ARCH THERAPEUTICS, INC. (OTCMKTS:ARTH) Files An 8-K Entry into a Material Definitive Agreement

Item 1.01Entry into a Material Definitive Agreement.

A. Transaction Overview

On February 20, 2017, Arch Therapeutics, Inc. (the
Company) entered into Securities Purchase
Agreement (the SPA) with 6 accredited investors
(collectively, the Investors) providing for the
issuance and sale by the Company to the Investors, in a private
placement, of an aggregate of 10,166,664 Units at a purchase
price of $0.60 per Unit in a registered offering (the
2017 Financing). Each Unit consisted of a share
of the Companys common stock, par value $0.001 per share
(Common Stock and such shares, the
Shares), and 0.55 of a Series F Warrant to
purchase one share 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 Warrants, and the
shares issuable upon exercise of the Warrants, collectively, the
Warrant Shares). The aggregate gross proceeds
for the sale of the Shares and Warrants will be approximately
$6.1 million. The closing of the sales of these securities under
the SPA is expected to occur on February 24, 2017.

The securities sold in the offering were offered and sold by the
Company to an effective shelf registration statement on Form S-3
(File No. 333-213878), which was filed with the Securities and
Exchange Commission (the SEC) on September 30,
2016 and subsequently declared effective on October 20, 2016 (the
Registration Statement), and the base prospectus
dated as of October 20, 2016 contained therein. The Company will
file a prospectus supplement with the SEC in connection with the
sale of the securities.

B. Related Party Disclosure

The Investors included the Keyes Sulat Revocable Trust (the
KSR Trust), the Brenna Keyes
Sulat Irrevocable Trust (the BKSI Trust), and
Nathaniel Keyes Sulat Irrevocable Trust (the NKSI Trust and
together with the KSR Trust and BKSI Trust, the
Trusts). The KSR Trust was an investor in the
Companys 2015 Private Placement Financing and 2016 Private
Placement Financing that concluded on July 2, 2015 and May 26,
2016, respectively.

James R. Sulat, who was appointed as a member of the Companys
Board of Directors (the Board) on August 19,
2015, is a co-trustee of each of the Trusts along with his wife.
In accordance with the Companys policies governing related party
transactions, Mr. Sulat disclosed his interest in the 2017
Financing to the remaining members of the Board, all of whom were
disinterested in the transaction (the Disinterested
Directors), and recused himself from discussing or
voting on matters related to the 2017 Financing. The
Disinterested Directors unanimously approved the 2017 Private
Placement Financing.

C. Use of Proceeds

The net proceeds to the Company from the 2017 Financing, after
deducting the Companys estimated offering expenses and excluding
the proceeds, if any, from the exercise of the Warrants, are
expected to be approximately $5.9 million. Approximately $825,000
of the offering proceeds will be used to satisfy our outstanding
indebtedness to the Massachusetts Life Sciences Center under the
Life Sciences Accelerator Funding Agreement that we entered into
MLSC on September 30, 2013 and amended on September 28, 2016. We
intend to use the remaining net proceeds from the 2017 Financing
primarily for working capital and general corporate purposes, and
have not allocated specific amounts of any such remaining net
proceeds from this offering for any specific purposes.

D. The Series F Warrants

Upon the closing of the 2017 Financing, each Investor will be
issued a Warrant to purchase up to a number of shares of the
Companys Common Stock equal to 0.55 of the Units purchased by
such Investor under the SPA. The Warrants will (i) have an
exercise price of $0.60 per share; (ii) have a term of exercise
equal to five years after their issuance date; (iii) be
exercisable immediately after their issuance; and (iv) have a
provision preventing the exercisability of such Warrant if, as a
result of the exercise of the Warrant, the holder, together with
its affiliates and any other persons whose beneficial ownership
of Company Common Stock would be aggregated with the holders,
would be deemed to beneficially own more than 4.99% of the
Companys Common Stock (the Ownership Limitation)
immediately after giving effect to the exercise of the 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 Companys Common Stock; and (ii) any increase in the
Ownership Limitation will not become effective until the
61^st day after delivery of such waiver notice. The
number of shares of the Companys Common Stock into which each of
the Warrants is exercisable and the exercise price therefor are
subject to adjustment as set forth in the Warrants, including
adjustments for stock subdivisions or combinations (by any stock
split, stock dividend, recapitalization, reorganization, scheme,
arrangement or otherwise).

E. Certain Restrictions on Subsequent Sales

The SPA contains certain restrictions on our ability to conduct
subsequent sales of our equity securities. In particular, subject
to certain customary exemptions, from February 20, 2017 until 90
days after the closing of the 2017 Financing, neither the Company
nor is subsidiary shall issue, enter into any agreement to issue
or announce the issuance or proposed issuance of any shares of
Common Stock or securities convertible, exercisable or
exchangeable for Common Stock. Similarly, until such time as the
three lead investors collectively own less than 20% of the
Warrants purchased by them to the 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.

The foregoing description of the SPA and the Warrants does not
purport to be complete and is qualified in its entirety by
reference to the copies of the form of Subscription Agreement and
form of Warrant filed herewith as Exhibits 10.1, and
10.2 respectively, to this Current Report on Form 8-K,
which are incorporated herein by reference.

The legal opinion of McDonald Carano LLP relating to the
securities is filed as Exhibit 5.1 to this Current Report
on Form 8-K and is incorporated herein by reference.

Item 8.01Other Events

On February 21, 2017, the Company issued a press release
announcing the 2017 Private Financing. The text of the press
release is attached hereto as Exhibit 99.1 and is
incorporated by reference herein.

Item 9.01Financial Statements and
Exhibit

(d) Exhibits

About ARCH THERAPEUTICS, INC. (OTCMKTS:ARTH)

Arch Therapeutics, Inc. is a development-stage company. The Company operates as a biotechnology company. The Company focuses on developing products to stop bleeding (hemostasis) and control leaking (sealant) during surgery and trauma care. The Company’s technology is based on a self-assembling peptide that creates a physical, mechanical barrier, which could be applied to seal organs or wounds that are leaking blood and other fluids. The Company’s primary product candidates, collectively known as the AC5 Devices (AC5), are designed to achieve hemostasis in surgical procedures. The Company’s product candidates rely on its self-assembling peptide technology and are designed to achieve hemostasis in skin wounds, and minimally invasive and open surgical procedures. The Company focuses on developing other product candidates based on its technology platform for use in a range of indications. As of September 30, 2016, the Company had not generated any revenues.

ARCH THERAPEUTICS, INC. (OTCMKTS:ARTH) Recent Trading Information

ARCH THERAPEUTICS, INC. (OTCMKTS:ARTH) closed its last trading session down -0.021 at 0.680 with 1,234,637 shares trading hands.