a Change of Control (as
such term is defined in the 2013 Plan), 100% of the grants will immediately vest. As of September 30, 2020, all restricted
shares have vested.
Restricted stock activity in shares under the 2013 Plan for
the three months ended December 31, 2020 and 2019 follows:
|
|
2020
|
|
|
2019
|
|
Non Vested at September 30, 2020 and 2019
|
|
|
-
|
|
|
|
965,000
|
|
Awarded
|
|
|
50,000
|
|
|
|
—
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Non Vested at December 31, 2020 and 2019
|
|
|
50,000
|
|
|
|
965,000
|
|
The weighted average restricted stock award date fair value
information for the three months ended December 31, 2020 and 2019 follows:
|
|
2020
|
|
|
2019
|
|
Non Vested
at September 30, 2020 and 2019
|
|
$
|
-
|
|
|
$
|
0.57
|
|
Awarded
|
|
|
0.18
|
|
|
|
—
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Non
Vested at December 31, 2020 and 2019
|
|
$
|
0.18
|
|
|
$
|
0.57
|
|
For the three months ended December 31, 2020 and 2019 compensation
expense recorded for the restricted stock awards was approximately $0 and $40,000, respectively.
6.
|
2015 PRIVATE PLACEMENT FINANCING
|
Beginning June 22, 2015 and through June 30, 2015,
the Company entered into a series of substantially similar subscription agreements (each a “Subscription Agreement”)
with 20 accredited investors (collectively, the “2015 Investors”) providing for the issuance and sale by the Company
to the 2015 Investors, in a private placement, of an aggregate of 14,390,754 Units (“Unit”) at a purchase price of
$0.22 per Unit (the “2015 Private Placement Financing”). Each Unit consisted of a share of Common Stock (the “2015
Shares”) and a Series D Warrant to purchase a share of Common Stock at an exercise price of $0.25 per share at any time
prior to the fifth anniversary of the issuance date of the Series D Warrant (the “Series D Warrants” and
the shares issuable upon exercise of the Series D Warrants, collectively, the “2015 Warrant Shares”). The Company
did not engage any underwriter or placement agent in connection with the 2015 Private Placement Financing, and the aggregate gross
proceeds raised by the Company in the 2015 Private Placement Financing totaled approximately $3,200,000.
The Company’s obligation to issue and sell the 2015 Shares
and the Series D Warrants and the corresponding obligation of the 2015 Investors to purchase such 2015 Shares and Series D
Warrants were subject to a number of conditions precedent including, but not limited to, the amendment of the Company’s Series A
Warrants and Series C Warrants to delete certain of the anti-dilution provisions contained therein, and other customary closing
conditions. The conditions precedent were satisfied June 30, 2015 (the “Initial Closing Date”), and the Company
conducted an initial closing (the “Initial Closing”) pursuant to which it sold and 19 of the 2015 Investors (the “Initial
Investors”) purchased 13,936,367 Units at an aggregate purchase price of $3,066,000. On July 2, 2015, the Company conducted
a second closing (the “Second Closing” and together with the Initial Closing, the “Closings”) pursuant
to which it sold, and one of the 2015 Investors purchased 454,387 Units at an aggregate purchase price of $100,000.
On the Initial Closing Date, the Company entered into a registration
rights agreement with the Initial Investors (the “2015 Registration Rights Agreement”), pursuant to which the Company
was obligated, subject to certain conditions, to file with the Securities and Exchange Commission within 90 days after the closing
of the 2015 Private Placement Financing one or more registration statements (any such registration statement, a “Resale Registration
Statement”) to register the 2015 Shares and the 2015 Warrant Shares for resale under the Securities Act. The remaining 2015
Investor became a party to the 2015 Registration Rights Agreement upon the consummation of the Second Closing. 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 2015 Registration Rights Agreement may subject the Company to payment of monetary penalties. On October 27,
2015, we received from the SEC a Notice of Effectiveness of our Registration Statement related to the 2015 Private Placement Financing
(the “2015 S-1”) which satisfied some of our obligation to register these securities with the SEC.
The 2015 Registration Rights Agreement also obligated the Company
to register the resale of all securities covered by the 2015 Registration Rights Agreement on a short-form registration statement
on Form S-3 as soon as the Company becomes eligible to use Form S-3. On October 31, 2016, the Company filed a resale
registration statement on Form S-3 (the “2015 S-3”) to register the remaining securities covered by the 2015 Registration
Rights Agreement, and the 2015 S-3 was declared effective on November 23, 2016. Pursuant to Rule 429 promulgated under
the Securities Act, the 2015 S-3 contained a combined prospectus that covered the securities that remained unsold under the 2015
S-1 and also registered those same securities under the 2015 S-3. Under Rule 429, the 2015 S-3 also constituted a post-effective
amendment to the 2015 S-1, which became effective on the date that the 2015 S-3 was declared effective.
Following each Closing, each 2015 Investor was also issued Series D
Warrants to purchase shares of the Company’s Common Stock up to 100% of the 2015 Shares purchased by such 2015 Investor under
such 2015 Investor’s Subscription Agreement. The Series D Warrants have an exercise price of $0.25 per share, are exercisable
immediately after their issuance and have a term of exercise equal to five years after their issuance date. The number of shares
of the Company’s Common Stock into which each of the Series D Warrants is exercisable and the exercise price therefore
are subject to adjustment, as set forth in the Series D Warrants, including adjustments for stock subdivisions or combinations
(by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise). In addition, at any time
during the term of the Series D Warrants, the Company may reduce the then-current exercise price to any amount and for any
period of time deemed appropriate by the Board of the Company.
On June 3, 2020, the Company entered into an agreement
(the “Agreement”) with the holders of a majority (the “Majority Holders”) of the outstanding Series D
Warrants (the “Warrant”) resulting in approximately $850,000 of proceeds as a result of the full exercise of their
Warrants. The Agreement provides for the reduction of the Series D Warrant exercise price from $0.25 to $0.18 per share,
and the elimination of a provision that prevents the Series D Warrants from being exercised if the holder’s beneficial
ownership would exceed 4.9% as a result. Under the terms of the Agreement, in exchange for fully exercising their remaining Warrants
for 4,727,273 shares of common stock on June 4, 2020, the Majority Holders were issued Series J Warrants to purchase
3,545,454 shares of common stock at an exercise price of $0.25 over a 1 year term.
On June 22, 2020, the Company entered into a Series J
Warrant Issuance Agreement (the “Keyes Sulat Agreement”) with the Keyes Sulat Revocable Trust (the “Trust”),
also a holder of outstanding Series D Warrants, resulting in approximately $82,000 of proceeds as a result of the full exercise
of the Trust’s Warrants. Under the terms of the Keyes Sulat Agreement, in exchange for fully exercising the Trust’s
remaining Warrants for 454,546 shares of common stock on June 22, 2020, the Trust was issued Series J Warrants to purchase
340,910 shares of common stock at an exercise price of $0.25 over a 1 year term. James R. Sulat, a member of the Board, is a co-trustee
of the Trust, of which members of Mr. Sulat’s immediate family are beneficiaries. Mr. Sulat disclosed his interest
in the Trust to the Board prior to its approval of the transaction and abstained from voting on the transaction.
On
November 6, 2020, as consideration for investment in the Convertible Notes, the Company entered into that certain Amendment
to Series J Warrant to Purchase Common Stock, a holder of a Series J Warrant exercisable for up to 3,375,000 shares of
Common Stock, to extend the term of the Series J Warrant from one (1) year to thirty (30) months.
As a result of the issuance of the Series J Warrants, in
conjunction with the exercise of the Series D Warrants, the Company recorded in equity a noncash equity issuance cost valued
at approximately $220,000. This charge was estimated using the Black-Scholes Option Pricing Model with the following assumptions;
expected volatility, 88.15%, risk-free interest rate, 0.16%, expected forfeiture rate, 0%, expected dividend yield, 0%, expected
term, 1.08 years. The Series J Warrants are indexed to the Company’s stock and are classified as equity.
During the year ended September 30, 2020, Series D
Warrants had been exercised on a cash basis for an aggregate issuance of 5,181,819 shares of the Company’s common stock resulting
in gross proceeds to the Company of $932,728. During the fiscal year ended September 30, 2019, no Series D Warrants had
been exercised. As of September 30, 2020, 3,792,570 Series D Warrants expired.
Common Stock
At June 30, 2015 the Initial Closing Date of the 2015 Private
Placement Financing, the Company issued 13,936,367 shares of Common Stock. On July 2, 2015, the Company conducted the Second
Closing pursuant to which it sold and one of the 2015 Investors purchased 454,387 shares of Common Stock.
Equity Value of Warrants
The Company accounted for the Series D Warrants relating
to the aforementioned 2015 Private Placement Financing in accordance with ASC 815-40, Derivatives and Hedging. Because the
Series D Warrants and the Series J Warrants are indexed to the Company’s stock, they are classified within stockholders’
equity (deficit) in the accompanying consolidated financial statements.
7.
|
2016 PRIVATE PLACEMENT FINANCING
|
Beginning May 24, 2016 and through May 26, 2016, we
entered into a series of substantially similar subscription agreements (each a “2016 Subscription Agreement”) with
18 accredited investors (collectively, the “2016 Investors”) providing for the issuance and sale by the Company to
the 2016 Investors, in a private placement, of an aggregate of 9,418,334 Units at a purchase price of $0.36 per Unit (the “2016
Private Placement Financing”). Each Unit consisted of a share of Common Stock, and a Series E Warrant to purchase 0.75
shares of Common Stock at an exercise price of $0.4380 per share at any time prior to the fifth anniversary of the issuance date
of the Series E Warrant (the “Series E Warrants” and the shares issuable upon exercise of the Series E
Warrants, collectively, the “Series E Warrant Shares”). The exercise price of the Series E Warrants was set
to equal the closing price of our Common Stock on the date of their issuance (May 26, 2016), which was $0.4380, and therefore
the Series E Warrants were not issued at a discount to the market price of our Common Stock as of such date. The gross proceeds
to Arch were approximately $3.4 million before deducting financing costs of approximately $281,000.
The number of shares of Common Stock into which each of the
Series E Warrants is exercisable and the exercise price therefor are subject to adjustment as set forth in the Series E
Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization,
scheme, arrangement or otherwise). In addition, (i) at any time during the term of the Series E Warrants, we may reduce
the then-current exercise price to any amount and for any period of time deemed appropriate by our Board of Directors (the “Board”); and (ii) certain of the Series E Warrants provide that they shall not be exercisable in the event and to the extent
that the exercise thereof would result in the holder of the Series E Warrant, together with its affiliates and any other persons
whose beneficial ownership of Common Stock would be aggregated with the holder’s, would be deemed to beneficially own more
than 4.99% of the Common Stock; provided, however , the holder, upon notice to us, may increase or decrease the ownership
limitation, provided that any increase is limited to a maximum of 9.99% of the Company’s Common Stock, and any increase
in the ownership limitation will not become effective until the 61st day after delivery of such notice.
We engaged Maxim Group LLC (“Maxim”) as our
exclusive institutional investor placement agent in connection with the 2016 Private Placement Financing, and in
consideration for the services provided by it, Maxim was entitled to receive cash fees equal to 8.2% of the gross proceeds
received by us from certain institutional investors participating in the 2016 Private Placement Financing (the “Maxim
Investors”), as well as reimbursement for all reasonable expenses incurred by it in connection with its engagement. We
received gross proceeds of approximately $3,390,600 in the aggregate, of which approximately $2,084,000 was attributable to
the Maxim Investors, resulting in a fee of approximately $171,000. On May 26, 2016, we entered into a registration
rights agreement with the 2016 Investors (the “2016 Registration Rights Agreement”), pursuant to which we became
obligated, subject to certain conditions, to file with the Securities and Exchange Commission (the “SEC”) within
45 days after the closing of the 2016 Private Placement Financing one or more registration statements (the “2016
S-1”) to register the shares of Common Stock issued in the Closings and the Series E Warrant Shares for resale
under the Securities Act of 1933, as amended (the “Securities Act”). As a result, we registered for resale under
the 2016 S-1 an aggregate of 16,482,082 shares of Common Stock, representing the 9,418,334 shares issued at the closing of
the 2016 Private Placement Financing and the 7,063,748 shares underlying the Series E Warrants. On July 13, 2016,
we received from the SEC a Notice of Effectiveness of the 2016 S-1, which satisfied some of our obligation to register these
securities with the SEC.
The 2016 Registration Rights Agreement also obligated the Company
to register the resale of all securities covered by the 2016 Registration Rights Agreement on a short-form registration statement
on Form S-3 as soon as the Company becomes eligible to use Form S-3. On October 31, 2016, the Company filed a resale
registration statement on Form S-3 (the “2016 S-3”) to register the remaining securities covered by the 2016 Registration
Rights Agreement, and the 2016 S-3 was declared effective on November 23, 2016. Pursuant to Rule 429 promulgated under
the Securities Act, the 2016 S-3 contained a combined prospectus that covered the securities that remained unsold under the 2016
S-1 and also registered those same securities under the 2016 S-3. Under Rule 429, the 2016 S-3 also constituted a post-effective
amendment to the 2016 S-1, which became effective on the date that the 2016 S-3 was declared effective.
Following the Closing, each 2016 Investor was also issued Series E
Warrants to purchase shares of the Company’s Common Stock up to 75% of the 2016 Shares purchased by such 2016 Investor under
such 2016 Investor’s Subscription Agreement. The Series E Warrants have an exercise price of $0.438 per share, are exercisable
immediately after their issuance and have a term of exercise equal to five years after their issuance date. The number of shares
of the Company’s Common Stock into which each of the Series E Warrants is exercisable and the exercise price therefore
are subject to adjustment, as set forth in the Series E Warrants, including adjustments for stock subdivisions or combinations
(by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise). In addition, at any time
during the term of the Series E Warrants, the Company may reduce the then-current exercise price to any amount and for any
period of time deemed appropriate by the Board of the Company.
During the three months ended December 31, 2020 and 2019,
no Series E Warrants had been exercised. As of December 31, 2020, up to 4,214,582 shares may be acquired upon the
exercise of the Series E Warrants.
Common Stock
At May 26, 2016, the Closing Date of the 2016 Private Placement
Financing, the Company issued 9,418,334 shares of Common Stock.
Equity Value of Warrants
The Company accounted for the Series E Warrants relating
to the aforementioned 2016 Private Placement Financing in accordance with ASC 815-40, Derivatives and Hedging. Because the
Series E Warrants are indexed to the Company’s stock, they are classified within stockholders’ equity (deficit)
in the accompanying consolidated financial statements.
8.
|
2017 REGISTERED DIRECT OFFERING
|
On September 30, 2016, the Company filed a registration
statement with the SEC utilizing a “shelf” registration process, which was subsequently declared effective by the SEC
on October 20, 2016 (such registration statement, the “Shelf Registration Statement”). Under the Shelf Registration
Statement, the Company may offer and sell any combination of its Common Stock, warrants, debt securities, subscription rights,
and/or units comprised of the foregoing to raise up to $50,000,000 in gross proceeds.
On February 20, 2017, the Company entered into
Securities Purchase Agreement (the “2017 SPA”) with 6 accredited investors (collectively, the “2017
Investors”) providing for the issuance and sale by the Company to the 2017 Investors of an aggregate of 10,166,664
units at a purchase price of $0.60 per Unit in a registered offering (the “2017 Financing”). The securities
comprising the units sold in the 2017 Financing were issued under the Shelf Registration Statement, and consisted of a share
of Common Stock, a Series F Warrant equal to 55% of the shares of Common Stock at an exercise price of $0.75 per share at any
time prior to the fifth anniversary of the issuance date of the Series F Warrant subject to certain restrictions on
exercise (the “2017 Warrants” and the shares issuable upon exercise of the 2017 Warrants, collectively, the
“2017 Warrant Shares”). Provisions in the 2017 SPA restrict the Company’s ability to effect or enter into
an agreement to effect any issuance by the Company or any of its subsidiaries of Common Stock or securities convertible,
exercisable or exchangeable for Common Stock (or a combination of units thereof) involving a Variable Rate Transaction (as
defined in the 2017 SPA) including, but not limited to, an equity line of credit or “At-the-Market” financing
facility until the three lead investors in the 2017 Financing collectively own less than 20% of the Series F Warrants
purchased by them pursuant to the 2017 SPA. The gross proceeds to Arch from the 2017 Financing, which closed on
February 24, 2017, were approximately $6.1 million before deducting financing costs of approximately $112,000.
The number of shares of the Company’s Common Stock into
which each of the Series F Warrants is exercisable and the exercise price therefore are subject to adjustment, as set forth
in the Series F Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise). In addition, at any time during the term of the Series F
Warrants, the Company may reduce the then-current exercise price to any amount and for any period of time deemed appropriate by
the Board of the Company. In addition, if the Company undergoes a change of control or is involved in a similar transaction, the
holder may cause the Company or any successor entity to purchase its Series F Warrant for an amount of cash equal to $0.18
for each share of Common Stock underlying the Series F Warrant.
During the three months ended December 31, 2020 and 2019,
no Series F Warrants had been exercised. As of December 31, 2020, up to 5,591,664 shares may be acquired upon the exercise
of the Series F Warrants.
Common Stock
At February 24, 2017, the Closing Date of the 2017 Financing,
the Company issued 10,166,664 shares of Common Stock.
Derivative Liabilities
The Company accounted for the Series F Warrants relating
to the aforementioned 2017 Financing in accordance with ASC 815-10, Derivatives and Hedging. Since the Company may be required
to purchase its Series F Warrants for an amount of cash equal to $0.18 for each share of Common Stock the underlying Series F
Warrants are not classified within stockholders’ equity (deficit), they are recorded as liabilities at fair value. They are
marked to market each reporting period through the consolidated statement of operations.
On the Closing Date, the derivative liabilities were recorded
at fair value of $2,996,110. Given that the fair value of the derivative liabilities was less than the net proceeds of the 2017
Financing of $5,987,122, the remaining proceeds of $2,991,012 were allocated to the Common Stock and additional paid-in capital.
During the three months ended December 31, 2020 and 2019, $0 and $274,404 were recorded to decrease the fair value of derivative,
respectively.
Fair Value Measurements Using Significant Unobservable Inputs
|
|
December 31,
|
|
|
September 30,
|
|
(Level 3)
|
|
2020
|
|
|
2020
|
|
Beginning balance at September 30, 2020 and 2019
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
Issuances
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Adjustments to estimated fair value
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2020 and September 30, 2020
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
The derivative liabilities were valued as of December 31,
2020 and September 30, 2020 using the Black Scholes Model with the following assumptions:
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Closing price per share of common stock
|
|
$
|
0.15
|
|
|
$
|
0.17
|
|
Exercise price per share
|
|
$
|
0.75
|
|
|
$
|
0.75
|
|
Expected volatility
|
|
|
82.10
|
%
|
|
|
84.17
|
%
|
Risk-free interest rate
|
|
|
0.10
|
%
|
|
|
0.13
|
%
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
Remaining expected term of underlying securities (years)
|
|
|
1.09
|
|
|
|
1.35
|
|
9.
|
2018 REGISTERED DIRECT OFFERING
|
On June 28, 2018, the Company entered into a
Securities Purchase Agreement (“2018 SPA”) with 8 accredited investors (“2018 Investors”) providing
for the issuance and sale by the Company to the 2018 Investors of an aggregate of 9,070,000 units at a purchase price of
$0.50 per Unit in a registered offering (“2018 Financing”). The securities comprising the units sold in the 2018
Financing were issued under the Shelf Registration Statement, and consisted of a share of Common Stock, a Series G Warrant to
purchase up to a number of shares of our common stock equal to 75% of the shares of Common Stock at an exercise price of
$0.70 per share at any time prior to the fifth anniversary of the issuance date of the Series G Warrant subject to
certain restrictions on exercise (“2018 Warrants”) and the shares issuable upon exercise of the 2018 Warrants. On
July 2, 2018, the Closing Date of the 2018 Financing, the Company issued 9,070,000 shares of Common Stock.
The 2018 SPA contains certain restrictions in the
Company’s ability to conduct subsequent sales of its equity securities. Until such time the three lead
investors collectively own less than 20% of the Series G Warrants purchased by them pursuant to the 2018 SPA, the
Company is prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its
subsidiaries of Common Stock or securities convertible, exercisable or exchangeable for Common Stock (or a combination of
units thereof) involving a Variable Rate Transaction (as defined in the 2018 SPA) including, but not limited to, an equity
line of credit or “At-the-Market” financing facility. The gross proceeds to Arch from the 2018 Financing, were approximately $4.5 million before deducting financing costs of approximately
$74,000.
The number of shares of the Company’s Common Stock into
which each of the Series G Warrants is exercisable and the exercise price therefore are subject to adjustment, as set forth
in the Series G Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise). In addition, if the Company undergoes a change of control
or is involved in a similar transaction, the holder may cause the Company or any successor entity to purchase its Series G
Warrant for an amount of cash equal to $0.11 for each share of Common Stock underlying the Series G Warrant. During the three
months ended December 31, 2020 and 2019, no Series G Warrants had been exercised. As of December 31, 2020, up to
6,802,500 shares may be acquired upon the exercise of the Series G Warrants.
Common Stock
On June 30, 2018 the shares were recorded as subscribed
but not issued. On July 2, 2018, the Closing Date of the 2018 Financing, the Company issued 9,070,000 shares of Common Stock.
Derivative Liabilities
The Company accounted for the Series G Warrants relating
to the aforementioned 2018 Financing in accordance with ASC 815-10, Derivatives and Hedging. Since the Company may be required
to purchase its Series G Warrants for an amount of cash equal to $0.11 for each share of Common Stock and the underlying Series G
Warrants are not classified within stockholders’ equity (deficit), they are recorded as liabilities at fair value. They are
marked to market each reporting period through the consolidated statement of operations.
On the Closing Date, the derivative liabilities were
recorded at fair value of $2,397,454. Given that the fair value of the derivative liabilities were less than the net proceeds
of the 2018 Financing of $4,461,248, the remaining proceeds of $2,063,794 were allocated to the Common Stock Subscribed but
Unissued and additional paid-in capital. During the three months ended December 31, 2020 and 2019, $0 were recorded to decrease the fair value of derivative, respectively.
Fair Value Measurements Using Significant Unobservable Inputs
|
|
December 31,
|
|
|
September 30,
|
|
(Level 3)
|
|
2020
|
|
|
2020
|
|
Beginning balance at September 30, 2020 and 2019
|
|
$
|
748,275
|
|
|
$
|
748,275
|
|
|
|
|
|
|
|
|
|
|
Issuances
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Adjustments to estimated fair value
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2020 and September 30, 2020
|
|
$
|
748,275
|
|
|
$
|
748,275
|
|
The derivative liabilities were valued as of December 31,
2020 and September 30, 2020 using the Black Scholes Model with the following assumptions:
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Closing price per share of common stock
|
|
$
|
0.15
|
|
|
$
|
0.17
|
|
Exercise price per share
|
|
$
|
0.70
|
|
|
$
|
0.70
|
|
Expected volatility
|
|
|
83.31
|
%
|
|
|
83.31
|
%
|
Risk-free interest rate
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
Remaining expected term of underlying securities (years)
|
|
|
2.46
|
|
|
|
2.71
|
|
10.
|
2019 REGISTERED DIRECT OFFERING
|
On May 12, 2019, the Company entered into a
Securities Purchase Agreement (“2019 SPA”) with 5 accredited investors (“2019 Investors”) providing
for the issuance and sale by the Company to the 2019 Investors of an aggregate of 8,615,384 units at a purchase price of
$0.325 per Unit in a registered offering (“2019 Financing”). The securities comprising the units sold in the 2019
Financing were issued under the Shelf Registration Statement, and consisted of a share of Common Stock, and a Series H
Warrant to purchase one share of Common Stock at an exercise price of $0.40 per share at any time prior to the fifth
anniversary of the issuance date of the Series H Warrant subject to certain restrictions on exercise
(“the 2019 Warrant Shares”) and the shares issuable upon exercise of the 2019 Warrants, (“2019
Warrant Shares”). As of May 14, 2019, the Company recorded the 8,615,384 shares as Common Stock.
The gross proceeds to Arch from the 2019 Financing, were approximately $2.8 million before deducting financing costs of approximately $51,200. The
number of shares of the Company’s Common Stock into which each of the Series H Warrants is exercisable and the exercise
price therefore are subject to adjustment, as set forth in the Series H Warrants, including adjustments for stock subdivisions
or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise). In addition,
if the Company undergoes a change of control or is involved in a similar transaction, the holder may cause the Company or any successor
entity to purchase its Series H Warrant for an amount of cash equal to $0.0533 for each share of Common Stock underlying the
Series H Warrant. During the three months ended December, 2020 and 2019, no Series H Warrants had been exercised. As
of December 31, 2020, up to 8,615,384 shares may be acquired upon the exercise of the Series H Warrants.
Common Stock
At May 14, 2019 the Closing Date of the 2019 Financing,
the Company issued 8,615,384 shares of Common Stock.
Derivative Liabilities
The Company accounted for the Series H Warrants relating
to the aforementioned 2019 Financing in accordance with ASC 815-10, Derivatives and Hedging. Since the Company may be required
to purchase its Series H Warrants for an amount of cash equal to $0.0533 for each share of Common Stock and the underlying
Series H Warrants are not classified within stockholders’ equity (deficit), they are recorded as liabilities at fair
value. They are marked to market each reporting period through the consolidated statement of operations.
On the Closing Date, the derivative liabilities were
recorded at fair value of $1,628,113. Given that the fair value of the derivative liabilities were less than the net proceeds
of the 2019 Financing of $2,748,821, the remaining proceeds of $1,120,708 were allocated to the Common Stock and
additional-paid-in-capital. During the three months ended December 31, 2020 and 2019 $108,944 and ($40,187) was
recorded to decrease/(increase) the fair value of derivative liability.
Fair Value Measurements Using Significant Unobservable Inputs
|
|
December 31,
|
|
|
September 30,
|
|
(Level 3)
|
|
2020
|
|
|
2020
|
|
Beginning balance at September 30, 2020 and 2019
|
|
$
|
568,144
|
|
|
$
|
1,247,415
|
|
|
|
|
|
|
|
|
|
|
Issuances
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Adjustments to estimated fair value
|
|
|
(108,944
|
)
|
|
|
(679,271
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2020 and September 30, 2020
|
|
$
|
459,200
|
|
|
$
|
568,144
|
|
The derivative liabilities were valued as of December 31,
2020 and September 30, 2020 using the Black Scholes Model with the following assumptions:
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Closing price per share of common stock
|
|
$
|
0.15
|
|
|
$
|
0.17
|
|
Exercise price per share
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
Expected volatility
|
|
|
82.41
|
%
|
|
|
82.24
|
%
|
Risk-free interest rate
|
|
|
0.27
|
%
|
|
|
0.22
|
%
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
Remaining expected term of underlying securities (years)
|
|
|
3.34
|
|
|
|
3.60
|
|
11.
|
OCTOBER 2019 REGISTERED DIRECT OFFERING
|
On October 16, 2019, the Company entered into a Securities
Purchase Agreement (“October 2019 SPA”) with 7 accredited investors (“October 2019 Investors”)
providing for the issuance and sale by the Company to the 2019 Investors of an aggregate of 14,285,714 units at a purchase price
of $0.175 per Unit in a registered offering (“October 2019 Financing”). The securities comprising the units sold
in the October 2019 Financing were issued under the Shelf Registration Statement, and consisted of a share of Common Stock,
and a Series I Warrant to purchase one share of Common Stock at an exercise price of $0.22 per share at any time prior to
the fifth anniversary of the issuance date of the Series I Warrant subject to certain restrictions on exercise (“October 2019
Warrants”) and the shares issuable upon exercise of the October 2019 Warrants, (“October 2019 Warrant Shares”).
As of October 18, 2019, the Company recorded the 14,285,714 shares as Common Stock. Pursuant to the Engagement Agreement (as
defined below), the Company also agreed to issue to the Placement Agent, or its designees, warrants to purchase up to 1,071,429
shares (the “Placement Agent Warrants”). The Placement Agent Warrants have substantially the same terms as the Series I
Warrants, except that the exercise price of the Placement Agent Warrants is $0.21875 per share and the term of the Placement Agent
Warrants is five years.
The gross proceeds to Arch from the October 2019 Financing were approximately $2.5 million before deducting financing costs of approximately
$333,000 which includes approximately $158,000 of placement fees. The number of shares of the Company’s Common Stock
into which each of the Series I Warrants is exercisable and the exercise price therefore are subject to adjustment, as set
forth in the Series I Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise).
We engaged H.C. Wainwright (“Wainwright”) as our
exclusive institutional investor placement agent in connection with the October SPA pursuant to an engagement agreement (the
“Engagement Agreement”) dated as of October 10, 2019, and in consideration for the services provided by it, Wainwright
was entitled to receive cash fees ranging from 6.0% to 8.2% of the gross proceeds received by us, as well as reimbursement
for all reasonable expenses incurred by it in connection with its engagement. We received gross proceeds of approximately $2.5
million in the aggregate, resulting in a fee of approximately $158,000.
During the three months ended December 31, 2020 and 2019,
no Series I Warrants or Placement Agent Warrants had been exercised. As of December 31, 2020, up to 14,285,714 and 1,071,429
shares may be acquired upon the exercise of the Series I Warrants and Placement Agent Warrants, respectively.
Common Stock
At October 18, 2019 the Closing Date of the October 2019
Financing, the Company issued 14,285,714 shares of Common Stock.
Equity Value of Warrants
The Company accounted for the Series I Warrants and the
Placement Agent Warrants relating to the aforementioned October 2019 Registered Direct Offering in accordance with ASC 815-40,
Derivatives and Hedging. Because the Series I Warrants and the Placement Agent Warrants are indexed to the Company’s
stock, they are classified within stockholders’ equity (deficit) in the accompanying consolidated financial statements.
12.
|
SERIES 1 CONVERTIBLE NOTES
|
On June 4, 2020, the Company issued unsecured 10%
Convertible Notes in the aggregate principal amount of $550,000. The Series 1 Convertible Notes provide, among other
things, for (i) a term of approximately three (3) years; (ii) the Company’s ability to prepay the
Series 1 Convertible Notes, in whole or in part, at any time; (iii) the automatic conversion of the Series 1
Convertible Notes upon a Change of Control (all capitalized terms not otherwise defined to have the meaning ascribed to such
terms in the Series 1 Convertible Notes) into shares of the Company’s common stock, par value $0.001 per share
(Common Stock), at a per share price of $0.27 (the “Conversion Price”); (iv) the ability of a holder
of a Convertible Note (a “Holder”) to convert the Series 1 Convertible Note and accrued interest, in
whole or in part, into shares of Common Stock at the Conversion Price; (v) the Company’s ability to convert all
Note Obligations outstanding upon a Qualified Equity Financing into shares of Common Stock at the Conversion Price;
(vi) the Company’s ability to convert Series 1 Convertible Notes and accrued interest, in whole or in part,
into shares of Common Stock at the Conversion Price in the event the volume weighted average price (“VWAP”) of
the Common Stock equals or exceeds $0.32 per share for at least fifteen (15) consecutive Trading Days; (vii) the
Company’s ability to convert all outstanding Note Obligations into shares of Common Stock at the Conversion Price (an
“In-Kind Note Repayment”) in lieu of repaying the Note Obligations outstanding on the Maturity Date,
June 30, 2023; provided, however, that in the case of an In-Kind Note Repayment, the outstanding Note Obligations will
be calculated by increasing by thirty-five percent (35%) the aggregate sum of the unpaid Principal Amount held by each Holder
and the accrued interest at a rate of ten percent (10%) per annum, subject to, with respect to any portion of the Principal
Amount that is converted or prepaid before the twelve month anniversary of the Issuance Date, a minimum interest payment
equal to ten percent (10%) of the amount that is converted or prepaid.
During the three months ended December 31, 2020, the Company
recorded interest expense as part of general and administrative expenses of approximately $14,000.
13.
|
SERIES 2 CONVERTIBLE NOTES
|
On November 6, 2020, the Company issued unsecured 10%
Series 2 Convertible Notes in the aggregate principal amount of $1,050,000. The Series 2 Convertible Notes provide,
among other things, for (i) a term of approximately three (3) years; (ii) the Company’s ability to
prepay the Series 2 Convertible Notes, in whole or in part, at any time; (iii) the automatic conversion of the
Series 2 Convertible Notes upon a Change of Control (all capitalized terms not otherwise defined to have the meaning ascribed
to such terms in the Series 2 Convertible Notes) into shares of the Company’s common stock, par value $0.001 per share
(Common Stock), at a per share price of $0.25 (the “Conversion Price”); (iv) the ability of a holder
of a Series 2 Convertible Note (a “Holder”) to convert the Series 2 Convertible Note and accrued
interest, in whole or in part, into shares of Common Stock at the Conversion Price; (v) the Company’s ability to
convert all Note Obligations outstanding upon a Qualified Equity Financing into shares of Common Stock at the Conversion
Price; (vi) the Company’s ability to convert Series 2 Convertible Notes and accrued interest, in whole or in
part, into shares of Common Stock at the Conversion Price in the event the volume weighted average price (“VWAP”)
of the Common Stock equals or exceeds $0.32 per share for at least fifteen (15) consecutive Trading Days; (vii) the
Company’s ability to convert all outstanding Note Obligations into shares of Common Stock at the Conversion Price (an
“In-Kind Note Repayment”) in lieu of repaying the Note Obligations outstanding on the Maturity Date,
November 30, 2023; provided, however, that in the case of an In-Kind Note Repayment, the outstanding Note Obligations
will be calculated by increasing by thirty-five percent (35%) the aggregate sum of the unpaid Principal Amount held by each
Holder and the accrued interest at a rate of ten percent (10%) per annum, subject to, with respect to any portion of the
Principal Amount that is converted or prepaid before the twelve month anniversary of the Issuance Date, a minimum interest
payment equal to ten percent (10%) of the amount that is converted or prepaid.
During the three months ended December 31, 2020, the Company
recorded interest expense as part of general and administrative expenses of approximately $15,000.
14.
|
PAYROLL PROTECTION PROGRAM LOAN
|
On April 25, 2020, the Company executed a promissory note
(the “PPP Note”) evidencing an unsecured loan in the amount of $176,300 under the Paycheck Protection Program
(the “PPP Loan”). The Paycheck Protection Program (or “PPP”) was established under the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration
(“SBA”). The Loan has been made through First Republic Bank (the “Lender”).
The PPP Loan has a two-year term and bears interest at a rate
of 1.00% per annum. Monthly principal and interest payments are deferred until the earliest of ten months after the end of our
covered period or the date the SBA makes a decision on our loan forgiveness application. Unless the PPP Loan is forgiven, the Company
will be required to make monthly payments of principal and interest of approximately $20,000 to the Lender.
The PPP Note contains customary events of default relating to,
among other things, payment defaults, providing materially false and misleading representations to the SBA or Lender, or breaching
the terms of the PPP Loan documents. The occurrence of an event of default may result in the immediate repayment of all amounts
outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment.
Under the terms of the CARES Act, PPP Loan recipients can apply
for and be granted forgiveness for all or a portion of loan granted under the PPP. Such forgiveness will be determined, subject
to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and
utilities. However, no assurance is provided that forgiveness for any portion of the PPP Loan will be obtained. During November 2020,
the Company applied for forgiveness of the PPP Loan.
15.
|
RISKS AND UNCERTAINTIES – COVID-19
|
The Company sources its materials and services for its products
and product candidates from facilities in areas impacted or which may be impacted by the outbreak of the coronavirus. This may
impact the Company’s ability to obtain future inventory and impact the Company’s revenue stream as efforts to address
this worldwide outbreak are undertaken. In addition, the Company has historically and principally funded its operations through
debt borrowings, the issuance of convertible debt, and the issuance of units consisting of common stock and warrants which may
also be impacted by economic conditions beyond the Company’s control. To the extent in which the coronavirus will impact
the global economy and the Company is uncertain and cannot be reasonably measured.
The Company evaluated all events or transactions that occurred
through the date which these consolidated financial statements were issued. On February 12, 2021, the Company announced
that it had entered into a securities purchase agreement with certain institutional and accredited investors to raise approximately
$6.9 million through the issuance of an aggregate of 43,125,004 shares of its common stock and warrants to purchase up to an aggregate
of 32,343,753 shares of common stock, at a combined purchase price of $0.16 per share of common stock and associated warrant in
a private placement (the “2021 Financing”). The Series K Warrants have an exercise price of $0.17 per share and are
exercisable for a period of 5.5 years. The gross proceeds to Arch from the 2021 Financing, which is expected to close
on February 17, 2021, are expected to be approximately $6.9 million before deducting financing costs of approximately $700,000.
The Company engaged H.C. Wainwright & Co., LLC (the “Placement
Agent) as exclusive placement agent for the 2021 Financing. Pursuant to the Company’s engagement letter with the Placement
Agent, the Company also agreed to issue to the Placement Agent, or its designees, warrants to purchase up to 3,234,375 shares (the
“Placement Agent 2 Warrants”). The Placement Agent 2 Warrants have substantially the same terms as the Series K Warrants,
except that the exercise price of the Placement Agent Warrants is $0.20 per share.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis should be read in conjunction
with our unaudited interim financial statements and notes included in this report and the audited financial statements and notes
thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended September 30, 2020 filed with the Securities and Exchange Commission (“SEC”).
This report contains forward looking statements. We make forward-looking
statements, as defined by the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and
in some cases, you can identify these statements by forward-looking words 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 and other comparable terminology.
Such forward-looking statements contained in this report on Form 10-Q are based on various underlying assumptions and expectations
and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance
based on our growth strategies and anticipated trends in our business and include risks and uncertainties relating to Arch’s
current cash position and its need to raise additional capital in order to be able to continue to fund its operations; the stockholder
dilution that may result from future capital raising efforts and the exercise or conversion, as applicable of Arch’s outstanding
options and warrants; anti-dilution protection afforded investors in prior financing transactions that may restrict or prohibit
Arch’s ability to raise capital on terms favorable to the Company and its current stockholders; Arch’s limited operating
history which may make it difficult to evaluate Arch’s business and future viability; Arch’s ability to timely commercialize
and generate revenues or profits from our anticipated products; Arch’s ability to achieve the desired marketing authorizations
in the United States or elsewhere; Arch’s ability to retain its managerial personnel and to attract additional personnel;
the strength of Arch’s intellectual property, the intellectual property of others and any asserted claims of infringement;
and other risk factors identified under the caption “Risk Factors” in this report on Form 10-Q and in the documents
Arch has filed, or will file with the SEC. Copies of Arch’s filings with the SEC may be obtained from the SEC internet site
at http://www.sec.gov . We undertake no duty to update any of these forward-looking statements after the date of filing
of this report on Form 10-Q to conform such forward-looking statements to actual results or revised expectations, except as
otherwise required by law.
As used in this report on Form 10-Q unless otherwise indicated,
the “Company”, “we”, “us”, “our”, and “Arch” refer to Arch Therapeutics, Inc.
and its consolidated subsidiary, Arch Biosurgery, Inc.
Corporate Overview
Arch Therapeutics, Inc., (together with its subsidiary,
the “Company” or “Arch”) was incorporated under the laws of the State of Nevada on September 16, 2009,
under the name “Almah, Inc.”. Effective June 26, 2013, the Company completed a merger (the “Merger”)
with Arch Biosurgery, Inc. (formerly known as Arch Therapeutics, Inc.), a Massachusetts corporation (“ABS”),
and Arch Acquisition Corporation (“Merger Sub”), the Company’s wholly owned subsidiary formed for the purpose
of the transaction, pursuant to which Merger Sub merged with and into ABS and ABS thereby became the wholly owned subsidiary of
the Company. As a result of the acquisition of ABS, the Company abandoned its prior business plan and changed its operations to
the business of a biotechnology company. Our principal offices are located in Framingham, Massachusetts.
For financial reporting purposes, the Merger represented a “reverse
merger”. ABS was deemed to be the accounting acquirer in the transaction and the predecessor of Arch. Consequently, the accumulated
deficit and the historical operations that are reflected in the Company’s consolidated financial statements prior to the
Merger are those of ABS. All share information has been restated to reflect the effects of the Merger. The Company’s financial
information has been consolidated with that of ABS after consummation of the Merger on June 26, 2013, and the historical financial
statements of the Company before the Merger have been replaced with the historical financial statements of ABS before the Merger
in this report.
ABS was incorporated under the laws of the Commonwealth of Massachusetts
on March 6, 2006 as Clear Nano Solutions, Inc. On April 7, 2008, ABS changed its name from Clear Nano Solutions, Inc.
to Arch Therapeutics, Inc. Effective upon the closing of the Merger, ABS changed its name from Arch Therapeutics, Inc.
to Arch Biosurgery, Inc.
Business Overview
We are a biotechnology company marketing or developing a number
of products based on our innovative AC5® self-assembling technology platform. We believe these products can be important
advances in the field of stasis and barrier applications, which includes stopping bleeding (“hemostasis”), controlling
leaking (“sealant”) and managing wounds created during surgery, trauma or interventional care or from disease. We have
generated no revenues to date and have devoted substantially all of our operational effort to the research, development and regulatory
programs necessary to turn our core technology into commercial products. Our goal is to make care faster and safer for patients
with products for use in external wounds, which we refer to as Dermal Sciences applications, and products for use inside the body,
which we refer to as Biosurgery applications.
To date, the Company has principally raised capital through
debt borrowings, the issuance of convertible debt and the issuance of units consisting of its common stock, par value $0.001 per
share (“Common Stock”), and warrants. The Company expects to incur substantial expenses for the foreseeable future
relating to the research, development, clinical trials, and commercialization of its current and potential products. As of February 11,
2021 we believe that our current cash on hand will meet our anticipated cash requirements into the second quarter of fiscal 2021.
The Company will be required to raise additional capital, obtain alternative means of financial support, or both, in order to
continue to fund operations. There can be no assurance that the Company will be successful in securing additional resources when
needed on terms acceptable to the Company, if at all. Therefore, there exists substantial doubt about the Company’s ability
to continue as a going concern.
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 management of complicated
chronic wounds or acute surgical wounds. Other products are in development for use in minimally invasive or open surgical procedures
and include, for example, AC5-GTM 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 biocompatible peptide
that is synthesized from proteogenic, naturally occurring L-amino acids. Unlike products that contain traditional peptide sequences,
when applied to a wound, AC5-based products intercalate into the interstices of the connective tissue and self-assemble into a
protective physical-mechanical nanoscale structure that can provide a barrier to leaking substances, such as blood, while also
acting as a biodegradable scaffold that enables healing. Self-assembly is a central component of the mechanism of action of our
technology. Individual AC5 peptide units readily build themselves, or self-assemble, into an ordered network of nanofibrils when
in aqueous solution by the following process:
|
·
|
Peptide strands line up with neighboring peptide strands, interacting via hydrogen bonds (non-covalent bonds) to form a ribbon-like structure called a beta sheet.
|
|
·
|
This process continues such that hundreds of strands organize with charged and polar side chains oriented on one face and non-polar side chains oriented on the opposite face of the beta sheets.
|
|
·
|
Interactions of the resulting structure with water molecules and ions results in formation nanofibrils, which extend in length and can join together to form larger nanofibers.
|
|
·
|
This network of AC5 peptide nanofibers forms the physical-mechanical barrier that is responsible for sealant, hemostatic and other properties, regardless of the presence of antithrombotic agents, and which subsequently becomes the scaffold that supports the repair and regeneration of damaged tissue.
|
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. 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, and does not possess sticky or glue-like handling characteristics.
We believe these properties enhance its utility in several settings and contribute to its user-friendly profile.
We believe that our technology lends itself to a range of potential
applications in which there is a wound inside or on the body, and in which there is need for a hemostatic agent or sealant. 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.
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; 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:
|
·
|
conducting biocompatibility, pre-clinical, and clinical studies on our products and product candidates;
|
|
·
|
obtaining additional marketing authorization for products in the United States, Europe, and other jurisdictions as we may determine;
|
|
·
|
continuing to develop third party relationships to manufacture, distribute, market and otherwise commercialize our products;
|
|
·
|
continuing to develop academic, scientific and institutional relationships to collaborate on product research and development;
|
|
·
|
expanding and maintaining protection of our intellectual property portfolio; and
|
|
·
|
developing additional product candidates in Dermal Sciences, Biosurgery, and other areas.
|
In furtherance of our long-term business goals, we expect to
continue to focus on the following activities during the next twelve months:
|
·
|
seek additional funding as required to support the milestones described previously and our operations generally;
|
|
·
|
work with our manufacturing partners to scale up production of product compliant with current good manufacturing practices (“cGMP”), which activities will be ongoing and tied to our development and commercialization needs;
|
|
·
|
further clinical development of our product platform;
|
|
·
|
assess our technology platform in order to identify and select product candidates for potential advancement into development;
|
|
·
|
seek regulatory input to guide activities related to expanded and new product marketing authorizations;
|
|
·
|
continue to expand and enhance our financial and operational reporting and controls;
|
|
·
|
pursue commercial partnerships; and
|
|
·
|
expand and enhance our intellectual property portfolio by filing new patent applications, obtaining allowances on currently filed patent applications, and/or adding to our trade secrets in self-assembly, manufacturing, analytical methods and formulation, which activities will be ongoing as we seek to expand our product candidate portfolio.
|
In addition to capital required for operating expenses, depending
upon additional input from EU and US regulatory authorities, as well as the potential for additional regulatory filings and approvals
during the next 2 years, additional capital will be required.
We believe that the Company has cash on hand to meet its anticipated
cash requirements into the second quarter of fiscal 2021. Notwithstanding this, depending upon additional input from EU and US
regulatory authorities, we may need to raise additional capital before then. In addition to the foregoing, our 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 filing.
Merger with ABS and Related Activities
As noted earlier in this document, 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 common stock, par value $0.001 per share (“Common
Stock”), from 75,000,000 shares to 300,000,000 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 its Common Stock trades on the OTC Bulletin Board from “AACH” to “ARTH”.
Liquidity
We have generated no revenues to date. We devote a
significant amount of our efforts on fundraising as well as planning and conducting product research and development and
activities in connection with obtaining regulatory marketing authorization. For the three months ended December 31,
2020, we had a net loss of $1,154,104 versus a net loss of $1,659,754 in the comparable period in the prior year. The loss
for the three months ended December 31, 2020 can be attributable to research and development expenses, including
regulatory marketing authorization and general and administrative costs partially offset by an adjustment of derivative
liabilities of $108,944. The loss for the three months ended December 31, 2019 can be attributable to research and
development expenses, including regulatory approval and product research, general and administrative costs.
Cash used in operating activities decreased $191,752, during
the three months ended December 31, 2020 to $1,129,896 compared to $1,321,648, for the three months ended December 31,
2019. Cash at December 31, 2020 decreased by $79,896 to $879,413 compared to $959,309 as of September 30, 2020.
Recent Developments
On November 6, 2020, the Company issued unsecured 10% Series 2
Convertible Notes in the aggregate principal amount of $1,050,000. The Series 2 Convertible Notes provide, among other things,
for (i) a term of approximately three (3) years; (ii) the Company’s ability to prepay the Series 2 Convertible
Notes, in whole or in part, at any time; (iii) the automatic conversion of the Convertible Notes upon a Change of Control
(all capitalized terms not otherwise defined to have the meaning ascribed to such terms in the Series 2 Convertible Notes)
into shares of the Company’s common stock, par value $0.001 per share (Common Stock), at a per share price of $0.25 (the
“Conversion Price”); (iv) the ability of a holder of a Convertible Note (a “Holder”)
to convert the Convertible Note and accrued interest, in whole or in part, into shares of Common Stock at the Conversion Price;
(v) the Company’s ability to convert all Note Obligations outstanding upon a Qualified Equity Financing into shares
of Common Stock at the Conversion Price; (vi) the Company’s ability to convert Convertible Notes and accrued interest,
in whole or in part, into shares of Common Stock at the Conversion Price in the event the volume weighted average price (“VWAP”)
of the Common Stock equals or exceeds $0.32 per share for at least fifteen (15) consecutive Trading Days; (vii) the Company’s
ability to convert all outstanding Note Obligations into shares of Common Stock at the Conversion Price (an “In-Kind Note
Repayment”) in lieu of repaying the Note Obligations outstanding on the Maturity Date, November 30, 2023; provided,
however, that in the case of an In-Kind Note Repayment, the outstanding Note Obligations will be calculated by increasing by thirty-five
percent (35%) the aggregate sum of the unpaid Principal Amount held by each Holder and the accrued interest at a rate of ten percent
(10%) per annum, subject to, with respect to any portion of the Principal Amount that is converted or prepaid before the twelve
month anniversary of the Issuance Date, a minimum interest payment equal to ten percent (10%) of the amount that is converted or
prepaid.
On November 6, 2020, as consideration for an investment
in the Convertible Notes, the Company entered into an Amendment to the Series J Warrant to Purchase Common Stock, with a holder
of a Series J Warrant exercisable for up to 3,375,000 shares of Common Stock, to extend the term of the Series J Warrant
from one (1) year to thirty (30) months.
On
January 4, 2021, the Company announced that it has entered into a distribution and sales administration agreement with Buffalo
Supply, Inc. (“Buffalo Supply” or “BSI”) to be the exclusive distributor for products sold to
United States government facilities worldwide.
During November 2020, the Company applied for forgiveness
of the PPP loan. The PPP Loan has a two-year term and bears interest at a rate of 1.00% per annum. Monthly principal and interest
payments are deferred until the earliest of ten months after the end of our covered period or the date the SBA makes a decision
on our loan forgiveness application. Unless the PPP Loan is forgiven, the Company will be required to make monthly payments of
principal and interest of approximately $20,000 to the Lender.
On December 31, 2020, the Company announced that the Company
and Richard Davis, the Company’s current Chief Financial Officer, entered into a transition agreement, under which Mr. Davis
agreed to continue in his current role as the Company’s Chief Financial Officer until the earlier of (i) when a successor
is named and ready to perform the daily duties of Chief Financial Officer, and (ii) June 30, 2021 (such date, the “Transition
End Date”), upon which date Mr. Davis will retire as Chief Financial Officer. Pursuant to the Agreement, for a period
of six months following the Transition End Date, Mr. Davis will continue to work as an employee of the Company in a non-executive
role to provide support and ensure a smooth and successful transition.
On February 12, 2021, the Company announced that
it had entered into a securities purchase agreement with certain institutional and accredited investors as of February 11,
2021 to raise approximately $6.9 million through the issuance of an aggregate of 43,125,004 shares of its common stock and
warrants to purchase up to an aggregate of 32,343,753 shares of common stock, at a combined purchase price of $0.16 per share
of common stock and associated warrant in a private placement (the “2021 Financing”). The Series K Warrants have
an exercise price of $0.17 per share and are exercisable for a period of 5.5 years. The gross proceeds to Arch
from the 2021 Financing, which is expected to close on February 17, 2021, are expected to be
approximately $6.9 million before deducting financing costs of approximately $700,000. In the event the
2021 Financing closes as expected and the Company receives the expected gross proceeds of $6.9 million, the Company believes
that its cash on hand, not including that which may be derived from any potential revenue generation, will meet its
anticipated cash requirements into at least the first quarter of fiscal 2022.
The Company engaged H.C. Wainwright & Co., LLC (the “Placement
Agent) as exclusive placement agent for the 2021 Financing. Pursuant to the Company’s engagement letter with the Placement
Agent, the Company also agreed to issue to the Placement Agent, or its designees, warrants to purchase up to 3,234,375 shares (the
“Placement Agent 2 Warrants”). The Placement Agent 2 Warrants have substantially the same terms as the Series K Warrants,
except that the exercise price of the Placement Agent Warrants is $0.20 per share.
The Company also recently commenced commercial sales of its
first product, AC5®Advanced
Wound System.
Results of Operations
The following discussion of our results of operations should
be read together with the unaudited interim consolidated financial statements included in this report on Form 10-Q. The period
to period comparisons of our interim results of operations that follow are not necessarily indicative of future results.
Three months ended December 31, 2020 Compared to Three
months ended December 31, 2019
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
919,458
|
|
|
|
975,833
|
|
|
|
(56,375
|
)
|
Research and development
|
|
|
343,590
|
|
|
|
643,734
|
|
|
|
(300,144
|
)
|
Operating loss
|
|
|
(1,263,048
|
)
|
|
|
(1,619,567
|
)
|
|
|
(356,519
|
)
|
Other income (expense)
|
|
|
108,944
|
|
|
|
(40,187
|
)
|
|
|
(149,131
|
)
|
Net loss
|
|
|
(1,154,104
|
)
|
|
|
(1,659,754
|
)
|
|
|
(505,650
|
)
|
Revenue
We did not generate revenue in either of the three months ended
December 31, 2020 or 2019.
General and Administrative Expense
General and administrative expenses during the three
months ended December 31, 2020 were $919,458, a decrease of $56,375 compared to $975,833 for the three months ended
December 31, 2019. The decrease in general and administrative expense for the three months ended December 31, 2020 is
primarily attributable to payroll and stock based compensation partially offset by patent costs and interest expense. General
and administrative expenses are generally expected to increase during fiscal 2021 as a result of the establishment and
execution of commercialization efforts, additional staffing, increased stock-based compensation as well as increased costs
associated with the Company’s continued fundraising efforts.
Research and Development Expense
Research and development expense during the three months ended
December 31, 2020 was $343,590, a decrease of $300,144 compared to $643,734 for the three months ended December 31,
2019. The decrease in research and development expense is primarily attributable to a decrease in product and development costs,
preparation of regulatory filings and compensation costs. Research and development expenses are expected to increase during fiscal
2021 as a result of our plans for additional product development, clinical and regulatory programs.
Other Income
Other income during the three months ended December 31,
2020 was $108,944, a decrease of 149,131 compared to total other expense of $40,187 for the three months ended December 31,
2019. The increase in other income was the result of a change in fair market value of the derivative liabilities.
Liquidity and Capital Resources
To date, we have not generated revenues from the sale of any
products and have principally raised capital through borrowings and the issuance of convertible debt and units consisting of Common
Stock and warrants to fund our operations.
Working Capital
At December 31, 2020, we had total current assets of $2,092,284
(including cash of $879,413) and working capital of $1,349,838. Our working capital as of December 31, 2020 and September 30,
2020 are summarized as follows:
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
Total Current Assets
|
|
$
|
2,092,284
|
|
|
$
|
2,142,975
|
|
Total Current Liabilities
|
|
|
742,446
|
|
|
|
646,241
|
|
Working Capital
|
|
$
|
1,349,838
|
|
|
$
|
1,496,734
|
|
Total current assets as of December 31, 2020 were $2,092,284,
a decrease of $50,691 compared to $2,142,975 as of September 30, 2020. The decrease in current assets is primarily attributable
to general and administrative expenses and research and development expenses incurred in connection with activities to develop
our primary product candidate partially offset by $1,050,000 received from the issuance of convertible notes. Our total current
assets as of December 31, 2020 and September 30, 2020 were comprised primarily of cash, inventory and prepaid expenses
and other current assets.
Total current liabilities as of December 31, 2020 were
$742,446, an increase of $96,205 compared to $646,241 as of September 30, 2020. The increase is primarily due to an increase
in accounts payable and in accrued expenses and other liabilities. Our total current liabilities as of December 31, 2020 and
September 30, 2020 were comprised of accounts payable, accrued expenses and other liabilities and the current portion of the
PPP loan.
Cash Flow for the three months ended
|
|
December 31
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Used in Operating Activities
|
|
$
|
(1,129,896
|
)
|
|
$
|
(1,321,648
|
)
|
Cash Used in Investing Activities
|
|
|
-
|
|
|
|
(2,455
|
)
|
Cash Provided by Financing Activities
|
|
|
1,050,000
|
|
|
|
2,167,162
|
|
Net (decrease) increase in cash
|
|
$
|
(79,896
|
)
|
|
$
|
843,059
|
|
Cash Used in Operating Activities
Cash used in operating activities decreased $191,752 to $1,129,896
during the three months ended December 31, 2020 compared to $1,321,648 during the three months ended December 31, 2019.
The decrease in cash used in operating activities is primarily attributable to a reduction in consulting costs, payroll and product
and development costs partially offset by inventory costs.
Cash Used in Investing Activities
Cash used in investing activities decreased $2,455 to $0 from
$2,455 during the three months ended December 31, 2020, compared to $2,455 during the three months ended December 31,
2019. For the three months ended December 31, 2019, cash used in investing activities is attributed to computer hardware purchases.
Cash Provided by Financing Activities
Cash provided by financing activities decreased $1,117,162 to
$1,050,000 during the three months ended December 31, 2020, compared to $2,167,162 during the three months ended December 31,
2019. For the three months ended December 31, 2020, the cash provided by financing activities resulted from $1,050,000 from
the issuance of Series 2 Convertible Notes. For the three months ended December 31, 2019, the cash provided
by financing activities resulted from $2,167,162 from the issuance of common stock and warrants in the October 2019 Financing.
Cash Requirements
We anticipate that our operating and other expenses will increase
significantly as we continue to implement our business plan and pursue our operational goals. As of February 11, 2021, we
believe that our current cash on hand will meet our anticipated cash requirements into the second quarter of fiscal 2021. Notwithstanding
this, depending upon additional input from EU and US regulatory authorities, 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 under the heading “
RISK FACTORS ” in this filing, in which case our current funds may not be sufficient to operate our business for
the period we expect.
To date we have generated no operating revenues. We expect to
generate revenue in the near future. That revenue will not be sufficient to fund our business operations and we will need to obtain
additional funding from external sources for the foreseeable future. We do not have any commitments for future capital. Significant
additional financing will be required to fund our planned operations in the near term and in future periods, including research
and development activities relating to our principal product candidate, seeking regulatory approval of that or any other product
candidate we may choose to develop, commercializing any product candidate for which we are able to obtain regulatory approval or
certification, seeking to license or acquire new assets or businesses, and maintaining our intellectual property rights and pursuing
rights to new technologies. We may not be able to obtain additional financing on commercially reasonable or acceptable terms when
needed, or at all. We are bound by certain contractual terms and obligations that may limit or otherwise impact our ability to
raise additional funding in the near-term including, but not limited to, provisions in the 2017 SPA and 2018 SPA restricting our
ability to effect or enter into an agreement to effect any issuance by the Company or any of its subsidiaries of Common Stock or
securities convertible, exercisable or exchangeable for Common Stock (or a combination of units thereof) involving a Variable Rate
Transaction (as defined in the 2017 SPA and 2018 SPA) including, but not limited to, an equity line of credit or “At-the-Market”
financing facility until the three lead investors in the 2017 Financing and the 2018 Financing collectively own less than 20% of
the Series F Warrants and Series G Warrants purchased by them pursuant to the 2017 SPA and 2018 SPA. These restrictions
and provisions could make it more challenging for us to raise capital through the incurrence of debt or through equity issuances.
If we cannot raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back
or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business
would fail and our stockholders could lose all of their investments.
As previously noted, since inception we have funded our operations
primarily through equity and debt financings and we expect to continue to seek to do so in the future. If we obtain additional
financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Additionally, the terms of
securities we may issue in future capital-raising transactions may be more favorable for our new investors, and in particular may
include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have additional
dilutive effects. If we obtain additional financing by incurring debt, we may become subject to significant limitations and restrictions
on our operations pursuant to the terms of any loan or credit agreement governing the debt. Further, obtaining any loan, assuming
a loan would be available when needed on acceptable terms, would increase our liabilities and future cash commitments. We may also
seek funding from collaboration or licensing arrangements in the future, which may require that we relinquish potentially valuable
rights to our product candidates or proprietary technologies or grant licenses on terms that are not favorable to us. Moreover,
regardless of the manner in which we seek to raise capital, we may incur substantial costs in those pursuits, including investment
banking fees, legal fees, accounting fees, printing and distribution expenses and other related costs. In addition, as described
in greater detail under the Risk Factor entitled “The terms of the 2017 Financing and 2018 Financing could impose additional
challenges on our ability to raise funding in the future,” included in this Quarterly Report on Form 10-Q, the
2017 SPA and the 2018 SPA imposes certain restrictions on our ability to issue equity or debt securities.
Going Concern
From inception, we have not earned operating revenues from sales
of products or services and have recurring losses from operations. While the Company anticipates that it will have cash on hand
into the second quarter of fiscal 2021, the continuation of our business as a going concern is dependent upon raising additional
capital and eventually attaining and maintaining profitable operations. As of December 31, 2020, there is substantial doubt
about the Company’s ability to continue as a going concern. The financial statements included in this Quarterly Report on
Form 10-Q do not include any adjustments that might be necessary should operations discontinue.
Critical Accounting Policies and Significant Judgments and
Estimates
Pursuant to certain disclosure guidance issued by the SEC, the
SEC defines “critical accounting policies” as those that require the application of management’s most difficult,
subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods. Our critical accounting policies that we anticipate will require the application
of our most difficult, subjective or complex judgments are as follows:
Basis of Presentation
The unaudited consolidated financial statements presented with
this Form 10-Q include the accounts of Arch Therapeutics, Inc. and its wholly owned subsidiary, Arch Biosurgery, Inc.
a biotechnology company. All intercompany accounts and transactions have been eliminated in consolidation.
The Company is in the development stage and is devoting substantially
all of its efforts to developing technologies, raising capital, establishing customer and vendor relationships, and recruiting
new employees.
Use of Estimates
Management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those
estimates.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when circumstances
indicate the carrying value of an asset may not be recoverable in accordance with ASC 360, Property, Plant and Equipment.
For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the
asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down
to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined
based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed
of are carried at the lower of carrying value or estimated net realizable value.
Research and Development
We expense internal and external research and development costs,
including costs of funded research and development arrangements, in the period incurred
Accounting for Stock-Based Compensation
The Company accounts for employee and nonemployee stock-based
compensation in accordance with the guidance of Financial Accounting Standards Board (“FASB”) ASC Topic 718, Compensation-Stock
Compensation (“FASB ASC Topic 718”), which requires all share-based payments to be recognized in the consolidated
financial statements based on their fair values. In accordance with FASB ASC Topic 718, we have elected to use the Black-Scholes
option-pricing model to determine the fair value of options granted and we recognize the compensation cost of share-based awards
on a straight-line basis over the vesting period of the award.
The determination of the fair value of share-based payment awards
utilizing the Black-Scholes model is affected by the fair value of the common stock and a number of other assumptions, including
expected volatility, expected life, risk-free interest rate and expected dividends. Prior to January 1, 2018, the Company
did not have a sufficient history of market prices of the Common Stock, and as such volatility was estimated in accordance with
ASC 718-10-S99 Compensation-Stock Compensation (“ASC 718-10-S99”). Prior to January 1, 2018, the Company’s
expected volatility was derived from the historical daily change in the market price of its common stock since it exited shell
company status, as well as the historical daily change in the market price for the peer groups as determined by the Company. Effective
January 1, 2018, the Company is using its historical market prices to calculate the volatility of its common stock. The life
term for awards uses the simplified method for all “plain vanilla” options, as defined in ASC 718-10-S99 and the contractual
term for all other employee and non-employee awards. The risk-free interest rate assumption is based on observed interest rates
appropriate for the terms of our awards. The dividend yield assumption is based on history and the expectation of paying no dividends.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Stock-based compensation expense, when recognized in the financial statements, is based on awards that are ultimately
expected to vest.
Fair Value Measurements
We measure both financial and nonfinancial assets and liabilities
in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, including those that are recognized or disclosed
in the financial statements at fair value on a recurring basis. The standard created a fair value hierarchy which prioritizes the
inputs to valuation techniques used to measure fair value into three broad levels as follows: Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable
inputs that reflect our own views about the assumptions market participants would use in pricing the asset or liability.
Income Taxes
In accordance with FASB ASC 740, Income Taxes, we
recognize deferred tax assets and liabilities for the expected future tax consequences or events that have been included in our
consolidated financial statements and/or tax returns. Deferred tax assets and liabilities are based upon the differences between
the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards
using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not
be realized.
We provide reserves for potential payments of tax to various
tax authorities related to uncertain tax positions when management determines that it is probable that a loss will be incurred
related to these matters and the amount of the loss is reasonably determinable.
Derivative Liabilities
The Company accounts for its warrants and other derivative financial
instruments as either equity or liabilities based upon the characteristics and provisions of each instrument, in accordance with
FASB ASC Topic 815, Derivatives and Hedging. Warrants classified as equity are recorded at fair value as of the date of
issuance on the Company’s consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified
as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded
on the Company’s consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent
balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods
recorded as other income or expense. Management estimates the fair value of these liabilities using option pricing models and assumptions
that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for
future financings, expected volatility, expected life, yield, and risk-free interest rate.
Inventories
Inventories are stated at the lower of cost or net realizable
value. The cost of inventories comprises expenditures incurred in acquiring the inventories, the cost of conversion and other costs
incurred in bringing them to their existing location and condition. The cost of raw materials, work-in-progress and finished goods
and other products are determined on a First in First out (FiFo) basis. When determining net realizable value, appropriate consideration
is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value.
Recent Accounting Guidance
Accounting Standards Update (ASU) 2018-13, “Fair Value
Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” was
issued by the Financial Accounting Standards Board (FASB) in August 2018. The purpose of this amendment in this Update is to modify
the disclosure requirements on fair value measurements in Topic 820. The amendments in this Update are effective for public business
entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted
ASU 2018-13 during our first quarter of fiscal year 2021.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Not applicable
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, under the supervision
and with the participation of our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer
(who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure
controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of December 31, 2020, pursuant
to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer
concluded that our disclosure controls and procedures are effective as of December 31, 2020 in ensuring that information required
to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial
reporting that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting.
Risk Factor Summary
|
·
|
There is substantial doubt about our ability to continue as a going concern. We have not generated any revenue from operations since inception, and we believe that our current cash on hand will meet our anticipated cash requirements only into the second quarter of fiscal 2021.
|
|
·
|
We have incurred significant losses since inception, we expect to continue to incur losses for the foreseeable future, and we may never generate revenue or achieve or maintain profitability.
|
|
·
|
Given our lack of revenue, we may need to raise additional capital, which may not be available to us on acceptable terms, or at all.
|
|
·
|
Our business may be materially adversely affected by the coronavirus (COVID-19) pandemic. Should the pandemic or its aftereffects continue, our business operations could and will likely be delayed or interrupted.
|
|
·
|
Applications for regulatory marketing authorization for commercialization of our products 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.
|
|
·
|
Our principal product candidates are inherently risky because they are based on novel technologies and thus create 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.
|
|
·
|
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.
|
|
·
|
If the FDA or similar foreign agencies or intermediaries impose requirements or an alternative product classification more onerous than we anticipate, our business could be adversely affected.
|
|
·
|
We are subject to extensive and dynamic medical device regulations outside of the United States, which may impede or hinder the approval, marketing authorization 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 previously approved or authorized products.
|
|
·
|
Any clinical trials that are planned or are conducted on our 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.
|
|
·
|
We cannot market and sell any product candidate in the United States or in any other country or region if we fail to obtain the necessary marketing authorization, clearances or certifications from applicable government agencies.
|
|
·
|
Any product for which we obtain required regulatory marketing authorization could be subject to post-approval regulation, and we may be subject to penalties if we fail to comply with such post-approval requirements.
|
|
·
|
Use of third parties to manufacture our 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 face competition from companies that have greater resources than we do, and we may not be able to effectively compete against these companies.
|
|
·
|
If others claim we and/or the parties from who we license some of our intellectual property are infringing on their intellectual property rights, we may be subject to costly and time-consuming litigation.
|
|
·
|
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.
|
|
·
|
The market price of our Common Stock is and is expected to continue to be in the near term, less than $5.00 per share and is therefore a “penny stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities.
|
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
Our business may be materially adversely affected by the
recent coronavirus (COVID-19) outbreak.
COVID-19 is the disease caused by a coronavirus discovered in
2019 called SARS-CoV-2. It has evolved into a global pandemic, having spread to many regions of the world. The extent to which
COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be
accurately predicted, including new information that may emerge concerning the coronavirus and the actions to contain the coronavirus
or treat its impact, among others.
Should the coronavirus continue to spread, our business operations
could and will likely be delayed or interrupted. For instance, clinical use may be delayed due to, among other items, availability
of clinicians, follow-up by patients, availability of facility administrators to coordinate product evaluations and intake, and
the inability to ship product to clinical sites. Site initiation, participant recruitment and enrollment, participant dosing, distribution
of clinical trial materials, study monitoring and data analysis may be paused or delayed due to changes in hospital or university
policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other reasons related
to the pandemic. Some participants and clinical investigators may not be able to comply with clinical trial protocols. For example,
quarantines or other travel limitations (whether voluntary or required) may impede participant movement, affect sponsor access
to study sites, or interrupt healthcare services, and we may be unable to conduct our clinical trials. Furthermore, if the spread
of the coronavirus pandemic continues and our operations are adversely impacted, we risk a delay, default and/or nonperformance
under existing agreements which may increase our costs. These cost increases may not be fully recoverable or adequately covered
by insurance.
Infections, deaths and resource constraints due to the pandemic
may disrupt the United States and/or other healthcare and healthcare regulatory systems. Such disruptions could divert healthcare
resources away from evaluating and/or using our products, materially delay FDA and/or other regulatory agency review and/or approval
with respect to our current and future preclinical development plans, clinical trials and requests for marketing authorizations.
It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical
trials or delay in regulatory review resulting from such disruptions could and will materially affect the development and study
of our product candidates.
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 are 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® Topical Gel (renamed
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.
In the event of a shelter-in-place order or other mandated
local travel restrictions, our employees conducting research and development or manufacturing activities may not be able to access
their laboratory or manufacturing space, and our core activities may be significantly limited or curtailed, possibly for an extended
period of time.
The spread of the coronavirus, which has had a broad negative
global impact, including restrictions on travel and quarantine policies put into place by businesses and governments, may have
a material economic effect on our business. This may also limit the ability of physicians to perform procedures in which our products
could be used.
In addition, and as noted elsewhere, we believe that our current
cash on hand will meet our anticipated cash requirements into the second quarter of fiscal 2021. Accordingly, while the potential
economic impact brought by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is
likely to result in further, significant disruption of global financial markets, which may reduce our ability to access capital
either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from
the spread of the coronavirus could materially and adversely affect our business and the value of our common stock.
The ultimate impact of the current pandemic, or any other health
epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business,
our clinical trials, our research programs, healthcare systems or the global economy as a whole. However, these effects could have
a material impact on our operations, and we will continue to monitor the situation closely.
There is substantial doubt about our ability to continue
as a going concern.
Our initial product candidates are currently being used by clinicians
and to date we have not generated any revenue and we have incurred substantial net losses as a result. As of February 11,
2021, we believe that our current cash will meet anticipated requirements into the second quarter of fiscal 2021 and we will need
to raise additional capital before then.
During the first quarter of fiscal 2020, the third quarter of
fiscal 2020 and the first quarter of fiscal 2021, we obtained additional cash 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 the 2019 SPA, the October 2019 SPA, the Series 1 convertible promissory notes and the Series 2 convertible
promissory notes there exists substantial doubt about our ability to continue, as a going concern.
We have incurred significant losses since inception. We
expect to continue to incur losses for the foreseeable future, and we may never generate 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 not generated any product
revenue to-date. 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 entirely 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. 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 expect to continue to incur significant expenses and anticipate
that those expenses and losses may increase in the foreseeable future as we:
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develop our principal product candidates, and the underlying technology, including advancing applications and conducting biocompatibility and other preclinical studies;
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raise capital needed to fund our operations;
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enhance investor relations and corporate communications capabilities;
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conduct clinical trials on products and product candidates;
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attempt to obtain regulatory marketing authorizations for product candidates;
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build relationships with additional contract manufacturing partners, and invest in product and process development through such partners;
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maintain, expand and protect our intellectual property portfolio;
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advance additional product candidates and technologies through our research and development pipeline;
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seek to commercialize selected product candidates, which may require regulatory marketing authorization; and
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hire additional regulatory, clinical, quality control, scientific, financial, and management, consultants and advisors.
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To become and remain profitable, we must succeed in developing
and eventually commercializing 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 operating revenues or 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
operating revenues or 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 prices of our
Common Stock could cause our stockholders to lose all or a part of their investment in the Company.
We will need substantial additional funding 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.
Based on our current operating expenses and working capital
requirements, as of February 10, 2021, we believe that our current cash on hand will meet our anticipated cash requirements
into the second quarter of fiscal 2021. Notwithstanding that, depending upon additional input from EU and US regulatory authorities,
we may need to raise additional capital before then. For example, on December 18, 2017, we voluntarily withdrew a 510(k) notification
for AC5 Topical Gel after receiving questions from the FDA for which an adequately comprehensive response could not be provided
within the FDA’s congressionally-mandated 90-day review period. While on October 1, 2018, we announced that we both
completed the necessary steps required to refile our 510(k) submission for AC5 Topical Gel and filed a 510(k) submission
during the third calendar quarter of 2018, the resubmission process required us to expend a minimum of $100,000 that we had not
anticipated spending and delayed the clearance of our 510(k) submission.
During the first quarter of Fiscal 2020, the third quarter of
Fiscal 2020 and the first quarter of Fiscal 2021, we obtained additional cash to continue operations and fund our planned future
operations, including the continuation of our ongoing research and development efforts, the licensing or acquisition of new assets,
and researching and developing any potential patents, the related compounds and any further intellectual property that we may acquire.
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.
Our future capital requirements will depend on many factors,
including:
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the scope, progress and results of our research and development collaborations;
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the extent of potential direct or indirect grant funding for our research and development activities;
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the scope, progress, results, costs, timing and outcomes of any regulatory process and clinical trials conducted for any of our product candidates;
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the timing of entering into, and the terms of, any collaboration agreements with third parties relating to any of our product candidates;
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the timing of and the costs involved in obtaining regulatory marketing authorization for our product candidates;
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the costs of operating, expanding and enhancing our operations to support our clinical activities and, if our product candidates are approved, commercialization activities;
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the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
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the costs associated with maintaining and expanding our product pipeline;
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the costs associated with expanding our geographic focus;
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operating revenues, if any, received from sales of our product candidates, if any are approved by the FDA or other applicable regulatory agencies;
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the cost associated with being a public company, including obligations to regulatory agencies, and increased investor relations and corporate communications expenses; and
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the costs of additional general and administrative personnel, including accounting and finance, legal and human resources employees.
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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 Securities Purchase Agreements that we entered into on February 20, 2017 (the “2017 SPA”) and June 28,
2018 (the “2018 SPA”) in connection with the registered direct financings that closed on February 24, 2017 (the
“2017 Financing”) and July 2, 2018 (the “2018 Financing”), respectively, in each case as described
in greater detail in the risk factor entitled “The terms of the 2017 Financing and 2018 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.
The terms of the 2017 Financing and 2018 Financing could
impose additional challenges on our ability to raise funding in the future.
In particular, both the 2017 SPA and 2018 SPA contain provisions
that provide that until such time as the three lead investors in the 2017 Financing and 2018 Financing, respectively, collectively
own less than 20% of the Series F Warrants or Series G Warrants as applicable, purchased by them pursuant to the 2017
SPA or 2018 SPA, as applicable, the Company is prohibited from effecting or entering into an agreement to effect any issuance by
the Company or its subsidiary of Common Stock or securities convertible, exercisable or exchangeable for Common Stock (or a combination
of units thereof) involving a Variable Rate Transaction including, but not limited to, an equity line of credit or “At-the-Market”
financing facility.
As of February 11, 2021, none of the lead investors for
either the 2017 Financing or 2018 Financing have exercised or transferred any of their Series F Warrants and Series G
Warrants. As defined in the 2017 SPA and 2018 SPA, Variable Rate Transaction means a transaction in which the Company (a) issues
or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is
based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial
issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the market for the Common Stock (excluding adjustments
under customary anti-dilution provisions) or (b) enters into, or effects a transaction under, any agreement, including, but
not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. These provisions
could make our securities less attractive to investors and could limit our ability to obtain adequate financing on a timely basis
or on acceptable terms in the future, which could have significant harmful effects on our financial condition and business and
could include substantial limitations on our ability to continue to conduct operations.
Our short 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.
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, or conduct sales and marketing activities necessary
for successful product commercialization.
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.
By
way of example, on December 31, 2020, we announced that we had entered into a transition agreement with Richard Davis, our
current Chief Financial Officer, under which Mr. Davis agreed to continue in his current role as our Chief Financial Officer
until the earlier of (i) the date when a successor is named and ready to perform the daily duties of Chief Financial Officer,
and (ii) June 30, 2021 (such date, the “Transition End Date”), upon which date Mr. Davis will retire
as Chief Financial Officer. There can be no assurance that we will be able to identify and hire a qualified candidate to replace
Mr. Davis prior to the Transition End Date.
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.
If we fail to maintain 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 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. If we are unable to maintain 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.
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.
Risks Related to Our Business, Financial Position and
Capital Requirements - 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 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
Applications for regulatory marketing authorization for
commercialization of our products 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, the Company announced that it would initiate
the previously disclosed study designed to address FDA comments on Arch’s previous 510(k) notification for its AC5 Topical
Gel. The agency provided feedback via the pre-submission process and indicated that the proposed study design was acceptable to
support the Company’s future marketing application. On June 15, 2018, the Company further announced that it completed
enrollment for its human skin sensitization study and that applications of the Company’s AC5 Topical Gel were underway for
all subjects.
On October 1, 2018 the Company announced that it submitted
a 510(k) notification to the FDA for its AC5 Topical Gel (AC5) and received acknowledgement 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 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 principal product candidates 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 the 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, 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 US 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 the AC5 Topical 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 or an alternative product classification 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:
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take a significant period of time;
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require the expenditure of substantial resources;
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involve rigorous pre-clinical and clinical testing;
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require extensive post-marketing surveillance;
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require changes to products; and
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result in limitations on the indicated uses of products.
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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 finalized 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. The MDR was to be implemented on May 25, 2020, however, the implementation date has been postponed till May 26,
2021 due to the effects of Covid-19.
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 products and 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 the Company has completed its 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:
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FDA or other regulatory authorities, or other relevant decision-making bodies do not grant permission to proceed or place a trial on clinical hold due to safety concerns or other reasons;
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sufficient suitable subjects do not enroll, enroll more slowly than anticipated or remain in our trials;
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we fail to produce necessary amounts of the product or product candidate;
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subjects experience an unacceptable rate of efficacy of the product or product candidate;
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subjects experience an unacceptable rate or severity of adverse side effects, demonstrating a lack of safety of the product or product candidate;
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any portion of the trial or related studies produces negative or inconclusive results or other adverse events;
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reports from preclinical or clinical testing on similar technologies and products raise safety and/or efficacy concerns;
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third-party clinical investigators lose their licenses or permits necessary to perform our clinical trials, do not perform their clinical trials on the anticipated schedule or consistent with the clinical trial protocol, GCP or regulatory requirements, or other third parties do not perform data collection and analysis in a timely or accurate manner;
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inspections of clinical trial sites by the FDA or an institutional review board (“IRB”) or other applicable regulatory authorities find violations that require us to undertake corrective action, suspend or terminate one or more testing sites, or prohibit us from using some or all of the resulting data in support of our marketing applications with the FDA or other applicable agencies;
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manufacturing facilities of our third-party manufacturers are ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of current good manufacturing practices (“cGMP”) or other applicable requirements;
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third-party contractors become debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements;
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the FDA or other regulatory authorities impose requirements on the design, structure or other features of the clinical trials for our product candidates that we and/or our third-party contractors are unable to satisfy;
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one or more IRB refuses to approve, suspends or terminates a trial at an investigational site, precludes enrollment of additional subjects, or withdraws its approval of the trial;
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the FDA or other regulatory authorities seek the advice of an advisory committee of physician and patient representatives that may view the risks of our product candidates as outweighing the benefits;
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the FDA or other regulatory authorities require us to expand the size and scope of the clinical trials, which we may not be able to do; or
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the FDA or other regulatory authorities impose prohibitive post-marketing restrictions on any of our product candidates that attain marketing authorization.
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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 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 product candidates in any country until regulatory
agencies grant marketing approval, clearance or other required certification. 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 any other product candidate
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 commercialize 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 commercialize directly, such products’ prospects will be harmed.
Any product for which we obtain required regulatory marketing
authorization could be subject to post-approval regulation, and we may be subject to penalties if we fail to comply with such post-approval
requirements.
Any 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:
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restrictions on the marketing or distribution of a product, including refusals to permit the import or export of the product;
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the requirement to include warning labels on the products;
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withdrawal or recall of the products from the market;
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refusal by the FDA or other regulatory agencies to approve pending applications or supplements to approved applications that we may submit;
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suspension of any ongoing clinical trials;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of marketing approvals or certifications; or
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civil or criminal penalties.
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If any of our product candidates achieves 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 will 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 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 intend to 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:
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the failure of the third-party to maintain regulatory compliance, quality assurance, and general expertise in advanced manufacturing techniques and processes that may be necessary for the manufacture of our product candidates;
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limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
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failure of the third-party manufacturers to meet the demand for the product candidate, either from future customers or for preclinical or clinical trial needs;
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the possible breach of the manufacturing agreement by the third-party; and
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the possible termination or non-renewal of the agreement by the third-party at a time that is costly or inconvenient for us.
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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 product candidates.
We will rely on the manufacturers of our 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 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
candidates and establish programs to educate and train surgeons as to the distinctive characteristics of our product candidates,
we will not be able to generate revenues on our product candidates.
Acceptance in the marketplace of 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.
We face uncertainty related to pricing, reimbursement
and healthcare reform, which could reduce our potential revenues.
If our product candidates are approved for commercialization,
any sales will depend in part on the availability of direct or indirect coverage and reimbursement from third-party payers such
as government insurance programs, including Medicare and Medicaid, private health insurers, health maintenance organizations and
other healthcare related organizations. If our product candidates obtain marketing approval, pricing and reimbursement may be uncertain.
Both the federal and state governments in the U.S. and foreign governments continue to propose and pass new legislation affecting
coverage and reimbursement policies, which are designed to contain or reduce the cost of healthcare. Further, federal, state and
foreign healthcare proposals and reforms could limit the prices that can be charged for the product candidates that we may develop,
which may limit our commercial opportunity. Adoption of our product candidates by the medical community may be limited if doctors
and hospitals do not receive adequate partial or full reimbursement for use of our products or procedures in which our products
are used, if any are commercialized. In some foreign jurisdictions, marketing approval or allowance could be dependent upon pre-marketing
price negotiations. As a result, any denial of private or government payer coverage or inadequate reimbursement for procedures
performed using our products, before or upon commercialization, could harm our business and reduce our prospects for generating
revenue.
In addition, the U.S. Congress periodically adopts and changes
legislation regarding health insurance. As a result, substantial changes to the system for paying for healthcare in the U.S. may
include some combination of modifications to the existing system of private payers and government programs, such as Medicare, Medicaid
and State Children’s Health Insurance Program, as well as other changes. Restructuring the coverage of medical care in the
U.S. could impact reimbursement for medical devices such as our product candidates. If reimbursement for our products, if any,
is substantially less than we expect, or rebate obligations associated with them are substantially increased, our business could
be materially and adversely impacted.
The use of our 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 clinical trial liability coverage. We will need to obtain additional product liability insurance coverage if and when we begin
commercialization of any of our product candidates. 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 have appealed this decision. A decision is not expected before
the end of November 2021. If the Opponents prevail in the appeal, European Patent No. 1879606 will be fully or partially
invalidated, resulting in potential loss of rights. European patent No. 2581097 was opposed. The Opposition Division
revoked the patent. This decision was appealed. If the Opponent prevails in the appeal, European Patent No. 2581097 could
be fully or partially invalidated, resulting in potential loss of rights. 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 January 13, 2021, we either own or license from others
a number of U.S. patents, U.S. patent applications, foreign patents and foreign patent applications.
Six patent portfolios assigned to Arch Biosurgery, Inc.
include a total of 40 patents and pending applications in a total of nine jurisdictions, including twelve patents and pending applications
in the US. These portfolios cover self-assembling peptides, formulations and methods of use thereof and self-assembling peptidomimetics
and methods of use thereof, including eight issued US patents (US 9,415,084; US 9,162,005; US 9,789,157; US 9,821,022; US 9,339,476;
US 10,314,886; US 10,682,386; and 10,869,907) that expire between 2026 and 2034 (absent
patent term extension) as well as fifteen patents that have been either allowed, issued or granted in foreign jurisdictions.
We have entered into a license agreement with Massachusetts
Institute of Technology and Versitech Limited (“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.
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
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.
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 do not now meet the initial listing standards of the Nasdaq
Stock Market or any other national securities exchange. We presently 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.
A more active market for our Common Stock may never develop.
As a result, investors must bear the economic risk of holding their shares of our Common Stock for an indefinite period of time.
Our Common Stock is a “penny stock.”
The SEC has adopted regulations that generally define “penny
stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market
price of our Common Stock is and is expected to continue to be in the near term, less than $5.00 per share and is therefore a “penny
stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information concerning
the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. Those rules may restrict the ability of brokers or dealers to sell our Common Stock and may affect the ability
of our stockholders to sell their shares of our Common Stock. In addition, if our Common Stock continues to be quoted on the OTCQB
as we expect, then our stockholders may find it difficult to obtain accurate quotations for our stock and may find few buyers to
purchase our stock and few market makers to support its price.
If we issue additional shares in the future, including
issuances of shares upon exercise of the Series J Warrants, Series I Warrants, Placement Agent Warrants, Series H
Warrants, Series G Warrants, Series F Warrants, Series E Warrants and our Series 1 and Series 2 Convertible
Notes, our existing stockholders will be diluted.
As of July 1, 2020, our articles of incorporation authorize
the issuance of up to 800,000,000 shares of Common Stock. In June 2020, we issued certain of holders of our Series D
Warrants Series J Warrants to acquire up to 3,886,364 shares of our Common Stock at an initial exercise price of $0.25 per
share as consideration for those holders exercising their Series D Warrants in full to acquire 5,181,819 shares of our Common
Stock at $0.18 per share. As of February 11, 2021, up to 3,886,364 shares may be acquired upon the exercise of the Series J
Warrants.
In connection with the October 2019 Financing that closed
on October 18, 2019, we issued an aggregate of 14,285,714 shares of our Common Stock, which equaled approximately 8% of the
173,577,233 shares of our Common Stock that were issued and outstanding immediately prior to the commencement of the October 2019
Financing. Upon the closing of the October 2019 Financing, we also issued Series I Warrants to acquire up to an additional
14,285,714 shares of our Common Stock at an initial exercise price of $0.22 per share and additional warrants to acquire up to
an additional 1,071,429 shares of our Common Stock at an initial exercise price of $0.21875 per share to designees of H.C. Wainwright &
Co., LLC, the placement agent that the Company engaged in connection with the October 2019 Financing (the “Placement
Agent Warrants”). As of February 11, 2021, up to 14,285,714 shares may be acquired upon the exercise of the Series I
Warrants and up to 1,071,429 shares may be acquired upon the exercise of the Placement Agent Warrants.
In connection with the financing that closed on May 14,
2019 (the “2019 Financing”), we issued an aggregate of 8,615,384 shares of our Common Stock, which equaled approximately
5% of the 164,961,849 shares of our Common Stock that were issued and outstanding immediately prior to the commencement of the
2019 Financing. Upon the closing of the 2019 Financing, we also issued Series H Warrants to acquire up to an additional 8,615,384
shares of our Common Stock at an initial exercise price of $0.40 per share. As of February 11, 2021, up to 8,615,384 shares
may be acquired upon the exercise of the Series H Warrants.
In connection with the 2018 Financing that closed on July 2,
2018, we issued an aggregate of 9,070,000 shares of our Common Stock, which equaled approximately 6% of the 154,052,013 shares
of our Common Stock that were issued and outstanding immediately prior to the commencement of the 2018 Financing. Upon the closing
of the 2018 Financing, we also issued Series G Warrants to acquire up to an additional 6,802,500 shares of our Common Stock
at an initial exercise price of $0.70 per share. As of February 11, 2021, up to 6,802,500 shares may be acquired upon the
exercise of the Series G Warrants.
In connection with the 2017 Financing that closed on February 24,
2017, we issued an aggregate of 10,166,664 shares of our Common Stock, which equaled approximately 7% of the 136,745,712 shares
of our Common Stock that were issued and outstanding immediately prior to the commencement of the 2017 Financing. Upon the closing
of the 2017 Financing, we also issued Series F Warrants to acquire up to an additional 5,591,664 shares of our Common Stock
at an initial exercise price of $0.75 per share. As of February 11, 2021, up to 5,591,664 shares may be acquired upon the
exercise of the Series F Warrants.
In connection with the 2016 Private Placement Financing that
closed on May 26, 2016, we issued an aggregate of 9,418,334 shares of our Common Stock, which equaled approximately 8% of
the 118,592,070 shares of our Common Stock that were issued and outstanding immediately prior to the commencement of the 2016
Private Placement Financing. Upon the closing of the 2016 Private Placement Financing, we also issued Series E Warrants to
acquire up to an additional 7,063,748 shares of our Common Stock at an initial exercise price of $0.4380 per share. As of February 11,
2021, up to 4,214,582 shares may be acquired upon the exercise of the Series E Warrants.
In addition to the aforementioned warrants, in June 2020
and November 2020, we issued $550,000 and $1,050,000 in aggregate principal amount of our Series 1 Unsecured Convertible
Promissory Notes and Series 2 Unsecured Convertible Promissory Notes, respectively (collectively, the “Convertible Notes”).
The Convertible Notes (i) have a three year term; (ii) accrue interest on the unpaid principal balance at a rate equal
to ten percent (10.0%), and (iii) can be converted into shares of our Common Stock at a conversion price of $0.27 per share
and $0.25 per share, respectively. At maturity, at our sole option, we may convert the principal and accrued interest under the
Convertible Notes (the “Note Obligations”) into shares of our Common Stock at the applicable conversion price in lieu
of repaying the Convertible Notes; provided, however, in the event we exercise this option, the Note Obligations will be deemed
to equal the product of 1.35 and the outstanding Note Obligations.
Additionally, as of February 11, 2021, 6,338,356 shares
of Common Stock were reserved for future issuance under the 2013 Plan (“2013 Plan”), of which 19,175,155 shares are
subject to outstanding option awards granted under the 2013 Plan at exercise prices ranging from $0.1563 to $0.72 per share and
with a weighted average exercise price of $0.35 per share and the numbers issuable under the 2013 Plan will increase by up to
3 million shares on the first business day of each following fiscal year as set forth in the 2013 Plan. Finally, in addition to
the Series J Warrants, Series I Warrants, Placement Agent Warrants, Series H Warrants granted in connection with
the 2019 Financing, the Series G Warrants granted in connection with the 2018 Financing, the Series F Warrants granted
in connection with the 2017 Financing, the Series E Warrants granted in connection with the 2016 Private Placement Financing
and the shares of Common Stock potentially issuable under the Convertible Notes there are currently outstanding warrants to acquire
up to 145,985 shares of our Common Stock which are related to the Massachusetts Life Sciences Center (“MSLC”) note.
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 of Directors deems are in the Company’s best interest. By way of example, on (i) August 9,
2016, we issued 225,000 shares of restricted stock and options to purchase up to an additional 375,000 shares of Common Stock at
an exercise price of price of $0.72 per share in connection with our entrance into a consulting agreement with Acorn Management
Partners, LLC (“Acorn”) in consideration of the services to be provided under and in accordance with the terms of such
consulting agreement; and (ii) August 6, 2015, we issued an aggregate of 600,000 shares of restricted stock in connection
with our entrance into separate consulting agreements with two investor relations firms, Excelsior Global Advisors LLC and Acorn,
in each case in consideration of the services to be provided under and in accordance with the terms of each consulting agreement.
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 shareholders. Further, such issuance may result in a change of control of our corporation.
Future sales of our Common Stock or rights to purchase
Common Stock, or the perception that such sales could occur, could cause our stock price to fall.
As noted above under the risk factor entitled, “We
will need substantial additional funding 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,”
as of February 11, 2021 we believe that our current cash on hand will meet our anticipated cash requirements into the second
quarter of fiscal 2021. To raise capital, we may sell Common Stock, convertible securities or other equity securities in one or
more transactions at prices and in a manner we determine from time to time. Any such sales of our Common Stock by us or resale
of our Common Stock by our existing stockholders could cause the market price of our Common Stock to decline.
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.
Certain of our directors and officers own a significant
percentage of our capital stock and are able to exercise significant over the Company.
Certain of our directors and executive officers own a significant
percentage of our outstanding capital stock. As of February 11, 2021, Dr. Terrence W. Norchi, our Chairman of the Board,
President and Chief Executive Officer, James R. Sulat, a director and Punit Dhillon, a director beneficially own (as determined
under Section 13(d) of the Exchange Act and the rules and regulations thereunder) approximately 11% of our
shares of Common Stock. Accordingly, these members of our Board of Directors and management team have substantial voting power
to approve matters requiring stockholder approval, including without limitation the election of directors, and have significant
influence over our affairs. This concentration of ownership could have the effect of delaying or preventing a change in control
of our Company, even if such a change in control would be beneficial to our stockholders.
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 capital
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 of Directors.
We are at risk of securities class action litigation that
could result in substantial costs and divert management’s attention and resources.
In the past, securities class action litigation has been brought
against companies following periods of volatility of its securities in the marketplace, particularly following a company’s
initial public offering. 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.
FORWARD-LOOKING STATEMENTS
This report 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 report on Form 10-Q 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” 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:
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Our ability to continue as a going concern;
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Our ability to obtain financing necessary to operate our business;
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Our limited operating history;
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The results of our research and development activities, including uncertainties relating to the preclinical and clinical testing of our product candidates;
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The early stage of our primary product candidate presently under development;
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Our ability to develop, obtain required approvals for and commercialize our product candidates;
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Our ability to recruit and retain qualified personnel;
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Our ability to obtain and maintain protection of our intellectual property;
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Our dependence on third-party manufacturers, suppliers, research organizations, academic institutions, testing laboratories and other potential collaborators;
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The size and growth of the potential markets for any of our approved product candidates, and the rate and degree of market acceptance of any of our approved product candidates;
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Our ability to successfully complete potential acquisitions and collaborative arrangements;
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Competition in our industry;
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General economic and business conditions; and
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Other factors discussed under the section entitled “Risk Factors”.
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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 report on Form 10-Q. Except as required by applicable law, we
do not intend to update any of these forward-looking statements.
Item 2.-Unregistered Sales of Equity Securities and
Use of Proceeds
On October 14, 2020, the Company awarded 50,000 shares
of Restricted Stock to a consultant as partial consideration for performing certain investor relation services on the Company’s
behalf. The shares subject to this grant are awarded under the 2013 Plan and vest 90 days from the date of the award, and were
issued in reliance upon an exemption from registration afforded by Section 4(a)(2) of the Securities Act based on the
fact that (i) the grantee has represented that it is an accredited investor as defined in Rule 501(a) promulgated
under the Securities Act; (ii) due to the nature of the grantee’s profession, the grantee has sufficient investment
experience to evaluate the risks of the investment; (iii) the Company used no advertising or general solicitation in connection
with the issuance of the award; and (iv); the shares will be issued as restricted securities.
The Company did not engage an underwriter or placement agent
in connection with the equity award.
Item 6. Exhibits
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Incorporated
By Reference
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Exhibit
No.
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Exhibit Title
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Filed
Herewith
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Form
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Exhibit
No.
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File
No.
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Filing
Date
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3.1
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Restated Articles of Incorporation of Arch Therapeutics, Inc.
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10-Q
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3.1
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000-54986
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07/23/2020
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3.2
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Amended and Restated Bylaws, as adopted on May 20, 2020
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8-K
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3.1
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000-54986
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05/27/2020
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10.1
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Amendment
to Series J Warrant to Purchase Common Stock
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8-K
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10.1
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000-54986
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11/10/2020
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10.2
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Form of
Convertible Notes
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8-K
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10.2
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000-54986
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11/10/2020
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10.3#
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Transition
Agreement, dated December 31, 2020, by and between Arch Therapeutics, Inc. and Richard Davis
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S-1
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10.62
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333-234811
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01/26/2020
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31.1
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Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities and Exchange Act
of 1934
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X
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31.2
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Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities and Exchange Act
of 1934
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X
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32.1
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed
by Terrence W. Norchi, President and Chief Executive Officer, and Richard E. Davis, Chief Financial Officer and Treasurer
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X
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101.INS
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XBRL Instance Document
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X
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101.SCH
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XBRL Taxonomy Extension Schema Document
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X
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
Document
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X
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
Document
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X
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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X
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
Document
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X
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# Management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
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ARCH THERAPEUTICS, INC.
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Date: February 12, 2021
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By:
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/s/ TERRENCE W. NORCHI, MD
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Terrence W. Norchi, MD
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President and Chief Executive Officer
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(Principal Executive Officer)
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Date: February 12, 2021
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By:
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/s/ RICHARD E. DAVIS
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Richard E. Davis
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
PURSUANT TO RULE 13A-14(A) OR 15D-14(A) UNDER
THE SECURITIES AND EXCHANGE ACT OF 1934
I, Terrence W. Norchi, certify that:
1. I have reviewed this Form 10-Q of Arch Therapeutics, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 12, 2021
/s/ TERRENCE W. NORCHI, MD
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Name:
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Terrence W. Norchi, MD
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Title:
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President and Chief Executive Officer
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(Principal Executive Officer)
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Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICER
PURSUANT TO RULE 13A-14(A) OR 15D-14(A) UNDER
THE SECURITIES AND EXCHANGE ACT OF 1934
I, Richard E. Davis, certify that:
1.
I have reviewed this Form 10-Q of Arch Therapeutics, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Dated: February 12, 2021
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/s/ RICHARD E. DAVIS
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Name:
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Richard E. Davis
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Title:
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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Exhibit 32.1
CERTIFICATION REQUIRED BY
SECTION 1350 OF TITLE 18 OF THE
UNITED STATES CODE
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, each of the undersigned officers of Arch Therapeutics, Inc. (the “Company”) that the quarterly report
of the Company on Form 10-Q for the fiscal quarter ended December 31, 2020 fully complies with the requirements of Section 13(a) or
15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in such report fairly presents,
in all material respects, the financial condition and results of operations of the Company.
Dated: February 12, 2021
/s/ TERRENCE W. NORCHI, MD
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Name:
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Terrence W. Norchi, MD
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Title:
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President and Chief Executive Officer
(Principal Executive Officer)
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Dated: February 12, 2021
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/s/ RICHARD E. DAVIS
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Name:
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Richard E. Davis
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Title:
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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This certification accompanies this Report
on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification
will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange
Act, except to the extent that the Company specifically incorporates it by reference.